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In a public conversation with Liodice weeks after Mandelâs speech, Gotlieb made a larger point, one that illustrates how the relationship between agencies and clients has changed. He challenged the ancient assumption that agencies had an obligation to âput your clientsâ interests before your own.â The client is under increased pressure to produce profits, and so are the agencyâs public holding companies, he said. Clients insist that the agency be paid based on the clientsâ sales performance. âI donât control the result, so Iâm taking a business risk. It renders the term âagentâ redundant. You cease to be an âagentâ the moment someone puts a gun to your head and says, âThese are the CPMs [cost per thousand viewers] you need to deliver over X period of time.â If GroupMâs contracts with clients specify that its costs or the amount of rebates received overseas are to be disclosed, GroupM complies. But if the contract is silent, so is GroupM.
On whichever side of the argument one falls, it is inarguable that Mandelâs assault came at a fraught moment and struck a raw nerve. Taken aback by the irate agency reactions, the ANA quickly did damage control, issuing this statement: âWe regret any impression that agencies in general are engaged in questionable activities and apologize to those who were offended.â A few days later it appointed a joint task force with the 4Aâs to study the issue.
The ANA issued an open, competitive RFP (request for proposal) to locate a firm to conduct the study, ultimately choosing K2 Intelligence, an investigative cyber defense and compliance firm owned by Jules B. Kroll and his son, Jeremy, which employs former prosecutors and law enforcement professionals like former New York City police commissioner Ray Kelly. The ANA also chose Ebiquity, an auditing firm that has a history of challenging agency spending practices on behalf of brand clients. Seething that the ANA made this decision on its own and chose a prosecutorial firm and, in Ebiquity, what he perceived as a business adversary, Martin Sorrell declared, âThey went unilateral.â Koenigsberg was equally livid, saying of K2 Intelligence and cofounder Jules Kroll, who helped build his estimable reputation by tracking down the illicit activities of dictators: âBringing in a spy agency didnât send the right message. It kind of sounds like a witch hunt.â The rupture between the ANA and the 4Aâs ended their joint task force. By the winter of 2016, K2 and Ebiquity were deep into interviews and jittery agencies feared the worst.
Michael Kassan was not nervous; he comfortably settled into his friend-of-all-sides stance. On the one hand, he said, Mandel âpainted the industry with too broad a brush. ⦠Iâm a firm believer that this industry is made up of good people.â The ANA wrongly âstaked out a positionâ they should not have by embracing Mandel, Kassan says he told Bob Liodice. On the other hand, âIf youâre a CMO and your CEO sees an allegation in the press that agencies are getting rebates and undisclosed kickbacks, youâre going to insist on knowing whether your agencies are doing this.â He encouraged clients to do so. Agencies, he agreed, were not sufficiently transparent, particularly about digital ad purchases. âMedia agencies began to create trading desks for online purchases of media. And they were doing it without fully disclosing the amount of online media they bought. They did this because they were buying in bulk and reselling and taking a principal position. They were not wrong. If Iâm an agency and I say to you, âThis particular inventory is being bought on a nondisclosed basis, meaning I am not going to tell you what I paid but I am telling you I will get you a really good price, and Iâm telling you I will make money on the spread but Iâm not going to tell you how muchâââas long as this was stipulated in the agency contract, he thought it was OK. It would fail the transparency test, he says, if it was not part of the contract.
To conduct MediaLinkâs agency reviews, Kassan leaned on Bernhard Glock, who for twenty-five years as a senior executive at Procter & Gamble orchestrated more than one hundred agency reviews, and fellow senior vice president Lesley Klein. The process they shaped began with an in-depth discussion with the client as to what was expected of an agency, after which MediaLink would help narrow the choices of prospective agencies to a handful, who were invited to meet with the client for what MediaLink vice chairman Wenda Millard calls âa chemistry meeting. Itâs like a first date. If I donât like you, no second date.â
MediaLink then prepared a dozen-or-so-page single-spaced RFP to send to the contending agencies. The RFP took time to answer, for it sketched a timeline for the review process and imposed upon the agencies a number of key requirements: specify who would staff the account; specify the fee structure the agency would employ and the methodology to be followed to arrive at a fee; delineate the proposed marketing strategy; sketch the agencyâs digital, technology, and e-commerce prowess; share the agencyâs media-buying capabilities and data strategy; specify the transparency guidelines to be followed to assure, for instance, that the client shares in any rebates; give a detailed account of the agencyâs work on other accounts and its approach to innovation; and it stipulates the return on investment, or ROI, targets the agency expects in return for a bonus and, if the target was not met, the size of the agency penalty. After the client digested these answers, agencies were then invited to offer their proposed creative presentations and marketing plans. The RFP always specified that the agency alone is totally responsible for any costs they incurred during this process.
The process MediaLink followed was explored in the fall of 2015 during the weekly Monday afternoon staff meeting at their 1155 Avenue of the Americas office, with employees from the Los Angeles and Chicago offices joining via videoconference. On this Monday, Wenda Millard devoted the meeting to a presentation by Bernhard Glock of the agency reviews MediaLink was coordinating. Standing in the middle of an eighth-floor conference room crowded with staffers, Glock spoke of what the process taught about the changing dynamics between client and agencies. âThere are six key components we hear every time from advertisers,â he said. âThe first question the advertiser asks is, What are the cost savings the agency promises? Increasingly, they ask a fresh question: Will the agency agree to peg its pay to how the marketing campaign performs? More and more I see performance sneak in as part of the compensation.â Why? âBecause there are more and more procurement people in the reviews.â The difference between the chief marketing officer and the procurement people, he said, is that the CMO tends to focus on building the brand and the procurement officer on cost savings.
