Can specialized firms survive industry consolidation?

The global communications industry experienced a seismic shift at the end of 2024 as three of the world’s largest agencies, Edelman, Omnicom and IPG, implemented large-scale organizational changes focused on financial and operational efficiency. 

Edelman announced as part of its restructure it would phase out several of its boutique and specialty firms, including Edible, Revere, Salutem, Mustache, EGA and Delta. 

“Operating one of those boutique-style brands requires separate staffing, additional overhead and everything that goes with standing up a separate brand, including the cost of a separate CEO,” said Kim Sample, president of the PR Council.

Despite Edelman’s decision, Sample and others in the industry still believe that these types of boutique and specialized brands nestled into larger holding companies have a place in the evolving landscape. 

“Clients are looking for deep, sector-specific expertise to help them solve issues or take advantage of opportunities,” she said.

Opportunities for specialized firms

Boutique PR firms operating under holding companies can still thrive by leveraging their deep expertise and flexibility.

These firms are often able to pivot quickly and focus on niche industries, making them valuable to clients seeking specialized services. Brands within holding companies not only offer deep expertise but also act as innovation labs, testing new ideas that may later get implemented at the larger firms.

“I think the boutique model is sustainable because you have a need for specialists, you have a need for generalists,” said Jacqueline Babb, a senior lecturer at Northwestern University. 

“The boutique firm, if it’s by itself, gives you the specialists; if it’s within a broader firm, (it) gives you specialties and generalists,” she said. “I don’t think that need goes away.”

One of the key areas that these holding company firms have an advantage is their ability to offer a full suite of in-house resources that independent agencies simply can’t.

 “There’s an opportunity for the larger agency with more services to potentially work on growing the current clients of the specialty agency by offering additional services,” said Annie Pace Scranton, founder and CEO of Pace Public Relations. She’s also an adjunct professor at NYU’s School of Professional Studies.

 Scranton expects to see the continued rise of mergers and acquisitions over the next five years to help build out more of these specialty agencies.

 “Clients really want that integrated approach, and they don’t want to have multiple agencies they need to coordinate.”

 Scranton noted that when pitching new business, having one person in the room who is the expert in a certain area is advantageous for winning larger clients or projects.

 “There’s a ton of opportunity for the larger agencies, existing clients to be pitched and told about the specialty services of this new agency as a means for their current client base,” Scranton said.

Challenges ahead

While boutique firms offer potential advantages to the clients, they can also present challenges to the holding companies that house them. These brands must navigate two key challenges: meeting revenue expectations while maintaining their specialized appeal to clients. Clients are also expecting more services at lower costs, adding pressure to all kinds of firms.

“Clients really appreciate senior talent,” Sample said. “But they’re asking for more while expecting lower costs. That creates a lot of pressure on firms of all sizes.”

While there might be shared or central services, like HR and accounting, they’ll also likely have their operational people “who are not generating revenue,” Sample said.  “Building that brand costs money, protecting that brand costs money.”

Historically, holding companies sometimes launched a new firm to handle professional conflicts. But today, agencies have found new ways to manage those situations that don’t always require a completely separate firm, Sample said. For example, digital firewalls can be constructed to protect confidentiality.

Investments in AI and generative technology are reshaping firms’ budgets as well.

“In this age where we’re having to invest a lot in technology, generative AI being a big piece of it, it’s hard to justify all these different costs unless you’ve got a very clear reason for doing so,” Sample added.

The demand for measurable ROI is another factor shaping the future of boutique firms of justifying why they’re paying for that specialty brand rather than a smaller, independent firm.

“Because digital marketing has provided so much direct attribution for us, we’re trying to seek it in other areas as well,” Babb said. “PR firms are starting to see the effects of that, and so they are having to show ROI in a more meaningful way.”

As the industry continues to evolve, boutique firms that effectively balance specialization, financial sustainability and innovation will be in the best position to succeed.

“We’re in an environment where everybody’s looking for growth and facing increased costs,” Sample said. “So, it makes sense that firms are going to try some different strategies.”