Read an Excerpt
2020 Vision
Today's Business Leaders on Tomorrow's World
By Tim Burt Elliott and Thompson Limited
Copyright © 2015 Tim Burt
All rights reserved.
ISBN: 978-1-78396-037-8
CHAPTER 1
ADVERTISING
Sir Martin Sorrell, WPP
Annual revenues: $16.7 billion
Operating profit margin: 15.1%
Number of employees: 179,000 including associates
Number of markets served: 111
Headquarters: London and New York
The British chief executive of the global advertising and marketing services group has been in the role since 1985. In that time WPP has grown to encompass a network of more than 3,000 offices, serving 342 of the Fortune Global 500 companies, every member of the Dow Jones 30 and sixty-eight companies in the NASDAQ 100. Sir Martin, knighted in 2000, is also a non-executive director of Alcoa, the US metals technology and engineering group, and Atlas Topco, the Formula 1 company. He is a board director of the Bloomberg Family Foundation; an advisory board director at Stanhope Capital and Bowmark Capital; and sits on the Executive Committee of the World Economic Forum International Business Council.
In the first season of Mad Men, mythical client-winner Don Draper tells an agency colleague: 'Advertising is based on one thing, happiness. And you know what happiness is? Happiness is the smell of a new car. It's freedom from fear. It's a billboard on the side of the road that screams reassurance that whatever you are doing is okay.'
Mad Men, of course, was set in an era when ad agencies were selling the American Dream. It was the age of Camelot with Kennedys in the White House – pre-Vietnam, pre-tobacco warnings, pre-recession. The Internet lay far beyond the horizon. In advertising, the laws of supply and demand were fairly predictable. Don Draper and his colleagues created reassuring marketing campaigns for household brands, and placed advertising on their behalf in newspapers and on TV, radio and billboards.
Fast-forward fifty years; the advertising world has been transformed. Data-gathering, behavioural profiling and programmatic bidding are threatening to eclipse the traditional crafts of Madison Avenue. Of the $1 trillion spent each year on global advertising and marketing communications, a growing proportion of ads are now distributed through computer algorithms and consumed on smartphones and tablets. Marketing campaigns are conceived with social networks in mind; audiences are tracked according to their data consumption habits; online exchanges can place ads automatically, driven by search-engine traffic.
At the centre of this industrial transformation sits Sir Martin Sorrell, the long-serving chief executive of WPP. He is the ringmaster of an advertising and marketing services group – spanning advertising, media and data investment, public relations and specialist communications – that comprises hundreds of companies, which, collectively, create and place one in four of all adverts around the world.
During almost thirty years as WPP chief executive, Sorrell has witnessed at first hand the upheaval in advertising and marketing caused – variously – by the onset of the digital age, accelerating globalisation, the emergence of China as an economic super-power, the fall of Soviet communism, several wars and financial crises that have come and gone. Over that time, the marketing group that emerged from the shell of UK manufacturer Wire and Plastic Products has grown rapidly as a result of both acquisition and organic expansion. By the second decade of the twenty-first century, WPP had evolved into a network of more than 3,000 offices employing almost 180,000 people in agencies and associate firms that represent two-thirds of the companies ranked in the Fortune Global 500.
A business at the heart of the creative industries – focused on developing advertising messaging and marketing power to sell all manner of products – is now evolving into a more mathematical, automated enterprise. Compelling ads still demand creative genius. But target audiences are identified increasingly using algorithms, data tracking and network technologies.
'Don Draper would hardly recognise much of what we do today,' says Sorrell. 'In future, there will be more "maths-men" and women than Mad Men in our industry, especially if the medium truly becomes more important than the message.
'We used to operate under a system where a campaign-planner would come up with the strategy; then we did the creative execution and from that we would distribute it. The creative department and the suits would then direct the media buyers. That is no longer always the case – even though traditional media and marketing disciplines are still critically important. Now we need more scientists, more engineers, more coding as we develop the business.'
Of WPP's annual revenues, digital marketing, media investment management and data investment management now account for $12 billion of the group's $16.7 billion total. As a proportion of total billings – the overall fees and commission-based income from clients – more than a third is derived from all forms of new media.
'The whole game is changing in two ways,' says Sorrell. 'Firstly, the skills we need are different. This is where the maths-men come in; we need people who are technologically literate; they are more often scientists compared with the arts pool we fished in before.
