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.
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.
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 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?
Readthis 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 and24/7 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.
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?
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!
While going through some my old files, I accidently discovered a small privately published book of DDB (now TBWA) in memory of 40th 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.
Back in the 80s clients only work with their official appointed agencies and these global agencies continued expanding their service to other below the line and other downstream promotional activities.There were a few attempts to move upstream but largely failed. Then in late 90s during the early days of the Internet clients flocked to new Interactive shops to look for new ideas in digital marketing.AAfter 1-1-2 years many of the first generation of interactive agencies are now part of the OMC/WPP/IPG?Publicis families.
Today, it is funny to see clients are running to small creative hot shops for big ideas again. Not only that, they are also looking for help from digital innovation set-up like us to fill the digital gap. Take Nokia for example.They hired W+K, a mid-size agency with a strong creative reputation, and JWT, the 196-office 100+ year old agency to handle their business globally. W+K set the creative agenda. JWT only need to adapt Wieden's work locally. There must be a lot of egos and territorial issues under this arrangement. Not to say W+K does not have weaknesses, they are a great idea-driven creative hot shop that lacks serious digital capabilities. There is a bigger gap exists for digital strateist to paint a broad picture of how that drives or fits into everything.
This is an example where the big shops are not meeting the needs of their clients despite their size. Increasingly, smaller agencies have increasingly been winning big clients and offering a much more exciting place to work for many. There are more examples such as Addidas hiring Amsterdam based 108 and at the same time uses TBWA as their global agency. LG hiring BH in London and using Y&R globally.
The bigger question the big boys should be asking “Why aren't we doing this stuff?” Does the future belong to small creative hot shops +digital strategy consultants +global media agency?
There is a 50/50 chance of an economic recession and the advertising industry has already factored in the softness for their 08 revenue forecast. One bright spot would be the Internet sector. This time around the budget cut will go to print and TV, the “engagement” and “measureable” nature of the digital marketing will make the industry resilient even if there is a recession.
Take a look at the valuations of many Internet companies and they do look like some value buy, with 2008 EBITDA mean and median multiples of 15x and 12x,respectively. I think we are still looking at 20-25% overall online ad growth this year versus 2-3% for all advertising (this is the US, Asia will grow at 6-8% with China at 18-20%). The explosive growth of social media will gradually be monetized as media owners harness both behavioral and contextual ad technologies to trigger a step-change in the profitability of consumer-generated content. This is the next phase of a much deeper commercialization of social media. It is interesting seeing how search is holding its own, dominating all other formats and becoming a US media channel in its own right. It is almost a sub-industry within the whole internet space and is dominated by one company. Search will not be slowing down at all and will take dollars from traditional customer acquisition mkt budget.
Consolidation will continue on mid-scale particularly on social networks and I don’t expect any mega-mergers such as Microsoft or eBay buying Yahoo etc. May be 2009.
WSJ reported today that the Web's emergence is now forcing ad executives to succumb to marketers' demands that agencies reinvent how ads are created, and forgo their TV-centric approach. This is a really good piece that reflects exactly the big challenges.They reported that clients are even calling for changes in the way ad firms are structured. But until now, few advertisers have spent more than 5% to 10% of their marketing budgets online. With the growth of online video and social networking, ad experts expect that percentage to jump significantly this year.Many senior marketing executives are looking at anything from 10% to as much as 35% or total ad spend.As I’ve written here a few years earlier any softness in the economy also will likely drive more money to the Internet, which can be cheaper than other media and has a more measurable reach and results, which is attractive to advertisers in slower times. Merrill Lynch predicts overall ad spending in the U.S. for 2008 will grow 2.3%, while the portion of that spending on the web will increase 18%. Publicis’ Zenith Optimedia even expecting the total spent on Internet will surpass magazines in 2010 and that’s two years away.
Yes, the next 12 months we will see an acceleration of the transformation of the ad industry, partly due to the softness of the market and the impact from the whole social media thing. The article highlights the following:
New Structure:The Web has fueled marketers' frustration with the lack of collaboration inside the ad holding companies that dominate the industry. Many advertisers complain that ad executives too often push agendas that will most help their own bottom lines and tend to favor certain types of media, such as TV. Advertisers want a "media-agnostic" approach, one that picks whatever medium is best for the ad campaign.
