innovation playground Idris Mootee

Broadcast Media Is Reaching An Indsutry Breakpoint, And Hulu Is Fast Becoming A Key Part Of The New Industry Architecture.

Here are pictures of the Idea Couture team running several days of long sessions at the MIT.  Jeff, Partick, Adam and Cheesan were happy with the progress to date and I am so looking forward to see the first milestone. It is just a great project and a great client/partner.  Everyone is excited.

While we are on MIT, I came across some early research from MIT Media Lab on "Emotionally Reactive Television" , it is a very interesting concept. The idea was from the time TV was created, watching TV is considered as a static activity. TV audiences have very limited choices to interact with TV, such as turning on/off, increasing/decreasing volume, and traversing among different channels. The working thesis is that TV program should have social responses to people, such as affording and accepting audience’s emotional feeling with the growth of technologies. This paper presents HiTV, an Emotionally-Reactive TV system using a digitally augmented soft ball as affect-input interfaces that can amplify TV program’s video/audio signals. HiTV transforms the original video and audio into effects that intrigue and fulfill people’s emotional expectation. This is a super cool idea.

Some people think media should all be free. Just imagine a world where every form of media as we know is accessible for free. Is this the future? We’re reaching an industry breakpoint in the world of media, fight between pirates, broadcasters, entertainment labels, demanding consumers heats up, the stakes will get higher, and higher.

The convergence of PC and TV will accelerate. I’ve participated in debates and forums around the three screen convergence scenario in the telec industry. That means one provider who can deliver a converged/integrated video/entertainment experience to the TV, PC, and mobile device. This is the telcos’ dream. The idea is, you're watching something on your TV and you have to leave, you can continue to watch it on the go or so you pause it. Is this something we all wanted?

Analyst Laura Martin (Soleil Securities) crafted a worst case scenario for broadcast media. Martin believes Hulu will wipe out the network television business as we know it. In a recent report, she estimates that the online video hub will cost TV networks $920 per viewer in advertising if their audiences are cannibalized by Hulu. She believes the bulk of viewing on Hulu is indeed taking eyeballs from TV. It definitely makes some sense but there are still many wild cards.

Earlier In May she warned that the entire $300 billion market valuation of the television industry is threatened by the shift of programming from TV to the Web. Spearheading the overthrow of TV-as-we-know-it is Hulu, the premium video site backed by NBC Universal, News Corp. and Walt Disney that offers content from the 120 partners. Martin is very confident that Hulu will succeed in the long term. With more than 38 million monthly viewers who watched 457 million streamed videos, it is 6th-most-visited video site, ahead of competitors like AOL, CBS Interactive and the Turner Network, according to comScore.

Hulu is seeding the value migration for its TV network creators as more content that becomes available on Hulu, the more likely it is that consumers will cut the cable cord altogether. Together with that trend is the less attractive economics of online video to advertisers, which offers higher CPMs but fewer ads. The industry estimates that Hulu runs four ads each hour at a $50 CPM compared to 32 ads during each hour of programming on TV at a $35 CPM. ($1,120-$200 = $920). Hulu did not disclosed actual ad sales or ad rates.

The TV everywhere idea is not new. Except it is getting real. I am not sure if it is so simple. There is a lot of uncertainty about the speed of deployment of new technologies and services, and of their adoption driven innovative user experience design. Hence the implications for spectrum demand and management of all these changes are far from clear; and convergence raises the fundamental question of whether current service definitions will make any sense by the end of next year.

What's The Future Like For Wieden + Kennedy? Where Walking In Stupid Will Take Them Next? Dan Wieden Is No Ordinary Ad Exec, He's A Very Different Breed.

My people told me we had a problem. There was an error on the printing side and our 60-minute Brand Strategist Book (Limited Edition) was now changed to 80-minute (no one was telling us). I thought may be Morgan decided to further enrich the content, hmm he definitely too busy to do that. Probably not him. I jumped off the roof (actually the plane), went to the office and opened those boxes, fortunately it was only limited to the boxes. They did not add 20 min of content to my book. Who knows, someone just decided to add 20 pages of reading - sort of bonus chapter. So many things can go wrong.

I want to write about W+K. I think it is a very special company both work and culture.  Wieden+Kennedy is no question one of the world's creative advertising agencies if not the most, has a very unique culture and cool office spaces, you don’t hear me saying that often, there are usually more criticism coming from me. The question for them is where it should go the next 20 years. Are they on a selective building mode or packaging for sale mode? Or they are going to play in the social media sandbox and reinvent advertising once again?

When Dan Wieden founded the agency 20 years ago with David Kennedy, their motto was just one of many slogans found in this strangest of workplaces. "Fail harder" and "Welcome to Optimism" are two examples. I remembered I’d like their print ad so much that I put it up in my office in my LA office.  It is more than an ad. It meant something more to me.  It reminds me of what do I need to stay competitive. It has an emotional connection to me even though I am hardly a sportsman. They are no question one of the finest creative ad agency founded during the last two decades. There are lots of creative shops out there, but not one that institutionalize creativity like W+K did.

I love their offices, there’s a little weirdness but still quite traditional looking (unlike Mother) and there’s a padded cell for creative thinking on the top floor and a giant polystyrene statue called Nicola (crafted by the artist Wilfrid Wood). So what’s W+K’s future? In an interview with The Independent, Dan says the agency thrives on a culture "built around a friendly relationship with chaos", a concept represented by Blender Man.

"I think it's important that if you're going to be innovative, that there's not a process for everything. Sometimes it seems that if you're never lost you're never going to wind up any place new. It's only if you're willing to be completely fucked-up that you're going to do anything important.” That’s a spirit of innovation not commonly found in advertising agency.

The funny story about the Nike slogan “Just Do It’, he said it was no more than something to link a few commercials and never meant to take off like that. They just typed it out on typewriters, then blew it up, and put it on a board. It surprised everybody involved because it apparently spoke some truth that was larger than sport or advertising. It is a big idea even though they didn’t really expect it.

W+K is late in the digital game and I can’t speak to their current digital capabilities. Sure they are playing with it and have the same challenges as other larger agencies. The digital or now known as “social media’ challenges is a different game and probably clashes a bit with the way things are done there. They reckon that the most exciting creativity will happen in the mobile and social media space.