'Secondly, we have to integrate our services much more effectively. Clients are more confused because there are so many service options and the digital market is so fragmented. That creates an opportunity for WPP because clients are turning to us more for advice, and seeking an integrated agency relationship around the world.'
This twin-track reorientation has emerged alongside four strategic priorities at WPP, which Sorrell hopes will enable the group to navigate the current market upheaval successfully and continue expanding to 2020 and beyond.
Those four priorities are, first, to increase the share of revenues derived from new geographic markets and, second, to lift the proportion of sales from digital media still further. Third, the group then wants to expand its presence in data investment management. The company wants to own the means – the technical assets – by which it can gather data, analyse audience sentiment and target advertising on the back of it. And, fourth, WPP wants to achieve what Sorrell calls greater 'horizontality'. In practice, this lateral thinking involves greater internal co-ordination in two broad areas. First, more clients are relying on unified global teams drawn from across WPP firms. Second, WPP's country and regional managers are being encouraged to pursue intra-firm co-operation, hiring and acquisition strategies in different parts of the world.
When it comes to geographic markets, WPP expects GDP from new markets to grow from $21 billion to $31 billion by the end of the decade. In order to tap into that growth, Sorrell has set a target to increase the group's share of revenues from faster-growing markets to 40–45 per cent of the total in 2020, compared with just over 30 per cent in 2013.
'There are a lot of grey swans, black swans or whatever you want to call them,' he admits. 'There is economic uncertainty in the euro-zone, turmoil in the Middle East, a hard or soft landing in some BRIC economies and how to pay off the US debt. In addition, there is the Russian–Ukraine situation and, perennially, Gaza. Add to that the 2014 Hong Kong demonstrations and the Ebola outbreak.'
But he adds: 'There is some potentially good news coming if an agreement on sanctions (and, from a personal point of view, recognition of Israel) is reached with Iran. If Iran, which is 80 million people, becomes a market that is included in world affairs rather than excluded, that will be good news. The same goes for Cuba. We are seeing countries such as Myanmar open up. There are big growth opportunities in Africa, although it's very fragmented and markets such as Nigeria are difficult to penetrate. In the Middle East, we've seen Saudi Arabia grow very strongly. On China and Asia more broadly, I'm bullish and India could get better under the Modi regime.'
Sorrell thinks and speaks in a broad geo-political sweep because WPP's clients are focused increasingly on brand marketing and advertising spend in faster-growing markets, whilst working with clients in more mature markets such as Western Europe to tailor ad-spend to maintain their brand share. Given that advertising and marketing spending tend to track GDP growth, there is an expectation that increased exposure to fast-growth markets will offset any slowdown elsewhere.
Alongside new market growth, WPP is focusing its second strategic goal on increasing its exposure to digital and new media. By 2020 the group aims to increase its share of revenues from new media to 40–45 per cent of the total, compared with 35 per cent in 2013. Part of that growth will be derived from increasing Internet usage, with 48 per cent of the world population expected to be online by 2017, compared with 32 per cent in 2013. By the end of the decade, advertisers hope to be able to reach half of the world population through the World Wide Web.
'The class graduating from Harvard today is probably the first generation that spent its life from the day they popped their head out of the womb with the web, so their behaviour and attitude is bound to be totally different to you or me,' says Sorrell. 'We have got to be ready to target them on the devices that they use.'
WPP's media investment management business, GroupM, predicts that the mobile advertising floodgates are about to open. Half of Facebook's global advertising revenue is now mobile and Google predicts that 80 per cent of all its traffic will eventually come from that source. In some markets, such as China, mobile advertising could grow even faster. At China Mobile, the country's dominant wireless network, an estimated 400 million subscribers are already using data-heavy smartphones that lend themselves to online marketing. Such growth underlines why digital media buying has become more important to WPP. To capture mobile and online audiences, WPP has launched new operations such as Xaxis, a subsidiary operation to acquire digital advertising inventory and sell that space on to its clients.
Xaxis has become the world's largest programmatic media and technology platform, buying more than $800 million of audience-targeted media in thirty-three markets. Programmatic advertising uses automated software and algorithms to allocate advertising to media outlets with relevant space to sell. The business represents part of advertising's digital future, enabling computers to sell online inventory.
'An advertiser can buy a certain number of impressions on a website in advance at an agreed price and execute the order by computer,' according to The Economist in its 2014 advertising and technology report. 'The rise of real-time bidding [or programmatic buying] is important because it offers a glimpse of how other ad-supported media may change over time.'
