11% drop on WPP — adland at lands end?
WPP’s Martin Sorrell made some pretty negative statements disappointing earnings resulting in an 11% drop in their share price.
Being a long time adland careerist, i saw this coming years ago, magnified by the ecosystem in China. WPP (and to be fair most of adland’s giants) is a slow moving tanker heading toward an iceberg were its too late to turn to avoid… the only question now is how big a hole will the iceberg leave, and, will that hole be big enough to sink the ship?
The problem exists for a few fundamental reasons. Chief of which is “commoditisation on a margin” — what i mean by this is essentially all media trading arms of adland do exactly the same thing- buy ad inventory, chop it up, and sell it at a marginal profit to justify their existence.
This is fundamentally flawed in the long term —
- the media owners control the supply of inventory and the price of that inventory.
- the brands (i.e. your demand)are getting smarter and realise that they can save % points by moving the skill in-house, where they’ll get more transparency and control.
- technological automation (pioneered by googles adword platform in the 00’s) means that what was previously a ‘black art’ is now more akin to pressing a button on a microwave — you don’t really know how it works, but you trust its the most efficient way to get the result you want.
Basically what’s happening (and china demonstrates this) is that media owners are artificially limiting supply and (either manipulating or) restricting the supply of data to make cost-effective decisions — media owners are financially incentivised to keep their data obscure… the less you know about how many if their users are real or REALLY looking at your ad… the more they can pull the wool over your eyes and claim a premium for their ad inventory. media owners also work in collusion with adland due to kickbacks and rebates — basically massive bulk buy discounts, so now adland is also incentivised to cloud the numbers, after all, inefficiency means that you have to buy more inventory, resulting in more money flowing to adland and media owners.
This is exacerbated by brands who lack the detailed hand’s-on knowledge, careerists who are incentivised to fudge the numbers from one quarter to the next just to keep their job, and downward pressure on the agencies by brands to lower their service fees.
The irony of course is that by lowering the service fees, this makes the agencies more reliant on media owner handouts, increasing this toxic cycle. The only winners of this seemingly ponzi-esq structure are the media owners.
So, what to do? — honestly i don’t know, all i can say is the disruption thats needed means we need more data transparency, more willingness to pay for strategy and more knowledge of the ecosystem. The agencies that will win the next 10 years will be the ones that can provide solutions that allow consumers to engage with brands more effectively and transparently… it doesn’t matter if thats via media or by creating their own media, what matters is the result.