The good news is they are a little ahead than the JWTs of the world which are at least 3 years behind. I think the future of W+K will be very different from Ogilvys. David Ogilvy’s  goal was to professionalize the advertising business and create an enduring and respectable institution. David is more of manager in a traditional sense. On the advice of his banker grandfather, he adopted J.P. Morgan’s phrases — “Only first-class business, and that in a first-class way” and “gentlemen with brains” — as guiding principles for his agency. He is more of a system and structure person and understand the importance of growing leaders.

Dan is a very different breed. He strongly believes that the advertising discipline is not about money and business – it’s about creating a place for people in a compound way. It’s got to do with art and most importantly, building culture. He takes risk and willing to accept failure. In his words, “The secret of my success is failure and uncertainty”. That’s the perfect motto for innovation.

I look forward to seeing how they overcome the social media challenges, developing talents in the development world (India and China) and finding the people to power W+K forward into the next 20 years as the advertising elephants will continue struggle to learn to dance. Can you teach an elephant to learn to dance?

Dan believes that his job is to “walk in stupid every day” - to keep challenging the organization and himself, to seek out unexpected ideas, outside influences, and new perspectives on old problems. “…..but it’s the most important thing. Whatever day it is, something in the world changed overnight, and you better figure out what it is and what it means. You have to forget what you just did and what you just learned. You have to walk in stupid every day.”

The Rise And Fall And The Coming Transformation Of Madison Avenue. What About The Future Of Advertising?

WPP finally decided to fold (or merge) the agency Enfatico created only to serve Dell after 16 months of operations. I never quire understand the rationale and the logic of doing that. Now it will become part of Y&R This may have something to do with the current climate but it is destined to fail. I've never seen something like this can work and you might as well bring it in-house which we understand the pro and cons of doing that. From an agency perspectives, sure they will tell the client they can outsource the creative and production but with control over the agency's operations and may be some cost savings. Not sure how the cost savings can be real. It is always important for an agency to be independent of the client from both ownership and management. Large agencies are getting desperate to cut deals like this I supposed.

Madison Avenue has come a long way. Since the emergence of modern advertising in the 1920s, defined by the shift from text-based to visual advertising and the use of psychologically sophisticated messages, ads began to resonate powerfully with consumers.  Madison Avenue represented the new and the modern (until the emergence of social networks and media, they took away their cultural authority), and ads helped consumers figure out what they needed to live a certain lifestyle. Consumers were eager to embrace the cultural authority of Madison Avenue.

But by the late 1950s, things were changed. Along with affluence and increased security came an increased awareness and criticism corporate conformity in the workplace. The contradictions of 1950s culture were beginning to emerge, and one of them was the inordinate influence advertising and sales appeared to have in our culture. The big shift is they are far less influence in our culture today and technologies have taken over the role. The emerging social networks are still in its early days shaping how we connect, communicate and create social identities. This is the biggest threat of the advertising industry. I think they are underestimating the disruption.

A little history of advertising here. The collective work of the Frankfort School, mainly represented by Theodor Adorno and Max Horkheimer (and their classic 1944 piece “The Culture Industry: Enlightenment as Mass Deception”) provided the intellectual foundation. The imperatives of the production side were central, and in both consumption and production, consumers were relatively powerless, even “manipulated” and victimized by advertisers.  In these accounts, the powerful and active agents were the big corporations, not individuals. Today, we can see that this is changing, with an over abundance of almost everything and the growing influences of social networks. Finally, power is switching over to the consumer. Is it  a bad thing?

Even though we are all trained from the earliest ages to be consumers, and though our identities are deeply bound up with consumption choices, social networks are gradually becoming the medium that define our identities. This is the world we live in.

A TV campaign can only go so far in building a brand. In fact, it doesn't build brands, it merely builds awareness. Social media enable advertisers to cultivate brand engagement where interactions take place. Power is shifting from mass communication to social interactions. In just a few years, you can expect the whole advertising industry to be in full crisis mode, driven by continuous innovation. Forward-thinking marketers are embracing new models, which are being shaped by digital media.

In this world, consumers will listen to marketing messages when and if they’re relevant to them. As TV audiences’ fragment and move to more portable media, TV will no longer be the prime brand-building tool. Marketers that excel will be those that recognize that they’re now in a service business. Many marketers also have competencies rooted in interruptive communications, which is declining in efficiency and more importantly, effectiveness.

Twenty-first century marketing will instead be only about customer engagement and adaptively integrated marekting (not a new word but hardly delivered by agencies).  The Enfatico story did represent an effort to tackle a longstanding industry problem. Big big marketers such as Procter & Gamble, Johnson & Johnson and Unilever are expressing frustration with the way ad and marketing firms are structured. Many marketers say it is tough getting different agencies to understand the new world order, let alone to make working together -- even ones owned by the same holding companies.

Big Advertising Agencies Are Needing Bailouts Too. Bailout Is Never Any Real Solution. This Is Part Of An Industry Evolution.

We had a great company Christmas party last evening and it has been a very good year. I am grateful and very proud of the people that we have, everyone is carefully hand picked, not only every one of them is smart, creative and passionate for what they the do and strive for excellence. The Indian food and musicians were great too. I think we should play live music ourselves next year. Should start practicing now.

The big three autos may get a government bailout, their agencies will not. But serious headwinds and oxygen masks are down for many. This is a very gloomy Christmas for our friends who work on the advertising agencies side. We need to think of ways to support these people.

Omnicom is preparing for massive layoffs, talking about 3,500+ of its 70,000 workers getting pink slips and I believe it already started this week. BBDO (An Omnicom agency with Chrysler business) is expected to be hardest hit. BBDO Detroit already laid off 145 people last month. Their client Chrylser is even cutting the CMO’s job. Deborah Wahl Meyer, CMO and VP, will leave the company, effective immediately, and her position is permanently eliminated.

For JWT's, their once vibrant Chicago office is now a shadow of its past. A few years ago this is a booming office as the largest office in the largest global agency network - 800 people and well over $100 million in billings. Top clients including Kraft Foods and Miller Brewing.  This place once rivaled Leo Burnett and DDB as one of Chicago’s shinning stars in advertising.

  For WPP, consider 10% of all WPP’s revenues are from Ford, and although Ford is in better shape than the other two, that’s like saying that the Andrea Doria is in better shape than the Titanic. Ford’s cost structure is not much better than the other two but better management. The 10% probably translates into a 5% cut.

