Accenture | TCS: Accenture is mining USD14 billion in interactive gold. Now TCS, Infosys, et al. are digging, too.

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SynopsisAdvertising and IT are entirely different businesses. In 2009, Accenture decided to bring them together, buying a slew of creative agencies. Other Indian IT companies decided to wait and watch. By 2015, Accenture’s interactive revenues had crossed USD3 billion. So, other companies have got down to build similar businesses. But interactive is a complicated field. Will these companies succeed?

Some archetypes are seared into the collective consciousness. Advertising executives are bohemian and less likely to be tied down by conventions. IT executives tend to be the opposite — they are in suits and ties, and abide by rules.

Now imagine putting those opposites in one room and creating a business. An advertising and creative agency backed by technology and platforms. In 2009, Accenture did just that, with the launch of Accenture Interactive. Over the next decade, it would scoop up tens of boutique creative agencies selling a combination of creative and technology services to clients.

For years, Accenture had the market to itself. Indian IT companies watched its acquisition spree but were unsure whether it would pay off. The businesses were different, and the acquisitions would fail due to culture issues, Indian IT thought. The cutting edge can be uncomfortable.

But by 2015, those companies began to change their tune. Accenture’s interactive business was over USD2 billion in revenue, growing at over 20% a year. That year, Wipro acquired a design studio, Designit. In 2016, Mumbai-headquartered Tata Consultancy Services (TCS) set up a US-based interactive unit to explore the business.

Underpinning their entry into a business they had avoided so far was market research. After it set up its unit, TCS hired consulting firm McKinsey to perform a market study on the interactive space. The results were promising. In 2017, McKinsey told TCS that interactive could grow to become a USD5 billion a year revenue business over time, with the appropriate investments. By 2018, TCS, Infosys, and Wipro had all acquired design studios.

But now they have to compete with agiant. Over the past decade, Accenture has acquired about 40 creative agencies. Its interactive unit, now called Accenture Song, alone pulls in USD14 billion in revenue, more than all of Wipro’s business, and has grown at over 10% CAGR over the last three years.

Indian IT companies are now playing catch-up. Infosys, with four acquisitions in the space and big-name hires, is considered the most aggressive. ET Prime takes a look at growth strategies and the challenges that Indian IT will face as they try to grab pieces of the lucrative and growing market.

IT's foray into interactive businesses@2x

Buy vs. build
When Accenture started its interactive division in 2009, the trigger was clear. Its digital business was growing fast, but there was a part of the business that it just couldn’t touch. The strategy agencies and design firms controlled the top of the stack and had access to key stakeholders such as the chief marketing officer, whose budget was growing as much as 25% a year, as marketing moved more online.

What followed was an M&A blitzkrieg and by 2016, the magazine Ad Age had named Accenture Interactive the biggest and fastest-growing digital agency network.

Indian IT companies were never going to be able to follow this strategy. Making an agency acquisition successful means holding on to the creative talent. As consulting acquisitions have shown in the past, Indian IT companies are bad at integrating talent-focused acquisitions. So here, Infosys, took another approach when it bought WongDoody in 2018.

“Our idea was very simple. We didn’t want the agency to be embedded into Infosys, we kept the brand intact, because we knew that the buyer for interactive services is a new buyer group. So we did the reverse, we took all our interactive capabilities and handed it over to the [WongDoody]leadership,” Ravi Kumar S, president at Infosys, tells ET Prime.

He adds that the company then gave them venture capital and asked WongDoody’s leadership to go and buy more companies from the market, when needed, and to organically build a network of studios along the way. Infosys bought four companies in the interactive space, giving it “beachheads”.

Part of Accenture’s success has been the ability to make itself the talk of the advertising world. Take the Superbowl, the final of the American football tournament. The ads during the half-time show are almost as closely watched as the game. Last year, cryptocurrency exchange platform Coinbase dominated the show with its floating QR code ad. The end result — 20 million people scanned the QR code during the ad broadcast, taking them to Coinbase’s website, and 445,000 new users signed up. The creative agency behind it: Accenture Song.

Bringing in the kind of creative talent that could win this kind of business was always going to be hard to Indian IT companies, but they are trying. This March, Infosys hired Grace Francis, as chief creative and design officer at WongDoody. Francis was previously chief experience officer at Droga5, part of Accenture Song. In August, it hired Pete Gosselin as executive creative director of North America. Gosselin joined from ad agency Havas and was behind the first ad in the blockchain for US online broker TD Ameritrade.

So far, Indian companies have shied away from big creative acquisitions because they would struggle with integration. But the creative aspect is not the only part of the opportunity. The key part that Indian companies are focusing on is that marketing has become more digital. It is now more technology-and-execution focused. Clients are coming for new business lines driven by experiences, for sales and commerce transformation, for marketing services to drive brand engagement.

