The Paris-based Publicis Groupe and New York’s Omnicom Group recently announced a multi-billion dollar merger of equals that will create the world’s largest advertising agency. Wikibon Principal Research Contributor Jeff Kelly appeared on NewsDesk this morning to share his insights into the deal.

Jeff believes that the need for scale is the primary reason behind the move. He explains that joining forces is the only way Publicis and Omnicom can compete on  equal ground more or less with digital advertising titans such as Google. More traditional agencies will likely follow suit as online ads continue to chip away at their market share.

Ad agencies have historically served as middlemen between brands and media outlets: they create copy, reach out to publications and broadcasters, and secure ad space for their clients. Digital advertising has disrupted this model by giving brands the freedom of turning directly to the medium, be it a search engine or social network.

Digital advertising is not only more accessible than traditional marketing, but also more effective. Facebook, which Jeff considers to the most ‘obvious’ example of a successful data-driven advertising firm, taps into its users’ personal information to deliver highly targeted ads across multiple platforms, including a wide range of mobile devices. Google and Facebook’s ability to personalize ads on an individual basis benefits consumers, but it also has an unavoidable downside. Users are forced to compromise on their privacy in return for a better experience, a trade that not everyone is willing to make.

Jeff considers the accelerating growth of the online advertising space to be a “given.” He predicts that online ads will become targeted as the underlying technology matures.

See the video below for the full analysis.