What about Havas?  Havas' core agency RSCG is dealing with client defections at the agency's key London office. Euro RSCG accounts for 62% of the €1.5 billion ($2.16 billion) annual revenue of Havas. They will probably be merging many of their smaller offices. The plan is to improve coordination, as well as the quality of online ads. Internet spend is the only part of the ad world where spending is holding up best is how they see it.

This may be the perfect storm for big agencies to find ways to transform themselves. Big is a bad word these days. It is fine if the holding company is big because they provide capital efficiency and other benefits, but scale on the agency unit level is bad. It works against an entrepreneurial culture that is badly needed and the system and structure makes them slow to adapt to a fast changing world.  These advertising awards culture is motivating agencies the wrong way. JWT/Wunderman is one of the largest and naturally the most challenging. Wonder if we can ever teach these elephants to dance? Or if they could just walk a little faster that would help. Plus most creative people are polluted by all these advertising awards. Need rehab.

The need for ‘newness”, “coolness” and ‘youthfulness” (more attitude than age) in agencies are important. These young (or young a heart) people who are coming up in the industry are so naturally cross-platform savvy ad all the digital culture is part of their everyday lives.  You can’t train any 45 year old ad planner about this new culture. Even though they talk about it, they really don’t know what they are talking about. Talent is the no. 1 factor and barrier for ad agencies like the JWT of the world to transform themselves.

The future of the industry will consists of three types of player 1/ digital innovator 2/ advertising factory  3/ media procurement. I wrote a post on this last year which was a very popular one “Ad Agency's Disruptive Future? Can the Old Dogs Survive It?  This is an exciting time for small-to mid-size agencies. Imagine what Leo Burnett and David Ogilvy would do if they are starting their agencies as young men today. Big is out.

A Brief History On Modern Advertising. And If You Think Mass Advertising Builds Brands, Think Again.

Advertising is not going away, but it has very different strategies and tactics, traditional  "push/pull" marketing no longer works, and so are highly-touted customer relationship initiatives. Smart companies are those that are looking for marketing innovation as a new route to marketing performance. Many adv planners are using their antique toolkit that has long been outdated. Unlike advertising in the 70s, they attracted the best and brightest. Today they were the people who just want to hang on to the past. Marketing has moved on.

So how do marketers make interactive communications even more compelling than traditional communications? Today, if brands want to speak to lots of people, they have to do it digitally. It is 'speaking to' and not 'speaking at'. Speaking at people is what old media do. Social media allow brand owners to have dialogues with their customers, and allow them to speak to individuals and groups. It also means that brand owners and advertisers have less control over their audiences, and that the audiences can answer back. Today, three things matter: entertainment, interactions and information. This is where interactive marketing has the advantages.

Let me share with you here a brief history of modern advertising. Since the emergence of modern advertising in the 1920s, and the shift from text-based ad to visual adv followed by the use of psychologically sophisticated messages created a very powerful cultural resonance for ads among consumers. Madison Avenue represented the new and the modern (Madison Avenue was since replaced by social networks and social media), and ads helped consumers figure out what was needed to live certain lifestyle. Consumers were eager to embrace the cultural authority of Madison Avenue and the client brands. But by the late 1950s, they were feeling differently. Along with affluence and increased security came the critique of corporate conformity in the workplace. The contradictions of 1950s culture were beginning to emerge, and one of them was the inordinate influence advertising and sales appeared to have in our culture. .

The influential work by the Frankfort School, with Theodor Adorno and Max Horkheimer, whose classic 1944 piece “The Culture Industry: Enlightenment as Mass Deception” started the core of this intellectual movement for consumer critique decades ago. The imperatives of the production side were central, and in both consumers were relatively powerless, even “manipulated” and victimized by advertisers.  In these accounts, the powerful and active agents were corporations, not individuals. Today, we can see this changing as the over supply of everything and the growing influences of social networks. Finally the power is switching over.

The "de-legitimation" of modern liberalism, paternalist state policy and Keynesian economics combined to continue to undercut the consumer critics. The growth of corporate power was accompanied by an ideology that posited the reverse—it’s the consumer who is king and the corporation is at his or her mercy. Even though we are all trained from the earliest ages to be consumers and our identities are deeply bound up with consumption choices although social networks are gradually taking over as a reflector of our identities. This is the world we are living in. A TV campaign can only go so far to build a brand, in fact it doesn't build brands, it merely build awareness. Social media is where brand engagement is being cultivated and interactions are taking place. The power is shifting from mass medium to social interactions. In 3-5 years, I expect the whole ad industry will be in crisis mode just like the automobile industry today.

Michael Mendenhall, CMO of Hewlett-Packard, sees what's going on. He talks about how his organization looks at brand building, "Many companies continue to look at marketing in conventional ways -- from a mass-market point of view. Branding today is not about the media; it's about the idea. You need to dismiss the conventional way of thinking and start with an understanding of the value of each communication channel and how -- or whether -- it will 'engage' people. The idea should be the organizing principle, and it should inform everything you do to help consumers grasp your brand promise in whatever channel you're reaching them: the television, the blogs, the banner ads or the word of mouth." 

Innovation Is The New Management Consultancy. Design Is The New Advertising Agency. How Fuzzy The Boundaries Have Become...

I was meeting with a friend Adam Oliveira and his biz partner Adrian today and it is exciting to hear that they are starting a new digital agency. More and more people wanted to break out of the old agency mode. We can probably expect a big shift to digital marketing as we move in and gradually out of this recession. Digital marketing will shine through this downturn. (design illustrations by Ashley Payne)

Innovation Is The New Management Consultancy and Design Is The New Advertising Agency. This is a subject I've talked about for a while. I've been discussing it both publicly in conferences and privately with executives of agency holding companies. I wrote about MFA is the new MBA last year in my blog and it resonated with a lot of people.

Why Innovation Is The New Management Consultancy?

Innovation is the core of any business’s strategy. Hear it from P&G’s CEO A.G. Lafley, “Innovation is the key idea that is shaping corporate life, helping leaders conceive previously unimagined strategic options. Take acquisitions, as an example. Most are justified on the basis of cost and capital reduction: for example, the merger of two pharmaceutical companies and the global rationalization of overhead and operations and the savings from combining two sales forces and R&D labs. You can, however, buy earnings through acquisitions for only so long; cost-control, however necessary, is a defensive strategy.

