Viet Nam News talks to Tarun Dhawan, managing director of Riverorchid Notch, about the development of digital advertising in Viet Nam and Southeast Asia.
What do you think about marketing mergers and acquisitions, and why are they happening more these days?
|Mr Tarun Dhawan
Regarding M&A in communications agencies worldwide, the most active discipline is digital - with more than twice the number of deals than other traditional forms of advertising. (PR, activation, research, media etc).
While large communication groups are keen on acquisitions, 'traditional advertising agencies' do not feature in most of their considerations. Holding companies are interested in independent outfits that operate in the technology or new media space.
There could be several strategic reasons why agency groups are keen on acquisitions, including the need to create capabilities that agencies don't currently have (such as digital) so that they can offer services that they previously couldn't provide.
Besides, when it comes to acquisitions, agencies want to increase their top line faster than is organically possible. For our merger, the management aim for a combined strength of two talent pools and future expansion into other market.
Why are digital agencies attractive acquisition targets, and can you give us an example of a successful M&A in the Indochina region?
Globally there are 2.5 billion people logging onto the internet each day, which is a great way for clients and their brands to connect with their consumers. Clients expect more than this.
Digital media is integral and has to be woven into marketing strategies and the way brands engage with their consumers; not just interrupt them with TV commercials.
Digital is the new mass media. Consumers increasingly spend more time online, be that via their desktops, laptops or mobile devices. Some big marketing communications agencies have recognised this big shift.
To guarantee that they continue to be relevant in the future, they are investing in acquiring digital agencies, which is the fastest way for them to build their missing capabilities. This is what makes digital agencies attractive targets.
Interestingly, our recent merger between Notch - one of Viet Nam's longest established independent digital agencies, and Riverorchid Digital - part of the Riverorchid Group- Indochina's leading independent communications network - was concluded with full due diligence in under 12 weeks from first meeting to formal incorporation of the new entity.
This is against a backdrop of other M&A discussions currently underway in the market, which have been swamped in red tape for years.
About three years ago, WPP acquired Who Digital, to merge with Ogilvy, which appears to be going well. Apart from that, our company's acquisition is the only other deal to have taken place.
Why did you choose Viet Nam to expand and enhance your digital services across the Indochina region?
Viet Nam is part of the Next-11 (N-11) markets that have been identified as having high potential to becoming the world's largest economies.
Despite short-term challenges in Viet Nam, the long-term potential of this market still remains strong.
It is also worth reminding ourselves that ASEAN (of which Cambodia, Laos, Myanmar, Viet Nam and Thailand are a part of) is the single largest regional emerging market in the world.
Jointly in Indochina, you are talking of a population of more than 236 million, which is two thirds of the USA or 3.5 times higher than the UK, which explains why the Indochina opportunity is attractive to us.
We chose Viet Nam as our hub because there is a good talent pool and this is also where our digital teams were first formed.
The maturity of the market is the highest compared to others, and it's also in line with some of our clients' strategies to manage their Indochina business out of Viet Nam.
You called the merger of Riverorchid and Notch a "match made in heaven". What are their strengths and how will you combine them together?
We both have similar visions and aspirations for our business. Riverorchid Digital was keen to partner with an established digital agency to scale up their digital operations and at Notch we were keen to expand our business to cover other regional markets. Riverorchid gave us that opportunity.
With this merger we aspire to become Indochina's premier digital agency network that is embedded within Indochina's premier communications network.
Notch's scale and experience in Viet Nam is now coupled with Riverorchid Digital's unparalleled Indochina footprint.
What this does is also allow us to offer integrated services to our clients. Often clients are looking for a ‘complete' solution covering a combination of PR, Events, ATL and Digital.
With this merger we can confidently integrate all these areas and offer a seamless solution to clients.
What does digital advertising cover and what are the major trends at the moment? What do you think about the development of digital advertising, and what are its advantages and disadvantages?
