Digital journeys of Martin Sorrell

Digital Consumer Advertising

Digital journeys of Martin Sorrell

Martin Sorrell, after more than three decades at the helm of WPP, the advertising company he turned into the world’s largest, left on 15 April 2018 under what has been widely presented as a cloud of personal misconduct

This may be so... but we are tempted to focus on the opportunity to start from scratch beckoning, a more probable motive for Mr. Sorrell’s resignation from the company he founded

To turn as vast an enterprise as WPP around, with a staff of 200,000 in 400 separate ad businesses and 3,000 offices in 112 countries sounds like a tall order in the best of times

But with the onslaught of targeted digital ads and Internet platforms taking on traditional advertising budgets, a history of long term client relationships and of successful multimedia advertising campaigns might be slowly fading away – undermining the agency business model itself

 

This is where the thinking of Mr. Sorrell might highlight the fracturing advertising landscape as well as the trends with growth potential

At WPP, Mr Sorrell apparently intended to sidestep the issue by extending the reach of the company with expertise in analytics (digital ad exchange AppNexus) and in digital technologies (Big Data, cloud computing, gamification and social networks leader Globant in a 20% stake), embracing the new to transition the old …

Outlining his strategy at WPP in 3 brief sentences 

We put the focus on Asia-Pacific, Latin America, Africa and the Middle East and Central Eastern Europe, the home of the next billion consumers. We embarked on the early development of digital capabilities; and the evolution of a firm-wide integrated client and country-centered approach

(excerpt from the message to all staff upon departing from WPP )

 

Targeted digital advertising

For now, targeted digital advertising remains the bread and butter of the social networks and search engines, with Facebook and Google controling 75% of digital advertising globally. With digital taking a 30% share of world advertising, the 2 companies own approximately 22-23% of the world ad market

World-wide 2017 ad revenue of this duopoly is estimated to be approximately double the US market - $73 billion for Google and $40bn for Facebook, according to a JP Morgan study

On the diversified US digital ad market in 2018, their market shares are projected at respectively 19.6% and $21 billion (FB) and 37.2% and $40 billion (GOOG). 

Despite double digit growth projections, their US market shares are slightly down from 58.5% in 2017 to 56.8% in 2018, signaling for many what might be a transition as Internet – savvy vendors with Amazon on the forefront assert the value of their own data hoard

Still quite small,  comparatively, at 2.7% of US digital ad revenue in 2018, Amazon ad business is projected to grow at an outstanding rate of more than 60% - reaching $2 billion for the first time while the company’s presence in mobile advertising remains weak (1/3 of its ad business and 1.4% market share), according to data projections from emarketer - a trend confirmed by JP Morgan's global revenue estimates

Thousands of brands depend on Amazon’s Marketplace seller program, driving up to 12% ad revenue for Amazon on top of the 15% of each item’s selling price and the 5% to 6% required for logistics (warehousing and shipping by Amazon)

With an ever increasing share of the $5 trillion U.S. retail market, Amazon gains more detailed knowledge of their client’s online searches (more than half of which are now initiated directly on Amazon making the company Google’s biggest search competitor), with corresponding data losses for Google and Facebook…

And by including new data sources (from Whole Foods, Amazon Go stores, Alexia speakers and video streaming), Amazon continues to refine the understanding of its clients consumer preferences, browsing and shopping habits or even restocking habits… to a degree the Internet platforms cannot match

Geography and technology - the places where the growth and the opportunities are

The trend, which Mr. Sorrell highlighted repeatedly, offers an insight into what the future may hold for the industry

  • Very large companies –  Amazon is not alone – master the programming skills and own the data to engineer targeted messages for prospective advertisers
  • With programming skills shared across the board, control over data is going to be the critical hurdle and only very large companies – either vendor platforms or merged entertainment behemoths (such as Disney or CBS-Viacom) will run the show
  • The growth of digital advertisement has been explosive but the time may be coming for a more balanced approach between digital and traditional (TV and all) advertising venues - access to data and to the programming skills may start to level the playing field 
  • By relying on advanced digital technologies, innovative advertising agencies will create value with content to fit in this concentrated market

 

Growth and opportunities of ‘geography’

The implication for a new model of ad agency seems clear; besides the US, very large companies, with the programming skills and control over client data are most certainly located in China

  • Mr. Sorrell does not ignore the vast potential of the growing middle and lower-middle classes in the BRICs (Brazil, Russia, India and China) and the 'next 11' developing countries (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam)
  • The focus is not on size (400 million people) alone, nor on further growth of this middle bracket (going to 500 million as will happen) but - in the words of Mr. Sorrell - on the fact this population is "becoming so much more discerning, and willing to pay a higher price for products and services giving value, saying something about them in intangible ways or  representing tangible benefits"
  • Alibaba (with Ant Financial), Tencent (with WeChat) and the emerging O2O specialists check all the boxes (size, programming skills and massive data control)
  • Advertising expertise can be expected to complement their reach by adressing the expectations of the new consumers

 

Growth and opportunities of ‘technology’ : digital capabilities

Taking control of MediaMonks through his new venture S4 Capital, Mr. Sorrell doubles down on the differentiating factors which may well come to dominate the advertising industry - content creation engaging the consumer with cutting edge technologies

  • Excluding competing advertising agencies, Mr. Sorrell must feel confident that a nimble marketing group responding creatively with campaigns targeting small consumer sub-groupings will be the missing piece of the puzzle
    All in all, an estimated $ 350 million dollar well spent…

 

The views presented in this note are our own and should not be confused with the thinking Mr. Sorrell may – or may not – be willing to share

 

Video interview and various articles can be found

on Citywire Oct. 4, 2017 video interview of Mr. Sorrell

on WSJ (paywall)

martin-sorrell-weighs-in-on-need-for-more-media-consolidation

martin-sorrell-expected-to-acquire-digital-production-agency-mediamonks

martin-sorrell-seeks-green-light-to-raise-up-to-1-3-billion-for-new-ad-venture