Intel’s CEO Paul Otellini said on stage yesterday at the Web 2.0 Summit about why innovation is not only important but vital, "All the smart people I've talked to in this area suggest that the U.S. is in a two- to three-quarter recession, the current economic slowdown is the deepest one I've seen in my lifetime.” He predicted that morale may stay low for longer because unemployment may remain high even after growth has resumed. He believed innovation will still be on the way regardless of how far the markets fall.

Innovation doesn’t exist in design or business strategy, but the intersections of both as well as other disciplines including social sciences, technology, human factors and service design etc. Management consultant firm focus on the analytical side and lacking the creativity requires for innovation, not to mentioned the empathy element. Emotion. In analytical thinking, emotion is seen as an impediment to logic and making the right choices. In design, decisions without an emotional component are lifeless and do not connect with people

And for design firm, outside of the craft side, designers (or design thinkers) use the word design is a verb and not a noun. It's a way to frame, communicate, solve and visualize problems and so are best positioned to innovate. The challenge is the lack of business (and the economics of everything in general) and analytical thinking that makes it hard for them to understand the problem in business context and put together a compelling argument. Innovation requires skills that spans across many different disciplines.

Robyn Waters (formerly Target, now RW Trend) believed the importance of connecting opposites including left and right brain thinking, and measurement and intuition. She emphasized embracing paradox to drive innovation.

Why is Design Is The New Advertising Agency?

I love advertising, I love it when it entertains and make fun out of little things in our everyday life. But advertising is losing its glamor, or has lost most of  it already. The problem is we put too much time and money into trying to find a USP (unique value proposition) but not enough to create a better customer value proposition. All these me too products are relying on advertising to differentiate and in the end disappoint customers. It should not be about the ‘thing about the thing,’ it is about the ‘thing’. That's how design can come to rescue.

Other reasons makes advertising less effective is the fragmentation of media. TiVo, iPods, hundreds of cable channels, satellite TV and radio, podcasting, Web sites, consumer-generated media, even video games cut people's time and attention into thousands of teeny fragments. Advertisers have a harder time reaching large population segments. They spend more but reach fewer people. They used to reach the masses with buys on three TV networks; now, they must buy on 90+ stations to get the same reach. The other contributory factor is their overemphasis of demographics. Demographic targeting has long been the focus of marketing efforts. The problem is, it only tells you where customers might be, not what messages they might respond to.  They have such as difficult time putting their heads around the fast moving emerging media.

Design is the next advertising. Designers love to solve wicked problems, not avoiding it or cover it with fancy visuals and clever tag lines. Designers recognize that any wicked problems means big opportunities for customer experience innovation. Marketers that understand building true loyalty need to embed design into every aspect of their marketing. Infusing the marketing department with design principles can transform marketing, experience is the competitive front. For your next campaign, try asking for ‘design thinkers’ and not ‘creative directors’. You will have some nice surprises.

How Clients Are Showing Interest In Digital Agencies To Serve As The “Lead” On Integrated Marketing Efforts

Ad agencies are cutting people across the board responding to budgets cut from clients. WPP does not expect to see any significant economic recovery before 2010 which is likely be the case. In additional to cost cutting and recruitment freeze across much of the group, they are also announcing plans to relocate the company's tax base to Dublin, a move which the company expects to provide significant tax savings. With 37 acquisitions made over the past 12 months alone, there a lot of companies to integrate. Outside of the pool of smaller companies that they own, their blue chip holdings Ogilvy, Y&R (including Wundermann) and JWT (largest in the US) are becoming more and more irrelevant, these elephants need a lot of attention. On another note, there's a 51% chance that WPP will buy Razorfish from Microsoft, Microsoft wants to get rid of the digital agency but hard to justify a write down. The financial market is not in any shape to support an independent Razorfish, WPP is the only option. Expect an a deal closed in June. 

There are questions about whether these old school ad giants can evolve fast enough. Their thinking is 3-4 years behind and clients see that. And the interactive agencies, most of them are 10+ years old and have their own legacies. They now share the challenges that the ad agencies have and becoming part of the (banner ad and out-bound email) ad factory.

The lines between interactive agencies and direct marketing firms are blurred. Are more so the lines between interactive and traditional ad agencies are also blurring. Today Agency-of-Record Status can go to anyone. Global alignment of agencies is out. So what will the future hold for advertising agencies? Well, we’re beginning to see some of the trends unfold. I wrote about this ten months ago (we produced a report on the future of agencies and the evolution of marketing services).

Marketers seriously question the current and future relevance of traditional media & advertising shops. Will large agencies be able to evolve to meet the requirements of new technology? The answer is simply “No”. Can traditional adv agencies develop strategies that drive “customer engagement”? Definitely not. Their definition of engagement is watching your 30Sec TVC without changing channels. Our definition of engagement is “High involvement interactions between a customer and brand that strengthen the emotional, psychological or physical investment a customer has in that brand and act as advocacy for the brand”.

Perhaps the biggest hindrance of evolution for traditional agencies are organization structure and limitation of talents. The org structure was at least 50 years old if not more, it was not designed for cross-disciplinary collaboration. On the talent side, these agencies used to attract the smartest and the brightest 20 years ago, today those who work there are mainly mediocre (a few bright ones, very rare) people who doesn’t want serious (thinking) work. Their media and account management expertise does not necessarily translate well when faced with demand for technologically-based marketing solutions. Separating media and creative was a smart decision from a cost point of view, but seriously undermine the collaboration of creative media applications.

Traditional shops are slow to react, expensive, don’t get the Web 2.0 culture, and most often, “shooting blanks” and acting in defensive manner. Digital agencies (that go beyond digital) are not only being invited to pitch brands as agencies of record -- increasingly, they're winning. Clients just love the thinking and speed in execution.

More clients showing interest in digital agencies to serve as the “lead” on integrated communications efforts. The uptick is particularly visible among marketers in sectors such as entertainment, electronics, retail and some personal financial services. In short, clients are becoming less and less fixated on the type of agency handling their ad accounts and more on the “strategic capability” and “speed of execution.” In short, BRIGHT and FAST. That makes perfect sense. Clients just come to the realization that their company's plans were going to be heavily focused on digital anyway plus the fact that it can only go so far talking about your brands through paid media (communications), it is much better if you can get your customers to tell your brand stories in their own way.

Some wanted to see what's our office building looks like. It was declared as a historical building.The building is gorgeous. Here are some pictures below.

 

  

Will A New Breed Of Innovation Companies Eventually Settle Into The Realm Of New Product/Service Innovation?