The internet, mobile, social media and gaming have forced us to change the way we think about running our business, and at the heart of these things is a new wave of consumers that are changing the foundations of businesses.
Consumers have created a new digital culture and there has been a shift in the whole business landscape. Steve Ballmer, CEO of Microsoft, once said: "All the media will eventually go digital. It isn't a matter of if, it's a matter of when".
And look at what's happening now. You don't use an encyclopedia anymore. You visit Wikipedia. You don't rent out DVDs anymore. You go to torrents.
The industry is changing fast, and we have to adapt or die. In fact for brands or agencies that want to stay ahead of the curve, they have to stay a step ahead of the industry.
Mobile phones are a huge opportunity. Today a smartphone can be bought for $150, with internet access. You no longer need to buy an $800 computer to access the web or surf Facebook.
For us, this is of particular interest as we now have a way to engage with ‘mass' audiences in the Mekong or Myanmar via digital. Not many people know that Cambodia was the first country in the world where mobile phone penetration exceeded fixed phone penetration, or that mobile phone penetration in Viet Nam is five times higher than desktops.
The biggest advantage of digital advertising is the ability to target messages specifically to certain audiences and the ability to measure what the consumer do when they see that message.
At times, TV can often result in excessive wastage and offers no way of measuring the behaviour of viewers right after they see a spot or magazine ad.
I don't see any real challenges to digital advertising except that we need to realise that it may be low cost, but it's not free.
Could you give us your projections for the market?
In Viet Nam, digital advertising accounts for about 3-5 per cent of total media expenses, and we project it will double in the next three years. That will happen. Digital has to grow.
Within Indochina, Viet Nam is the number one market in terms of population, market readiness and mobile penetration, followed by Cambodia and Myanmar.
Myanmar actually has a larger population than Cambodia, but it lags behind in internet development and mobile penetration. Once the market develops, I believe Myanmar will surpass Cambodia.
Some say that there are too many digital agencies struggling to establish a foothold in the local market by undercutting each other. How does this affect the big players?
There are more digital agencies in Viet Nam than the market warrants, and when supply exceeds demand, it pushes prices down.
There are hundreds of small digital start-ups that often undercut larger agencies because that is the only differentiator they can offer.
But clients would never want to work with a bunch of kids who may not have the depth of knowledge or experience they need to fulfill expectations.
As a digital agency you manage critical assets owned by clients such as a website or a Facebook page. The last thing a client wants is disruption to these services either because a young team lacks experience, or worse still, that they can't renew a hosting contract for instance.
Our company has been in the industry for the last five years and we are one of the few agencies who have managed to remain stable. We don't compete with low cost companies; we focus on where we can add value for our customers.
People often complain about spam ads? What are your recommendations for both market players and the authorities in Viet Nam?
Spamming is a big no-no. I have not come across spam ads here, but I do get spam messages on my mobile phone. Clients need to know that this is illegal in Viet Nam, so anytime an agency promises a database, it is important to check if this is really an opted in database or not.
My recommendation to clients would be that they must focus on building their own databases. This can be a highly competitive advantage which will pay dividends if used correctly.
What do you think Viet Nam can learn from the development of more advanced markets?
One of the main challenges we face in Viet Nam is the short-term approach to digital marketing. At Riverorchid Notch, we believe in continuous consumer engagement.
What this means is that we take a long-term strategic approach to digital and not a campaign-centric approach, although that is built in within the long-term approach.
The other challenge is related to production budgets. Clients in Viet Nam carry a perception that ‘digital is cheap'. I have sat in meetings where the client is referring to digital ideas from the US or Europe and expecting similar results, yet when it comes to digital production, they fail to allocate adequate budgets.
An idea like Gangnam Style didn't simply go viral by itself. It was well engineered to go viral. It had the right mix – an already popular K-Pop singer, a giant record label (Universal Music Group) behind it, and big production and media investments to promote it.
Digital media is relatively cheap, but if you want to provide your consumers with a great online experience, be that a Facebook app or a website, it requires a certain degree of investment.— VNS