Real-time bidding is one of the digital trends prompting WPP to spend around $3 billion of clients' money each year with Google – a company that Sorrell sometimes calls the 'frienemy'. Google is a friend in that it is a vital access point for advertisers to reach mass audiences around the world, opening up a giant market to match advertising to search requests. But Google also risks being the enemy because it takes most of the revenue from such search-related advertising, and because it diverts traffic and fees from outlets upon which companies such as WPP previously relied.
Over the next five years, the power of search engines and algorithms is likely to have a growing impact on advertising pricing as more devices such as televisions and even billboards become Internet-enabled. This is because the absolute cost per unit of advertising is much lower online, especially for mobile, in comparison to traditional print or broadcast advertising:
'The Internet is attractive to advertisers because you could shift a million dollars, notionally, from your TV budget to $100,000 of website spend,' says Sorrell. 'Not only did you think you were getting some efficiency gain, but you also got some money to tuck away into profit or some form of spending somewhere else. Because of fragmentation, I think the cost per advertising unit – if such a thing existed – for $100,000 of online spending has got even lower.'
This disequilibrium exposes one of the major challenges for digital media platforms. They are attracting audiences as readers or viewers migrate away from traditional media outlets. But the advertising spend required to reach those audiences remains far below the cost of a printed newspaper page or prime-time TV spot.
What this means is that media platforms are finding it harder to monetise advertising online, even though most of their audiences are now viewing content digitally. This is potentially good news for advertisers who want to reduce the per-viewer cost of placing an ad. But it is bad news for media outlets charging for advertising space, where they are now trying to sell according to total volume reach rather than the quality of the audience they offer.
Until relatively recently, for example, it was possible to buy every piece of advertising space on FT.com for a week for less than the cost of printing a full-page ad in the Financial Times on a single day. This reveals a time-lag in the way advertising is being sold. Big companies are not yet allocating as much of their total advertising spend to digital media as they are to traditional outlets. In the US, for example, the marketing services industry still allocated 23 per cent of its advertising budget to newspapers and magazines, even though consumers spent only 6 per cent of their media attention on those outlets. Free-to-air television is still a major magnet for advertising, and all forms of TV in developed markets are expected to continue to command 40 per cent of ad spending. This seems to indicate that advertising spending may yet continue to be allocated to television as long as it can attract large audiences. It is one reason why spot-advertising rates for event television such as the Super Bowl or European Champions League continue to rise.
But there is no room for complacency among newspaper publishers. They cannot promise the same 'big-event' audience as the TV networks, and have already suffered from the print-to-digital shift in three important advertising categories: property, recruitment and classifieds.
The need to interpret all of these trends, and to price advertising and marketing spend accordingly, explains in part why WPP has expanded its focus on data investment. Measurable marketing services – such as data investment management and digital research – are expected to account for a large part of total revenues in the years ahead. Data management will become even more important as advertisers try to harness 'big data' about consumer habits. By 2020, the amount of big data per head is expected to reach 5,200 gigabytes, compared to less than 260 gigabytes back in 2011. For the firms that can analyse and interpret such data, there is likely to be significant competitive advantage.
WPP is thus investing significant sums in data management to collect, interpret and combine data. By doing so, it hopes to provide advertisers with the audience measurement tools needed to enhance their marketing return on investment. The largest of those advertisers – the global corporations with huge marketing budgets – increasingly want to harness data analysis, and how it is applied to their media spend, to work with a single client team for all of their advertising and marketing. This trend has shaped the fourth strategic priority for WPP: the growth of 'horizontality'.
Of WPP's global business, about a third, or $6 billion of revenue, is now derived from teams from across the business that serve global clients. Among more than forty horizontal client teams, 'Team Detroit' manages the global Ford account, drawing on experts from WPP firms such as JWT, Hill + Knowlton and Burson-Marsteller. Similarly, a global team drawn from different firms manages the Colgate account, known as Red Fuse.
'Clients want the best people working on their business and they don't care where they come from,' says Sorrell. 'I think the way forward is for our people to be running clients not separate firms within our network. It simplifies the client relationship, removes needless duplication and means we can adapt to the demands of procurement officers.'
(Continues...)
Excerpted from 2020 Vision by Tim Burt. Copyright © 2015 Tim Burt. Excerpted by permission of Elliott and Thompson Limited.
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