Some bigger marketers have taken matters into their own hands during the past year. Procter & Gamble, Dell and Johnson & Johnson each have tried -- working with ad holding companies -- to create new types of ad groups that blend different functions. In 2008, pressure from marketers on this issue is likely to intensify, forcing even more change in the way ad firms are structured.
Screen Wars: As advertisers find it harder to reach consumers in a fragmented media world, some are turning more often to the outdoors. Television screens are increasingly popping up in grocery and department-store aisles, elevators and even gas pumps -- all blaring clips of TV programs, accompanied by ads. Walt Disney's ESPN and CBS Corp. each have programming running on 20-inch liquid-crystal displays at pumps at gas stations around the country. Gas Station TV, which operates about 5,000 such screens in 300 cities, offers ads from marketers such as General Motors' Chevrolet and Sony. Last year, CBS inked a deal to have its programming also air in the waiting rooms of doctors' offices.
House Guest:Over the years, ad makers have tried various methods to learn about consumers, from focus groups to online polls. But many on Madison Avenue are skeptical of these methods, believing consumers don't always share their true feelings in those types of traditional settings. So a growing number of ad agencies are expected to try a different approach: having researchers spend long periods of time with consumers to find out more about how they live.
Some have already tried this. When devising a new ad for J.C. Penney last year, Saatchi & Saatchi sent staffers to hang out with more than 50 women for several days. They helped the women clean their houses, carpool, cook dinner and shop. Rather than pepper them with questions, the agency employees simply observed the women's behavior and emotions. Their research became the basis of a new ad campaign; the commercials have won praise from Madison Avenue's creative community.
Green Backlash: Corporate America latched onto environmental marketing last year, as big companies spent millions of ad dollars promoting their products and services as eco-friendly. Some people in the ad business are predicting a backlash this year from consumers who question whether companies are living up to their promises. "Marketers will be more intensely scrutinized for their green efforts -- those that don't hold up will be called out via blogs and elsewhere online, ultimately leading to consumer skepticism," said Greg Stern, chief executive of the ad firm Butler, Shine, Stern & Partners.
I repost this old presentation of mine which many ideas are echoed by this WSJ article.
Everyone is talking about a recession and how it could hammer those media companies and ad agencies that rely on advertising next year, curtailing opportunity for reinvention when the industry needs it most.
How severe the impact of a sinking U.S. housing market and may be a slowdown in consumer spending depends on many factors. I think we are at a 50/50 chance of having one. I really do not see a recession in the cards..no least with the indicators. With the presidential election going fast and the third quarter will come the summer Olympics in China while the fourth has the election midway through it, plus the holidays. Who knows what’s Federal Reserve Board is thinking, does anybody really think a recession will be allowed during election years? I would speculate that IF we are going to see two quarters of negative growth, it would come in Q1 and Q2.
If that happens, it could cause ad revenue for 2008 among traditional media companies to drop 10 %, compared with current estimates of 0 to 1% growth. The question that interests me most is how about the new media? I think the answer is probably not much. Even during recession (I personally don’t think we’ll get one), people spend more time at home and they have to do something, be entertained. YouTube is the best free entertainment and so are all other social networks and other online cool destinations. Search will continue to grow and expand into new areas. Online is looking bright.
Online ad growth across the industry is expected to rise more than 18-20% this year, fueling heavy investments. But consumption of new entertainment forms is very tiny compared to traditional viewing habits so there are plenty opportunity for growth. Video viewing on the Web from the likes of YouTube relative to television watching is currently about 0.01% to 0.02%. Google can definitely weather an recession, but other novel types of advertising could be vulnerable. Electronic gaming is another sector that is relatively recession-proof and is more vulnerable to industry-specific events, such as game console cycles, than economic ups and downs. Growth will continue into the current console cycle. In-Game advertising will be a bright spot in additional to mobile video. You migh find the photo below funny, a digital ad placed next to a wrong story but it is contextual.
Unlike the periods leading up to the last two ad recessions, advertisers have not been increasing their budgets faster than warranted by economic growth. During the last few years, ad spending has roughly tracked the economy, remaining 0.92% to 0.93% of GDP, whereas before the last two ad recessions, that proportion increased rapidly and peaked at 1.08% in 1989 and 1.06% in 2000. U.S. advertising is expected to grow 1-2 (probably lower1%) to $294.4 billion in 2008, and worldwide, advertising is expected to rise 4.6% to $653.9 billion, thanks to Summer Olympics, U.S. presidential elections and European football championship. We need all three of them.
