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Revenue Grows 8.6%, Propelled by Digital

Posted by Mort Greenberg on May 10, 2008

Article Source: http://adage.com

Our Agency Report Finds the Business in Surprisingly Good Health

Published: May 05, 2008

CHICAGO (AdAge.com) — Revenue for U.S. agencies — advertising, marketing services and media — jumped 8.6% in 2007 despite a tepid ad market. And for that, you can thank digital.

Agency Report 2008

Ad Age estimates that the Big 4 ad firms — Omnicom Group, WPP Group, Interpublic Group of Cos. and Publicis Groupe — last year generated 12.3% of worldwide revenue from digital services.

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While it comes as no surprise that revenue at digital specialty agencies rocketed last year (up 26.8% in the U.S.), it’s clear that digital services have become a way of life (or a way to avoid death) for agencies of all disciplines. In fact, U.S. ad agencies reported an average 10.2% of revenue from digital in 2007.

And in some cases, it was a lot more. Goodby, Silverstein & Partners — Ad Age’s 2008 Agency of the Year — said digital services last year generated 52% of its revenue. The San Francisco agency works for such digitally connected clients as Hewlett-Packard Co.

Of the more than 860 agencies that participated in the 2008 Agency Report, 60% broke out digital revenue.

Digital helps explain the solid growth experienced by major media agencies despite flat spending in traditional media. WPP Group said worldwide digital revenue for media unit Group M last year soared 53% to $238 million. Ad Age DataCenter estimates that digital accounted for more than 11% of 2007 revenue for Group M, the world’s largest media-agency group.

Digital has reshaped direct marketing, and that has turned top-tier direct shops such as Rapp Collins and Wunderman into some of the biggest digital agencies.

Ad Age estimates that the Big 4 ad firms — Omnicom Group, WPP Group, Interpublic Group of Cos. and Publicis Groupe — last year generated 12.3% of worldwide revenue from digital services.

Digital is about technology and platforms; it’s not a narrowly defined discipline. For the U.S. digital ranking, Ad Age tracked agencies’ digital revenue regardless of discipline, resulting in an eclectic list of agencies — digital pure plays as well as advertising, marketing-services and media shops — all dialing for digital dollars.

Digitas tops that digital list; Publicis bought Digitas last year and is moving fast to make it a global agency brand. Avenue A/Razorfish, acquired last year by Microsoft Corp., came in second. New to the list: IBM Interactive, a rebranded rollup of IBM’s digital-marketing services.

Last year’s U.S. revenue growth rate for agencies of all disciplines — 8.6% — was slightly below 2006 growth (8.8%). Agency revenue grew 7.2% in 2005 and 8.6% in 2004. Revenue for U.S. ad, marketing-services and media agencies in 2007 reached $31.1 billion, according to Ad Age estimates.

Marketing-services agencies — direct, promotion, branding, healthcare and public relations as well as digital specialists — accounted for 47.1% of U.S. revenue for marketing-communications agencies analyzed in this report. The rest came from advertising and media.

Key points from the report:

  • Omnicom’s BBDO Worldwide topped Ad Age’s new ranking of U.S. agencies across disciplines. The ranking shows how agency brands stack up regardless of whether an agency gets revenue from advertising, marketing services, media or a combination of the three.
  • WPP’s Group M ranks No. 1 in worldwide media revenue. Omnicom’s OMD Worldwide is the world’s largest media agency, while WPP’s MindShare is tops in the U.S., according to Ad Age estimates.
  • WPP’s CommonHealth leads the ranking of U.S. healthcare agencies. This is Ad Age’s first broad ranking of healthcare agencies since major holding companies opted to limit disclosure after passage of the 2002 Sarbanes-Oxley Act.

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