 

The last few years we’ve seen a growing interest on “design” and “design thinking” although we don’t see MBA school rushing to teach using “design thinking” application in business problem solving.  Design influence has not only infiltrate B-schools, it has attracted the interest of ad agencies and branding agencies. It is a marketer’s dream to have products that do not require advertising, the balance of form and function itself that consumers recognize instantly, that's will never happen of it does it is rare. Even Apple needs to advertise so adverting is not going away. Except it's very nature has changed. Marketing, in the form of logos, packaging, advertising, and the ever-broadening fuzzy activities known as branding, has attained the status of necessary evil to build brands. 

We’re seeing some branding agencies (and adv agencies) are trying to get into products, some are doing a more decent jobs than others. There are some ex-agency creative folks carrying the banner of Corporate Social Responsibility consultants and all they can think of is the obvious. I think branding firm and even ad firm (with a few exceptions) are not right for the job, the same reasons why you won’t hire your lawyer to fix your customer service problems or your accountants to fix your technology problems. Mark Read (WPP corporate) reminded me that some 20 years back ad agency (Bates) helped De Beers to come up with many of the innovation. They pretty much invented the ritual and came up with phrase 'a diamond is forever' and that people have used diamond engagement rings ever since. But when the last time we’ve seen an innovation came from an agency?
 
Can adv agencies design great products and/or experiences? You would think so? Over the years they have narrowed their skills (rather than broadening) and their core capabilities were reduced to doing the following three things 1/ finding a unique way to positioning a products within its category 2/adjustments of minutia to affect the consumers’ perception of the brand 3/ maximize repetitive exposure and extend reach. Innovation is not a core capability. Deep customer insight is not a core capability (over reliance of traditional research is the problem).  Customer engagement is not a core capability (although they refer customer engagement as engaging through a 30sec TVC). It makes you wonder whether a new breed innovation companies will eventually settle into the realm of new product innovation and brand / communication innovation or even push into the space to deliver business model innovation.

The next big issue is “authenticity”?  Today this word carries extra meanings thanks to the Internet.  This is not something one can “buy” with big ad dollars. This is truly how brand differentiates and is strongly associated with trust, not just brands but also on a corporate level. Adv agencies (including interactive and direct mkt agencies) fundamentally operate differently and are not really good candidates for innovation and design explorations.

Next year will be a particular difficult year for agencies, WPP is making smart moves to buy Taylor Nelson Sofres for £1.1 billion ($1.95 billion), in a deal that will reduce WPP's reliance on advertising revenue  ahead of an expected serious downturn. WPP is the best managed companies among all holding companies and Sir Martin Sorrell has been talking for more than a years about steering his company away from the volatile ad market into research and other marketing fields with more predictable profits. This is the first big move. And a smart one. 

Google Is WPP, Omnicom and Publicis' Nightmare. Google Plans To Replace The Advertising Industry In Its Totality.

I was in London with clients last week and I also had a meeting with my friend at WPP head office (see picture of their modest head office which houses the best financial minds in the business)  We had a great discussion of how they see the ad world’s future. Despite of the challenges that big agencies are having coping with the digital world, they had successfully bring scale and scope to clients. After the meeting, I am asking myself the same old question: Is Google a threat to ad agencies? How real is this threat?

Google and even Microsoft are competing with ad agencies, not in a conventional sense. Google now owns DoubleClick, which makes it a direct competitor to holding companies such as WPP. Today WPP buys estimated $160m of ads space from Google. If Microsoft buys Yahoo, that it becomes a duopoly. Google’s market cap is $160-170bn, WPP’s is $15b and Ominicom is $14.8b, and even including Interpublic ($4b) and Publicis ($6b) we are looking at a total market cap of $43b, only 25% of Google’s. The four agency holding groups have combined revenue of over $33b, 50% bigger than Google. That gives you a sense of what the market is saying about how they see the future of agencies. Google can easily buy two of the largest holding company for $27b and essentially the largest advertising powerhouse that produced and placed 60% of the world’s ad. A fully integrated network that also becomes a monopoly.

The lines are blurring between the buyers and sellers of online media following (WPP's acquisition of 24/7 Real Media) and suggests that agencies may see online as an opportunity to re-enter the media brokerage business. If that’s the case, it would be a full circle for Madison Avenue, whose roots were established when early newspaper advertising reps like NW Ayer & Sons and JWT morphed into full-service agencies, and adopted a commission-based system that derived revenues from a percentage of media billings. That’s the circle of advertising. Not sure many remember that.

WPP last year generated roughly 46% of worldwide revenue from advertising and media with the rest came from marketing services. WPP digital services accounted for nearly 12% of worldwide revenue, still small but I can see this growing to 20% easily. Two months ago they made an unsolicited offer to buy market-research firm Taylor Nelson Sofres for $1.88 billion. The deal was rejected, but if it went through, it would make them the largest agency holding company in the world. WPP is best positioned among all holding companies in this space despite the challenges with traditional advertising with all big shops.

The competitive ground for the agency groups in the next 3 years will be ‘Digital and China’. Period. Those are the two growth pillars. The biggest problem in the industry is in the traditional media and old school ad agencies, there’s a serious talent and capability gap that no way can be filled, no matter how hard they try. Then there’s a big cultural problem as they are organized around creative directors. It is kind of a star culture; it is the opposite of the web. Our culture is not only collaborative and multi-disciplinary in nature. The opportunity is in the digital. Asking old school agencies to do bring digital to the core is like asking a sushi chef to prepare steak tartar, you think there’s no cooking needed for both. it simply won’t work.

Ad agency growth through consolidations became a common strategy for the last 20 years; the question is ‘size’ the competitive advantage and are large networks more productive? Agencies with global reach have the advantage of offering a single point of contact for coordinating marketing activities, improved efficiencies, greater coherence in marketing ‘voice’, and access to global talent pool. The Interpublic Group is the world’s first communication holding company set up to get around the conflict of interest issue. Member agencies could function autonomously and handle competing accounts without compromising client confidentiality. IPG is still struggling hard today. The total number of global ad agencies has been reduced from 8 in 02 to only 6 agencies in 05. I think we will end up having only 4 left in 2-3 years, ignore the tiny ones MDG etc.