Brands are transforming themselves and I would argue they are becoming more and more important. They exist beyond the ads and the products, they are trying to find new ways to get inside your home and be part of your life in the form branded content, branded entertainment, branded utilities and branded space. L’Equipe, the Parisian based daily sports newspaper invented the tour de France only to sell more newspapers, its branded content with a pinch of engagement.
New social forms have emerged from all kinds of new network-based social behavior. These conversations between customer that are previously unknown to each other to the extent where over 50 million people are able to interact in a single online space, generating billions of web site page impressions every month. The question is how should brand play a role here. These social webs are exploding everywhere and this can no longer be ignored by any brand.
The structural nature of consumption of information and content are in a state of flux as we enter a world where content will be increasingly delivered through all kinds of networks that can be personalized and entirely self-scheduled. In that world, the viewer – not the broadcaster – whoever that may be, will decide what is consumed, when, how, when, and with whom you share it with.
We are in a transition from interruption and intrusion to engagement. When distribution is trivial, unlimited, and available to all comers, marketing to a captive audience sitting on a cough in front of a box is the thing of the past and creating "quality" product/service/content is paramount. Content is now a part of any product (and its experiences). Consumers will consume only what‘s relevant and what entertain them most, not what is marketed to you them in a repetitive fashion. By providing branded experiences, brand can extend engagement rather than disrupts it, by doing so it strengthens its contextual involvement and connection with the consumer.
With the emergence and convergence of the mobile phone and the internet and location-base-system we suddenly have immediate access to our co-workers, our friends and family members and know where they are at any point of time. We are getting used to living in a connected age where we naturally and increasingly draw on our participation in various networks for information, assistance, information and support.
The language of our post-modern world is not broadcast-branded-content pushed to our TV box that we consume passively. This kind of traditional marketing has become adversarial in the eyes of customers. Customers have changed and adapted to this new always-on, always connected, media fragmented world, where they seek value by searching, where they are not waiting for you to interrupt them with unwanted messaging, where they look to their peers for voices of authority. The behavior of sharing user-generated-videos will evolve and new behavior will emerge.What we are seeing in YouTube I called it “socialcasting”. Does this signal the end of broadcasting? Consumer will spend more and more time interacting with each other and mashing-up content rather than passively watching low quality content. I think we have yet to see the full impact of this phenomenon. This will determine the new of our post-modern culture which I define as follow:
- Immediacy
- Flexibility
- Portability
- Permeability
- Fluidity
- Interactivity
- Mashability
- Ownerablity
This postmodern culture is characterized by the density, the intensity, and the fragmentation of the instances of communication, by hyperreality that continuously creates fresh vidoes and meanings based on the same signifiers, and by the incredible array of brands and products that impose their own rules and procedures as a way of life. The postmodern consumer thus transcends the state of being the subject positioned in society to satisfy one's individual needs. And everything seems so hyperreal's. Please share your thoughts.
“Password to Marketers' Meeting: Digital” as reported in a headline today by Suznee Vranica of WSJ. Wonder how many marketers have those secret passwords? In this crazy business environment, marketing is ready to be reinvented. No one is sure to who is taking the lead to drive this change. I have some ideas. I am sure you do too.
As all big players gather for an annual conference in Arizona yesterday and today, the topic that dominated in the seminars and dinner parties is easily predictable to be “How marketers adapt to survive/prosper in the new digital world?” and “What are the new tricks required to play this game?”
According to the study by BAH with American Marketers Association which was released during the conference yesterday, "digital marketing still lags the shift in consumer behavior" prompted by the Internet. The findings indicate that while "8 in 10 Americans are now online" and spend as much time on the Web as on TV, most marketers allocate only 5%-10% of their ad budgets to digital media. Its conclusions reinforced perceptions that many marketers are struggling to figure out digital media. Many are looking for help and are not getting them.
Less than 24% of those polled considered their companies "digitally savvy," citing several issues, including "lack of experience in new media" and "dearth of digital talent," the report said. Some industries are further behind than others: Nearly half of the consumer-goods companies that participated in the study spend less than 5% of their marketing budgets on digital, whereas technology, travel and financial services allocated more of their ad dollars to digital media.
