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Think BR: How far can Dentsu and ADK collaborate on digital?

Can the two companies really avoid conflicts, or is this simply a short-term way of playing catch-up, asks Bob Willott.

Bob Willott, editor of Marketing Services Financial Intelligence

Bob Willott, editor of Marketing Services Financial Intelligence

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Last week’s news that Dentsu and Asatsu-DK (ADK) had set up a new joint venture with the aim of "collaboration in the digital business domain" begs the question of how far collaboration can go before it creates conflicts of interest.

Dentsu and ADK are respectively the biggest and the third biggest marketing groups in Japan. They have many well known big name clients between them.

Is it really credible that competing clients won’t get twitchy?

Both Dentsu and ADK are adamant that they will "maintain and strengthen their respective client service functions to promote digital business" and that "their current competitive relationship will continue into the future". 

They point out that they already have successful joint ventures, not least the recently rebranded Dentsu Search & Link in which ADK, WPP and Dentsu all have a stake, with Dentsu holding the majority of votes. (WPP also holds over 24% of ADK’s shares directly.)

By contrast, the provisional arrangements for the new venture would give ADK the majority shareholding.

It is just conceivable that both companies see their joint ventures as 'back end' services that do not get too close to clients, but that really is a hard argument to swallow. 

Digital is becoming so embedded in every aspect of client delivery that there will be significant gains to be obtained by clients who can use it to best effect. 

Will clients of Dentsu and ADK be so magnanimous that they will be content to share the same back room expertise?

Maybe Dentsu sees the tie-up as a pragmatic short-term solution to gaining more digital clout. 

It is only one of a series of digital initiatives it has taken recently, but not before it had caught a nasty cold after investing in Cyber Communications and later having to write off nearly $100 million of the cost of taking control of the company. 

At the time, Dentsu justified the investment on the grounds that the internet sector was "one of the core businesses that will be the basis of the future growth of the group".  

The justification was doubtless true, but with hindsight the investment may have been the wrong one because Cyber’s previous management produced more headaches than opportunities.

Since that salutary experience Dentsu has, in the words of a once popular song, picked itself up, dusted itself down and started all over again.  

It got into talks with AKQA. It launched the Dentsu Digital Fund with initial capital of £75 million to make "proactive investments" to accelerate growth in the group’s digital business in the US, China and Japan.

It also bought Steak Media, albeit a small deal by most standards. And it created the Dentsu Search & Link joint venture with ADK and WPP’s 24/7 Real Media.

Clearly Dentsu is absolutely convinced of the importance of digital, but it has not been alone in being rather slow to create the scale of resource under its own roof that will keep it abreast of client demand.  

By comparison with some of the other global majors - Publicis being a prime example - Dentsu has a long way to go.

The links with ADK can never be anything other than a stop-gap - unless of course Dentsu were to contemplate a full merger, which seems relatively unlikely, not least because of potential client conflicts.

And where would that leave WPP and its ADK shareholding?

Bob Willott, editor of Marketing Services Financial Intelligence

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