The six current players comprise Omnicom and Interpublic, WPP, Publicis and Havas from France, and Dentsu from Japan. As for performance, Omnicom has the highest revenue and second highest revenue growth rate. WPP had the second highest revenues and the third highest revenue growth while Publicis showed the highest revenue growth with relatively modest total revenues. Havas showed both the lowest total sales and revenue growth. This give you a sense of how each agency groups are doing.

Can We Fix Marketing? Most Best Practices Are In Fact Worst Practices.

On average I received 2 calls a night if I am lucky enough to be having dinner at home and not traveling, these calls are properly timed so they know I will be having candlelight dinner with my family and that’s exactly the time for interruption.  This direct-to-consumer telemarketing business should never be allowed, the worst thing is they call you and put you on hold while they finish up their other call.  (Business-to-Business is a whole different story as often they do have a value exchange and conduct in a very professional manner). They don’t know or care what I want or my interest and only interested in a "yes" answer after reading their script to me. Is this (direct) marketing?

Dear direct/tele marketers, are you really proud of what you do for a living? You build your career primarily by using late night direct TV commercials targeting the elderly and the vulnerable. Direct marketing is in trouble as they kill million of trees and bombard our mail boxes with garbage that no one reads let alone buy. These marketing firms belongs to the same category to used car dealerships, both are in the business of fishing for some vulnerable folks and sell them something they don’t want, need or will ever use.

You think there's nothing you can do with the telemarketers, in most cases they don't leave messages and will simply call you back, resulting in an endless cycle of you not knowing who's calling and having to call back to find out--something you're unlikely to do.  Here's Web 2.0 answer to this problem, solution, introducing Caller Complaints, a crowd-sourced index of the phone numbers of law breaking companies that have called folks on the do-not-call list. Users list these numbers, what was being pitched--and the frequency of the calls. If you find someone else has already listed the number and shared their negative experience, you can pile on and leave your experience, which votes it up.

The most popular (or in this case unpopular) companies rise to the top and are tracked on leaderboards. Users can also browse by area code and what type of call it was, from political phone spam to prank calls and debt collectors. The idea is that there will be enough resources to help you get to the bottom of who's calling to either leave a complaint with your carrier or simply blacklist the number from calling again. So far the site has amassed nearly 200,000 number searches from curious call recipients.

Here's some advice to marketers in general, please stop describing your product/company/service as "world-class" or "state-of-the-art." State-of-the-art lasts about 30 days today and what does world-class really mean? “ The "latest technology” means something I need to invest 50 hours to learn how to use it. “Free” means you will end up charging my credit card if I forget to cancel the services and that’s what you’ve factored in your marketing plan.

Stop calling me to subscribe to your magazine or newspaper. I have something new at home called the Internet (it has plenty of free content just in case you don’t know) and I can cut and save any content for future use. Besides, I am already subscribed to 18 publications from Harvard Business Review to Wired Magazine; I don’t need a general lifestyle magazine because I don’t have a general lifestyle. You must be able to see the problem as the economics of direct mail are failing rapidly and it costs too much to mail, and fewer response.

Having said all that, there are still many smart applications of direct marketing including the Blackberry campaign below. I am mostly referring to the bad practices of the industry.

Stop knocking on my front door while I am in a middle of an important battle with my Halo 3. Stop telling me I need to buy this energy-protection plan or replace my windows. Only Microsoft can tell when to replace my windows, not you. Police in some parts of Nothingham, UK are setting up four "no cold calling zones" in a bid to rid vulnerable residents of uninvited doorstep visitors. I really like this idea. Householders are being asked to ignore uninvited callers - and put stickers in their windows telling potential doorstep sellers they are not welcome. They can report suspicious behavior to a special trading standards hotline.

And for those electronic retailers, stop trying to sell me that warranty. The odds are small that I will remember that I have a warranty, know where I placed the receipts, or even bother to file the paperwork. I was buying a MacBook the other day from a retailer and he was trying so hard to sell me their extended warranty and tell me it is better than Apple care because they have better service. They don’t even service those products. Now even if I buy a CD or battery, they still try to sell me warranty. I guess they sell everything else at costs.

Advertising is not working even when it migrates to the virtual world. When Coldwell Banker hung out a shingle on the site as “the first national real estate company to sell homes within the community.” The real estate firm is in good company. H&R Block, Adidas, IBM, Dell, Reebok, American Apparel, Toyota are among the dozens of firms already there.  More than 70% of the site’s users say they are disappointed with the marketing that goes on in SL, according to a survey by Komjuniti, a Hamburg, Germany, research firm. This could be because companies are approaching it like a traditional marketing channel. Advertising is still advertising, it is losing its power. These brand sites on Second Life currently look like they’re being treated in pretty much the same way as traditional ads.

Many ad guys still believes that television is still the most important medium and will still e the most important medium for the next 20 years because: a) people have them; including people abroad and b) people know how to use them. Now that’s the kind of BS from the old school ad agencies.  The engagement power of television has been drastically reduced and they have now been reduced to digital wallpaper. The future of advertising is NOT in the advertising; it is in “Service Design”. Service Deign is like advertising in the mid 50s, no one knows enough about but sooner of later it be turned into an industry. It will be the backbone of what “Engagement” is all about. There will be no creative director in that world as marketing communications will not be built on one cute idea, it becomes “experiential”. User Experience Director replaces Creative Director.

Most customer experiences today are simply revolting, sometimes disgusting, particularly banks, airlines, telecom and many more. The idea now is (instead of) just focusing on a 30-second TV spot, to start a simple idea to engage, empower and energize customers. These Three Es is the future. It is NOT a creative director’s job to come up with an idea; it is the multi-disciplinary creative class that gets the job done.  Advertising agencies need to move from a factory model back to the idea model, put down the 50 years legacy and collective egos (creative awards ) and look to the future. You are in the ideas business. We live in the age of the idea. “Service Design” is the new discipline for the manifestation of the idea business, not product design alone and "Social Networks" are where circle of trust will be formed. That's where the game is.

On a closing note, here is great guerrilla promotion for the DVD release of the movie Death Proof is gory, attention-getting and totally appropriate for the movie it promotes.  Marketing meets "Happening Performance Art". Have a great weekend.

Random Thoughts On Marketing

This is not the best day being in New York City with the big snow storm and everything was messy. It’s kind of reminding me of the state of marketing today. It was a typical work day packed with meetings back-to-back. Some how we managed to spend some eating out with our friend Jason. We've also met with some great people and have good discussions about some stratetic partnerships opportunties. We ended up eating at the Fatty Crab (Chelsea meets Malaysia) and quite honest curry crab is not really my favorite.