Microsoft CEO Steve Ballmer is vocal about his desire to give Microsoft a bigger presence in advertising. "As I look out 4, 5, 6, 10 years from now, advertising will become 15, 20, 25% of Microsoft's business," he said recently during a speech in Paris. Ballmer was speaking today in Arizona and predicted that in 10 years everything you read you will read on a screen. “My parents will never get there” Ballmer asks, rhetorically. “You’re right. But your kids will get there in four years.” It’s very important that as soon as you assume that everything will be delivered digitally; all media, all advertising will have to take that into account. As for what Ballmer calls “personal authoring,” none of it will be separate from the consumption of produced media. All media will have interactivity, community. There will be so many new sources of media. The blogger of today, he predicts, will be, in a sense, just a footnote 5 to 10 years from now.
Other than threats from Microsoft, Google and Facebook, there are good reasons for big agencies to panic.In the list of ad agencies top 20 agencies in 1980, of those top 20 agencies, 17 are now part of the four major holding companies. The four largest holding companies represent close to 85% of the advertising in the US. and 50% of the advertising in the world. The agencies that they owned benefited from a good financial discipline, low cost of capital and market power as a result of scale. Sir Martin Sorrell did a fantastic job creating a global advertising powerhouse. But the nature of the business is changing so much that everyone needs to take a fresh look at what’s going to happen next 5-10 years. As a result of the disruptive change brought about by Web 2.0 and Media 2.0, agencies failed to step up and provide true strategic value to the mix, other than low-cost advertising and media buying factories. There is a lot of truth when Bruce Nassbuam of Business Week wrote in July headlined "Are Big Ad Agencies So Clueless That Corporations Should Avoid Them?"
The next question is how are clients going to fill that vacuum? If they’re not getting strategy and they’re not getting innovation from their ad agencies or the holding companies, where do they go for help? I’ve heard from senior agency executives “We should be doing it,” but they’re generally not doing it, but many are honest to admit they don’t understand it. Ad agencies, direct marketing firms, CRM agencies are all doing a little here and there, but the structural problem is still –if you go to an ad agency, you’re going an ad and a slogan. You’re not going to get a full picture of what is going on with all these Web 2.0 or a strategy (marketing) to drive all marketing activities. Or you’re not going to get an Enterprise Level Digital Roadmap that fully aligns with your brand and marketing goals.
So there are 4 ways that the strategy is going to be developed for a client. One is that ad agencies quickly step up to the role and start delivering this for their clients (impossible). Two, and what’s probably most prominent right now, is the clients are doing these themselves with some consulting boutiques or smart individuals. The third way is outside management consultants are now coming into the business and help picked other agencies to execute the advertising and other tactical activities (happening). The challenge is many traditional strategy firms do not understand the digital space as well as the “experiential” elements of the strategy. There is also a lack of contextual understand of brands due to their strong emphasis in analytical thinking. The fourth way is to use interactive agencies which deeply understand the web culture and how technology works (some success). They lack the rigor of strategy firm and most of them carry too much website legacies. Most of these firms are 10-12 years old and they have created their own legacies.
The problem with the clients doing it is that the clients are as siloed as the agencies are. Within many of these larger organizations, there’s a problem of strategy ownership and coordination. It’s an orchestra of a lot of instruments all playing their own tune without having a conductor who knows what each instrument can add to a symphony and then develop a strategic plan to create a very successful outcome.
What about the future hold for advertising agencies? Well, let me share with you a few slides from my power point on the future of ad agencies (sorry cannot share the whole deck due to business confidentiality reasons). Here is some of the thinking and what I think will be the key trends that further push marketing to the edge (I wrote and posted this in June):
- Clients are questioning the current and future relevance of traditional media & ad agencies. Will large ad agencies ever are able to evolve “fast” enough to meet the needs of this fast changing technology-driven and network-enabled world of marketing? (A study by Sapient, “52% of CMO’s believe that traditional, large advertising agencies are ill-suited to meet online marketing needs.)
- The first generation of interactive shops will step up to help but have a vacuum on the upstream strategy. They are generally more nimble when it comes to experimentation but need to rebuild a strong strategy practice which is another challenge on its own.
- Holding companies will gradually apply pressure for agencies to downsize and re-invest their profits to buy interactive shops. The challenge is there is nothing left to buy. They would not attempt to retrain their agencies people as it costs too much and takes too long.
