Disrupted Advertising Giants

michael.ekinsmyth
Aug 24, 2017 · 2 min read

Is digital disruption really destroying the business models of the major advertising groups?

Sir Martin Sorrell, a man who doesn’t shy away from grand and sweeping claims, or massive self-promotion, is sniffing the wind and fearing a cataclysm.

That seems odd.

Sorrell is the, very highly remunerated, boss of WPP, one of world’s two leading advertising conglomerates. And, he isn’t new to digital disruption of business models. For many years he has spoken up on the digital transformation underway, warning media owners and publishers of impending cataclysm, long before they had come around to that view.

He has opined, at length, and over the years on the rise of Facebook and Alphabet (Google) and how those two powerhouses are slurping up ever growing slices of global advertising revenues.

But now, he seems to have been blindsided by developments he didn’t expect. Consumer goods companies appear to be cutting ad spends, and some advertisers are sidelining the ad agencies by producing in-house and placing their content directly with the emerging online retail and business pipelines, such Alibaba.

Time for profit warnings, and a rethink.

It isn’t like he hasn’t done all the ‘right things’. WPP has invested a lot in its digital strategies and has positioned its data division as a key business driver. But, that doesn’t seem to have insulated it fully from the changes underway. A lot of businesses are changing the fundamental ways in which they conduct operations and transactions. In recent decades that has often driven outsourcing, as C-suites realised that it was cheaper to outsource than to have certain functions in-house.

Now, the tide seems to be flowing the other way. Equipped with the global overviews created by new and ever more powerful and cheap data analysis, C-suites are realising they can save costs by bringing certain functions back in-house.

Sorrell: “The digital disruption is a fundamental one. If you’re a manufacturer and you have to reach people directly through for example Alibaba then it’s going to change things.”

Margins in the advertising industry are shrinking. Dominant brand agencies like WPP, which have long been able to charge virtually whatever they wanted, are now cutting prices as competition heats up. The days of easy profits are over as digital disruption spreads.

Announcing a data based strategy direction and using digital tools apparently isn’t enough. Is it a question of implementation? Was the transition to a data-lead business model true, or was it advertising puffery? The answer to that may become ever more pertinent as disruption continues.

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