The state of marketing today? Marketing is often misunderstood (and still much so today) and narrowly associated with tactical advertising or direct marketing opportunities, it should really be about the organizational culture focused on creating and delivering customer value; through its business strategy, mandates of growth, customer segmentation, targeting and positioning; and with its tactical dimensions of communications and promotional management including pricing and most of all providing inspiration to customers and make the product you’re selling more desirable.

It is not difficult to understand why it is seen as tactical when In its earliest organizational forms, beginning in late 20s, marketing had developed in field sales support and as product and brand-management activities in consumer packaged-goods companies. Marketing research is also seen as part of the marketing function. 30 years later marketing has grown up to become a full-blown function in its own right. With the rise of strategic planning in the 70s marketing management became strategic and intertwined with business strategy. Another 15 years ago, with the Internet it brances out into technology-based marketing (CRM for the lack of a better word). It is not being disrupted again by social media and influenced by a new customer-centric and communities-centric focus. Almost all marketers need to go back to school and relearn what works. Ad agencies are scrambling to deal with the change. The biggest argument remains unchanged: Should marketing be focused on the long-term (building a brand) or short-term (driving sales)? There is always a view that the most important spending represents long-term investments in the growth and future profitability of the brand/business…so called the competitive advantage. Unfortunately marketing is often treated as an expense item. The emphasis on quarterly earnings per share to long-term business building can only come from top management. Those short-termism are hurting brands and companies’ long term competitive advantages. In the current economic climate, no question that this has become a common debate among senior marketing executives.

There is also a question of how the ad agencies (as an inudstry) are prepared to deal with the sea change. It is beyond reconfiguring service offerings or simplye cross office integrations. They need to rethink individual roles, culture and organiztional form. I have lots of ideas what is needed to make it work.

The Hottest New Agency For The Year Is WANAA!

The hottest new agency is WANAA (We Are Not An Agency). Ok, there is no agency called WANAA. You get the point.  Headhunters are calling everywhere tyring to recruit new heads for interactive agencies as many have plans to replace theirs. The problem is the interactive heads just move around from one agency to another...with little result...sadly. This is not going to change anything. Coming back to the topic of agency consolidation, these are the questions:

- Would agency consolidation now starting move beyond ad agencies?

- Will technology firm start buying agencies and blurr the line between marketing technology vendors and agencies?

- Will the centralization of marketing services will move outside of agency holding companies?

We are seeing a polarization between deep-specialization and skilled integration, it is hard to survive in the middle.  Most ad agencies are in the middle. Everyone’s wondering what’s the next game for agencies? What’s the future of these big names Ogilvy, Y&R, FCB, BBDO, JWT?

Read  this statement from Dell's blog regarding how they work with of WPP for their $4.5 billion global business: "Together with the WPP agency, Dell is creating a new marketing model designed to further propel Dell's growth. We've been calling this 'Project Da Vinci' because we've been looking for the combination of artist and scientist-an agency that has both the creative horsepower and ability to measure the business impact of their work."

Large agencies are not having an easier time than smaller agencies just because of their reputation or scale.  My dialogue with CMOs are often centered around how disappointed they are with their (big) agencies and how these agencies became marketing procurement partners rather than idea partners.

WPP has the smartest strategy at a holding company level. WPP’s strategy is remarkably smarter than Omnicom and Interpublic. As agencies struggle to meet the demands of client, WPP is actively securing new media and services and for its client base in addition to its pursuit of interactive service expertise. They invested in Wild Tanget, LiveWorld, JumpTap, Video Egg and 24/7 Real Media. This is in line with their strategy as WPP sees challenges/opportunities as follow:

- Globalization /Americanisation / BRICs

- Overcapacity, shortage of human capital

- The Web (internet penetration, e-commerce, mobile)

- The pace of technological change

- Retail concentration

Unfortunately, many of WPP’s agencies are slow or failed to adapt these challenges. The need for agencies to have deeper strategic capabilities and technological competencies is causing pain.  I have not met a so-called “digital” strategist or planner or director from Ogilvy’s that I personally think meet the minimum standard in terms of understanding the digital space. Not to mention how disappointed I was every time when I interact with another “digital” or “interactive” experts from other agencies like DRAFT FCB or JWT which I held a lower than standard than Ogilvy's. I think this is not an easy problem to fix. There are so many structural issues that need to be fixed. It takes a lot of effort and energy to insure an agency to bring digital thinking to the core of everything they do.  It is about pull-marketing, software as a service, social networks, emotional connectivity; widgetnomics and collaborated search. The opportunity for brands to regain consumer trust and engagement is not only about tools, it is about whole new mind set about what the new role of marketing. If one of these guys show up on my office and ask me to help them to fix this, I would say this is a 3–5 year undeertaking. I'd other better opportunities.

Call Sam's Club For Your Search Markeing Needs?

Sam’s Club (Walmart owned) is now selling search engine marketing and pay-per-click packages. This sounds a little crazy but it is happening. They have selling anything from appliances, office supplies, and jewelry to small business and is now expanding to is online marketing services. For only $25 a month, Sam's Club will work to improve your site’s ranking on search engines, and for $50 a month a company can get pay-per-click advertising services. Sam's Club also offers Web site design and e-commerce services.

I believe Sam’s Club’s LeadConnect (they are reselling Innuity LeadConnect) offers McMarketing for small businesses which does not have the time to do search marketing themselves and sees an easy $25 per month payment plan for their site as an alternative to the Verizon Superpages and other pay-per-month services. Not sure if they include monthly AdWords ads or locally targeted advertising.

What’s next? Turn key "Social Network" solution from Sam’s club for $50 a month? How about off-the-shelf downloadable "Persona" to help design for 99cents each, cheaper than iTunes?

Ad Agencies and The Perfect Storm - Adv Giants Like Ogilvy's Are Facing the Biggest Challenge in 50 Years

I’ve seen a few downturns and what happened to ad spend. In most cases ad-spending plunges 8-12% when there is a slow down, but I think this time is little different. I was having lunch with a friend who is the CEO of a vertical content and search company in California and we’re talking about this subject and we shared the same opinion. Digital media will be a shining star in this downturn.