- Rather than waste money re-training traditional human capital and resources, one might predict lay-offs and downsizing. While holding companies “trim the fat” from decreasingly relevant non-digital media and account management groups, expect to see more digital specialty shop acquisitions. The common thinking is “you can’t teach an old dog new tricks” when it comes to ad agencies adapting to new media and change.
What are the new tricks (I first presented this in Jan this year)? Tell me if you think ad agencies can do this in the near future.
- Virtual Corporate Personality - For years, large corporations have been trying to act as big corporations and becoming more and more “faceless”. The need for organization to have a “humanized” face (or interface) and touch is becoming important. This is not just about executives’ blogging, it is about putting a face and brings this face into the virtual world. I have been thinking a lot of about this and I have some interesting ideas.
- Private Search Network - The personal media revolution results in exponential increase in the amount of consumer generated content.This leads users to search beyond the algorithm for new ways of searching what they need beyond just text and images. A method for this is collaborated social search, where people are sorting content on the web, creating their own groupings and sharing that with others. As a result of that you get Private Search Network which you need to be a member or be invited to get access. Marketers may have to pay to get access to these groups.
- Widget Everywhere Marketing - Widgets will becoming a new marketing tool as it is an effective way to add value and be able to link it to some marketing messages or simply create a service. As more and more new technologies will allow open participation for anyone who wants to create a widget. (Facebook is taking that approach and many will do the same)
- Automated Tagging – One day almost everything will be tagged and tagging will become more sophisticated. It will extend into products and services and even customer testimonials. Or even product origins or usage etc. The task of tagging will be automated and that will create a new level of challenge and opportunities for any search engine.
- Social Media Optimization - SMO is slowly evolving into a movement in the online world.Primarily being driven initially by those search marketing folks, I think SMO will continue to get broader use from marketers interested in building traffic as well as buzz. Optimization and measurement will come hand-in-hand.
Anton Levy, managing director of General Atlantic LLC's media and consumer practice, believes that digital marketing is still a "high-growth category" compared with marketing on traditional media, "I think a couple of things. One is the secular trends in the overall marketing-services marketplace are particularly attractive for growth investors like ourselves...You have got this massive shift that you are seeing where all consumable media is trending towards digital environments and the huge ad dollars that are going to follow that audience. That large secular trend is creating a lot of different things. It's creating new business models, current companies are trying to adjust their existing business models and a massive amount of people and talent are being attracted to the space. That's why his firm invested (rumored to be) $200mm in buying AKQA (2X revenue). They put the money into where the mouth is.
I got quite a few emails repsonding to my yesterday's post and so I decided to share the first part of the full presentation here. I hope you'll enjoy it. Many of the ideas were as a result of my conversations with thought leaders both academics and industry leaders over the last six months and they definitely get it. But most big ad agencies folks I've talked to were so behind the curve that you won't believe it. Bruce Nassbuam from Business Week wrote a piece in July headlined "Are Big Ad Agencies So Clueless That Corporations Should Avoid Them?", and that is a really good question to ask if you were a client.
Nassbuam wrote: "I've been spending much time with ad agencies and focus groups lately and can only conclude that--with some exceptions--they are mostly clueless. Three years ago they had a traditional knowledge about consumers but didn't know much about social networking and web 2.0 technology. Today, most of them don't know about consumers and don't know much about social networking and web 2.0 technology either. Mainstream ad agencies have one refrain--one message to their corporate clients--do social networking, do social networking, do social networking."
Earlier this year I was at the MIT Media in Transition conference, Dr. Thomas Pettitt (University of Southern Denmark )spoke about Web.20 and the participatory cultures and how they signal the closing of what he calls “the Gutenberg parenthesis". (Johannes Gensfleisch zur Laden zum Gutenberg was a German goldsmoth and printer, who is credited with inveninting movable typeprinting in Europe and mechanical printingglobally). Pettitt's idea is that we are just emerging out of a period dominated by print in general and the printed monograph (book and magazines). This process, lasting five hundred years, disrupted the idea of what a work is and who owns it. In fact, knowledge creation now recalls cultural norms that prevailed before the advent of printed texts pre-Gutenberg 1440. In oral and folk culture of the Middle ages, practices such as adaptation, appropriation and recombini
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