Analyst: Google Threat To Big Ad Agencies Like WPP, Publicis ‘Unwarranted’

Google (NSDQ: GOOG) is a massive player in the digital advertising world, but given that this remains only a part of the overall ad market, the Internet giant will not soon pose a real threat to big ad agencies of the world like WPP, Interpublic and Omnicom, according to a report out today from Pivotal Research Group.

Pivotal, which today initiated coverage on WPP, Interpublic and Omnicom, wrote in a lengthy report that its analysts “remain skeptical” the companies that have made a big splash in online advertising, like Google, Microsoft (NSDQ: MSFT) — or presumably Facebook — will ever actively compete with agencies.

The reason for this, they write, is that digital media companies will want to retain their margins, which are “signficantly higher” than those that big agencies get for their services. Pivotal’s analysts also emphasize that agencies still continue to offer a greater degree of independence to brands when advising on how and where to spend ad dollars online.

There have been a few hits and misses up to now among internet companies that have tried to bring their ad technology to non-online mediums: Google in 2009 pulled out of its own attempt at serving radio ads; but it continues to have a business in selling TV ad inventory (with one recent deal, with Cox, announced during CES earlier this month).

Despite that, Google, it seems is just a big fish in a still-small pond: according to ZenithOptimedia, in 2011 digital advertising made up just under 16 percent of total ad spend worldwide, or $73.8 billion. Google last week reported that it made $36.53 billion in advertising revenues, just under half of ZenithOptimedia’s estimated total.

So what is the bigger threat to agencies? It may surprise you to hear Pivotal’s opinion: IT services firms along the lines of Accenture and IBM, who are building platforms to help execute media campaigns, and to leverage the business and strategic consulting positions they already have with these brands. One recent deal, in which Deloitte picked up a mobile app developer called Ubermind — one of whose biggest clients is Apple (NSDQ: AAPL), among a number of other big brands — very much attests to this theory of the encroaching role of the IT services company.

One more possible competitive threat — another surprise here — are some of the businesses that have traditionally been seen as the recipients of agencies’ work: publishers. Pivotal cites both Hearst and Meredith (NYSE: MDP) as two publishers that have built up positions in ad technology like search engine marketing, areas where ad agencies are also looking to get more business. This, too, comes as no surprise: many of these publishers have seen their ad revenues in traditional business like print magazines get eroded over time — a trend that looks set to continue — and so they too need to look at new aspects of the advertising business model to find new sources of income.

Big agencies, of course, are not standing by idly, either — they are all spending serious money building up their digital assets. WPP is highlighted by Pivotal for thinking ahead on multiple fronts is not just investing into digital ad businesses, but doing so particularly to build out their holdings in emerging regions, like Asia.