This downturn will be a perfect storm for the agencies. Many are not properly geared up to deal with the digital age especially the very big names. Ogilvy’s announced to cut 75 jobs from its NY headquarters (around 4% of total workforce). Most of cut comes from Ogilvy One which is the DM and interactive arm. Yes, it has always been treated as an “arm” and there were never any vision of serious investments in it. Their largest clients including Dove (they did some good work for them) and IBM are moving money to branded content and digital initiatives. Anyway they were never considered a key player in the digital world. Ironically, they produced one of the best campaign for Dove which is an exceptional piece of work.

Bob Greenberg (co-founder and ceo of R/GA) who is a pioneer in the advertising and communications industry for decades (R/GA was named Creativity's Interactive Agency of the Year for 2007 for creating integrated marketing campaigns) pinpoined exactly what was the problem with the ogilvys of the world. This is what he said in Adweek:

"When a single TV spot or print ad used to be able to simultaneously drive awareness, consideration and preference, marketers got a lot of value out of this ad. But now the best ads can do is start the consideration process, which more often than not is happening online. And although a punchy line might trigger awareness, it plays almost no role during consideration. Here, the "rational" experience of brands trumps the "emotional" delivery of a clever tagline or visual. Yet ad agencies have almost no experience in the former and way too much comfort in the latter. Even when they develop online campaigns, traditional agencies tend to approach the Web as just another place to deliver a metaphor. So instead of creating useful tools, applications, demos, customer support communities or streamlined ways to complete a transaction, they fall back on familiar stunts and gags, such as viral videos."

Ogilvys is also facing another test. WPP (Ogilvy's parent) is considering to refinance its $570 million debt and will put pressure on Ogilvy’s and other agencies to reduce its staff to cut costs. Not sure if this helps as it reduces their ability to compete, so they are locked into a no-win game. Expect the same for other big agencies in the group (JWT, Wunderman) . The industry expects the bigger ad-spend cut will only come in 09 and not this year due to three reasons: US election, Olympics in Beijing and the European football championship. Many expect a 0.5% to 1% additional growth to ad-spend. 09 will be the tough year. Although this will not be like the dot.com ad-spend downturn. There is still a big gap between the time people spend online as a fraction of their media consumption (about 1/5) and the fraction of marketing budgets spent on the internet (about 7.5%). Many companies are trying to narrow the gap, which will sustain internet advertising during a downturn. My clients are moving from 6-7% to 12% to as high as 23%. Search advertising will continue to grow. The internet's interactivity and engaging nature make it the best means of generating sales-driven campaign—whereas TV is best for long-term thematic. Those who work in the digital space will not have any problem at all. That is because the internet has allowed greater accountability to advertising. It is al about measurable results. Marketers can now prove that a click on an online ad can generate sales.

Investment analysts disagree about ad-spend in 08. UBS predicts that expenditure on ads will increase by 5%, whereas Goldman Sachs forecasts that it will decline by as much as 5%. (Who says you can trust any economist) At least everyone agrees on one thing: underlying growth in ad spending will come mainly from emerging markets and from emerging digital media. Emerging markets now represent 1/5 of global expenditure on advertising. Developing countries can add as much as $50 billion in new ad-spend in the next 3-4 years whereas developed markets will add only $38 billion.

Let me make a prediction. IPG (currently valued at a little below $4 billion (Omnicom and WPP are both cap at $14.5 billion plus and minus) will be bought in 6 months. This is a very poorly managed holding company but own some crown jewels. This is a "buy" at the current price for Publicis or Havas. Probably Havas I think. Anybody cares whether there will be only 4 or 5 agency holding companies left?

In 3-6 months, there will be one less agency holding company (IPG will be acquired) and one less media/search company (Yahoo will be acquired). Have a great weekend!

Agencies Consolidation and Mega Megers - Some Thoughts

While going through some my old files, I accidently discovered a small privately published book of DDB (now TBWA) in memory of 40^th anniversary of the agency. Founded by Bill Bernbach (1911-1982), one of the early advertising legendaries of Madison Avenue. I remember it was given to me by then the president of the agency in 1989. It is a collection of his words.

"The magic is in the product”

"There are few things more destructive than an unsound idea persuasively expressed”

"Because an appeal makes logical sense is no guarantee that it will work”’

He started with 13 employees and a top floor office off Madison Avenue and the agency generated $775,000 during their first year in business. Whitey Ruben, owner of Levy's Jewish Rye bread invited DDB to help their products. Their annual budget was less than $50,000; the agency viewed the account as its opportunity to gain attention in the Manhattan advertising community by introducing “ethnicity” into a marketing campaign. DDB's Levy's campaign ("You don't have to be Jewish to love Levy's") elevated the bread maker to the largest seller of rye bread in New York and helped Bill and his partners acquire the first of many big international clients. His VW ads were the most memorable and I considered them museum pieces.

He was a gentleman with brain and he represented the ideal image of an ad man/woman in those days. He was the ad man who brought “ethnicity” to advetising. Today, the industry is less glamorous and I am not too hopeful. Ad agencies used to be the marketing partners with their clients and all of a sudden that was evaporated. They have not stepped up and really added a strategic value component to the mix or simply big ideas. Instead, they are really becoming purveyors of low-cost advertising services.

Our friend David Armano asked me the question “Why do you think there are still so much consolidation and the demand for large marketing "engines"? There seem to be two competing models. Big one-stop shops or conglomerates and best of breed.” This is a great question. Three big factors that drive consolidation: 1/globalization 2/integration 3/scale.

Globalization doesn’t need much explanation. Marketing campaign often run across divergent organizational cultures, making global account management more prevalent. . There is still a need for better cost control and reporting. Clients want more visibility to agency costs. Agencies also need a clearer picture of their internal costs if they are going to maximize profits. More and more clients start seeing and buying ideas through the lens of strategic sourcing and procurement. Longtime relationships are being challenged as procurement departments take a hard look at what they get for their money. Commission-based fees are vanishing, replaced by fees based on agency costs.

Integration has always been a holy grail for advertisers. Imagine one firm that handles everything a client needs. With consolidation of the last ten years, I don’t see any progress. In fact it is more disintegrated because of the emerging of digital and social media.  Scale has its advantages, but it will reach a point of diseconomy of scale. That’s when the scale advantage cannot make up for the additional cost of co-ordination and negative impact on the culture due to bureaucracy.

What is the future of advertising in the social-media and post-TV age  and post agency mega consolidation? What would the next wave of consolidation be like? Will that extend to non-agencies acquisition?  Or do we end up having only three agencies to pick from? More next week.