Advancement in technology and the internet has brought us countless wonders. From the creation of a new, low-cost platform for publication (which you are probably reading from right now), to strengthening democracy by allowing voters to follow different opinions of politicians and their accompanying policies. We no longer need to physically, or electronically for that matter, write down notes to remind ourselves of meetings; simply ask Alexa, Google or Siri to do it. The benefit that society has gained from such advancements is endless – but is it inevitably killing the “Mad Men-esque” advertising model?
After overcoming two recessions and a global financial crisis, advertising giant WPP’s CEO Martin Sorrell now faces another crisis. Sorrel must now persuade business leaders that advertising firms, such as his, are still relevant in the current technology-driven world where advertising is dominated by the likes of Google and Facebook.
Traditional advertising agencies have typically made their money through large long-term contracts, providing an array of services such as the creation of television advertisements, media-buying operations, brand consulting and public relations. Such methods have recently been criticised by Marc Pritchard, Chief Brand Officer at P&G, as being “archaic and overly complex in an era when campaigns and ads need to be designed and refined quickly across lots of platforms”.
Advancement in technology is at the forefront of the problem faced by the old marketing model. The first hurdle to overcome is the ability that tech giants have to market directly to consumers, meaning they can do without the hassle of employing a middle man to advertise for them. Furthermore, tech giants also have the ability to provide targeted advertising (e.g. using cookies), which was estimated by consultancy firm McKinsey & Co to be twice as effective as the work done by a non-targeted advertising consultancy firm (see more here).
To put this in perspective, think back to the last time you Googled a particular item and a string of results popped up, providing you with options to buy it. Or, think about a time where you watched a YouTube video and subsequent videos contained ads which were related to what you just watched. Compare this to a 30 seconds TV advertisement slot, which may or may not be watched by the business’ target audience. Even in the off chance that the viewer is the intended audience, there is still the uncertainty as to whether the viewer has an interest in buying the product. The kind of marketing offered by tech giants is clearly more valuable. It maximises the effectiveness of the ad by seeking out individuals who are already looking for the product, allowing for a higher rate of return for every pound spent.
There is also the problem that comes with the “rise of ad-free content for consumers, especially on Netflix, and the corresponding disruption of ad-supported television, which has declining viewership globally. This hurts agencies because their biggest clients, including the manufacturers of consumer goods, beverages and pharmaceuticals, use television the most. Planning campaigns and creating 30-second spots for television is a people-heavy, high-margin business that the agencies dominate. In America television advertising sales fell by $4.9bn in 2017, or 7.3%, to $62.1bn, according to Magna Global, which is owned by Interpublic. That is the biggest such drop in a non-recession year in two decades”.
The combined result shows a sector in crisis. WPP predicts zero organic growth this year, as compared to growth of around 5% during less challenging times. Other companies in the sector are fairing no better with America’s Interpublic Group and Omnicom Group and France’s Publicis Groupe all having showed feeble growth. Evidence of the crisis in the sector can be seen in WPP’s share price, registering a 23% drop since last month.
However, it is not the end of the road for big advertising firms. Competition law suits brought against tech titans, surrounding their advertising practices, clearly shows that there are still certain issues to be clear up. One example would be the €2.4 billion fine that Google faced when it was found that their search engines gave preferential treatment to certain products (see more here). Such kinks have to be ironed out before businesses will trust their advertising commitments to tech firms.
Furthermore, while tech firms have the structural upper-hand in advertising, the traditional marketing agencies have the talent. Lacking the knowledge and experience to leverage information and appeal to a business’s consumer base, the efficiency of a better structural framework is arguably wasted at the hands of tech firms. Advertising firms seem to agree with this point, who are reportedly “hiring away talent, acquiring businesses (in 2015 Publicis bought Sapient, a digital consultancy, for $3.7bn) and gradually changing how they make money.” The question now remains whether the old firms, as Rishad Tobaccowala puts it, prove that they are cockroaches, not dinosaurs, and survive their equivalent of a meteor striking earth.