“The larger operations opportunity which is only now coming into focus is far better suited to these firms’ DNA and culture. Hence it appears likely that an offshore-centric operations-focused offering in the marketing segment has a bright future and fits the strengths of these service providers,” says Peter Bendor-Samuel, CEO of IT consultancy Everest Research.

Bringing in Indian IT’s skill in moving work offshore is key. Infosys has over a 1,000 designers in India, and it is now working on delivering design and creative work out of India.

“It is almost like a hockey stick. It took us a lot of time to deconstruct the creative process into work packets that can be done offshore. So the strength is creative subject-matter expertise coming together with the power of Infosys’ experience on virtualising work,” says Ravi Kumar S of Infosys. Kumar would not give a break-up of how much revenue the company earned from interactive services but said “it was a formidable force in this space”.

Downstream effect
Deals in the interactive business come in many types. There are fixed price, deliverables-based deals. Then there are retainer-based models, where clients pay the IT company a retainership so that theyare available when work is needed.

A major plus point of the Interactive business though is the kind of opportunities it can generate for the rest of the business.

“As much as I’m excited about the standalone potential of revenues and potential growth, this business creates momentum forother technology services. We measure that on two fronts — how much they are making standalone and how much are they creating downstream opportunities for the rest of Infosys. Every dollar spent upstream gives you USD3 to USD4 downstream on the technology side,”says Kumar of Infosys.

“Accenture has a huge lead, and its culture and scale make it possible for it to access more of the market than the Indian firms. That said, there is still a huge market for those firms to capture.”

— Peter Bendor-Samuel, CEO, Everest Research

Take creating an e-commerce experience for a retail company. The upstream services are branding, strategy, design, and the user-experienceaspects. The downstream opportunities are actually engineeringthe platform and connecting it to the client’s other technology systems. That is part of the traditional areas of technology transformation. Having the upstream gives you access to the downstream work as well.

When TCS was building its interactive business, CEO Rajesh Gopinathan gave a mandate to the presidents of the other business units to work with the interactive business to build access to new revenue, a former executive who worked in the interactive business tells ET Prime.

In terms of revenue, TCS is expected to have the most interactive-derived revenue, currently estimated at about USD900 million. The company, though, has had some management changes. Sunil Karkera, who led the unit since its inception, left in 2020 to move to Wipro Digital. The executive who followed him, Lakshminarasimhan Srinivasan, headed the unit for just about a year. In the last few months, TCS appointed Kamal Bhadada, president of communications, media and information services as head of the unit.Karkera left Wipro last year. He is now president at design and innovation firm Plus Company. Brian Whipple, who set up Accenture Interactive, is its chairman.

TCS did not respond to ET Prime queries on the interactive business.

Challenges ahead
Even as IT companies invest in building their businesses, there are significant challenges they will face.

First: the willingness to do certain kinds of businesses. Part of Accenture’s speedy growth in the business is the willingness to go deep into media buying. That is, Accenture would buy up space for advertising and then clients would pay for it, but that is pass-through revenue and hurts margins.

“End-to-end advertising is 50% of the interactive business, and Indian IT companies shy away from that because media buying has margin dilution. Accenture is ready to take very low margins while reinvesting in their business. That’s how they scaled. So not going into advertising is one of the biggest sins of Indian IT companies,” says a former US-based IT executive who worked in the interactive business.

He adds that in the marketing side of the interactive business, the company has stuck to digital because that is where it is comfortable.

Second: bringing in and keeping talent. IT companies like Infosys have brought in talent but kept the unit separate. TCS has avoided bringing in outside talent and grown it internally. But this business will likely need external talent and companies may need to integrate those units not just at the bottom, but at the top as well. David Droga, founder of creative agency Droga5, took over as CEO of Accenture Song in 2021 and joined the company’s global management committee.

Third: the evolving interactive business. Because experience is so important, clients are looking to bring it in-house. Infosys is working with clients to build their own studios on a “build-operate-transfer” model. So now the company is building the capability for its clients.

However, This is also subject to change because in tight talent environments, this model is harder for clients to manage.

Indian IT is in the early stages of building this business, but it has adopted and adapted to other businesses and business models throughout itsexistence.

“Accenture has a huge lead, and its culture and scale make it possible for it to access more of the market than the Indian firms. That said, there is still a huge market for those firms to capture,” says Bendor-Samuel of Everest Research.

(Graphic by Sadhana Saxena)

( Originally published on Sep 12, 2022 )

(Originally published on Sep 12, 2022, 12:00 AM IST)

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