The agencyâs marketing strategy is a second key component; increasingly, he observed, the client is mistrustful of agencies, and he no doubt exaggerated when he added, âThey rely on usâ to help shape the strategy.
Operations and efficiencies are a third client concern. Clients ask: How fast can we move? How do we communicate with each other? How do we integrate the planning and buying and creative realms?
Partly because of the Mandel speech and the ANA inquiry, transparency became a fourth component, he said. Our clients âwant to know: Can I still trust my agency? Do I get to know of kickbacks or rebates?â Are these shared with the client? Inevitably, the increased wariness of clients âleads to tighter contracts.â
The fifth component is the agencyâs use of data and analytics and how it measures performance. Clients commonly ask, âWho owns my data?â They want to know the competence of the agency in new machine tools like programmatic advertising. And they want to know if they are paying for fraudulent clicks.
Finally, and as central to the client as are costs, they want to know about what talent will be assigned to their account. âWhat I see happening more and more is advertisers want guarantees on key people,â Glock said. They worry whether the agency has enough scale to service the client. And the client defines talent more broadly. âIt used to be a given that only the creative agency sat at the table. Now that has changed. Public relations agencies sit at the table. Media agencies sit at the table. Digital agencies sit at the table.â
âThe problem agencies have,â Millard interjected, is that cost pressures from clients âis causing agencies to pay less to their employees. Because of that, theyâre not as attractive. Why would I go to an agency that looks like a dinosauric entity rather than go to Google, or Facebook, or LinkedIn? Why would I do that, and be paid what I would be paid to work in a sweatshop around lots of unhappy people?â Contradicting Mandelâs thesis that agency margins swell, Millard said, âItâs a real problem for agencies because they canât make any money. Their margins are getting squeezed. This is a very bad scenario for everyone, including the clients who are not getting the best work out of agencies because they are not getting the best talent.â
âI remember,â she explained over a cup of tea in her office after the meeting concluded, âwhen I was growing up in this business the pride General Foods and Young and Rubicam would have when theyâd say, âWeâve been in business twenty-five years with Jell-O. We built this business together. This is a partnership, a great cause for celebration.â Thatâs gone. Agencies live in great fear that theyâre going to go into review at any moment. Agencies are now treated as vendors.â
Millard described a meeting she had that morning with one of her clients, Time Inc. Executives there complained of not being able to âhave a strategic discussion with an agency. Itâs all about pricing.â She says the same is true of MediaLinkâs other media clients who want to sell space to media-buying agencies. She offered this example: âIf Time devises an elaborate $3.5 million sale of space for its multiple magazines, the agency says, âI need $1 million.â Youâre having a price conversation before you even finish telling them what the idea is. All they know is that they have to skinny you down because theyâre being skinnied down. Theyâre being judged by how well theyâre doing on pricing.â
Little wonder clients turn to MediaLink, Millard said. âWe donât have a dog in this race because we love each agency equally. And weâre going to help the brands through some of this decision making because we donât care if they choose Omnicom or Publicis. But they canât go to Omnicom and ask, âAm I in the right place?â They are more likely to come to us and ask, âShould we be working differently with our agency? Or should we put our account up for review?ââ
The tidal wave of accounts up for review swept through the agency business. Agencies lost part or all of the business of longtime clients. Publicis, for instance, lost Procter & Gamble and General Mills, as well as Coca-Cola, MondelÄz, and Delta; it gained Visa, Bank of America, and Taco Bell. Omnicom lost Johnson & Johnson, Bud Light, and Adidas; it gained Procter & Gamble, Delta, and Subway. WPP lost AT&T, as well as Bank of America and Coors; it gained General Mills and Coca-Cola. IPG lost American Airlines and Kmart; it gained Johnson & Johnson, Bank of America, and Chrysler; Havas and Dentsu gained slightly more client dollars than they lost.
Publicis lost more accounts than its rivals, but the loss that especially rankled Maurice Levy of Publicis was an Omnicom win. The company he had embraced as an equal merger partner in 2013, only to watch the merger collapse the following year, took what a senior Publicis executive described as âa $100 million haircutâ to snatch the P&G business away from Publicis. On the other hand, Levy was overjoyed to best the man he regularly trades public insults with, WPPâs Martin Sorrell, by winning part of the Bank of America account.
More was at stake, of course, than relations between advertisers and agencies. âAdvertising works as a value exchange,â Andrew Robertson of BBDO, says. âIn exchange for advertising, consumers get free or reduced content costs.â Or needed information. It is easy to be cynical or dismissive about the role of advertising in a consumer economy, but its role can hardly be overstated. Commerce and most forms of communication would shrivel without it. Many retail stores would shutter, the number of new products would dwindle, financial service companies would sputter, consumers would complain they are shopping blindfolded. Google, with 87 percent of its $79.4 billion in 2016 revenues supported by advertising, Facebook with over 95 percent ($26.9 billion out of $27.6 billion) in 2016, and Snapchat with 96 percent from advertising, wouldâlike the TV networks and most radioâcease to be âfree.â A prime reason U.S. newspaper employment plunged from 412,000 in 2001 to 174,000 in 2016 is that advertising dollarsâwhich account for more than half of all newspaper revenuesâdropped from $63.5 billion in 2000 to $23.6 billion in 2014, the last year the Newspaper Association of America released newspaper revenues. Facebookâs advertising revenues alone exceeded the combined ad dollars of all U.S. newspapers. Overseas, in that same span, newspaper ad revenues sank from $80 billion to $52.6 billion.
Advertising and marketing âprovides the oil for the economyâs energy,â Martin Sorrell says. Princeton professor Paul Starr, whose authoritative history of the media, The Creation of the Media, credited advertising with assuring journalismâs independence: âAmerican journalism became more of an independent and innovative source of information just as it became more of a means of advertising and publicity.â
A 2015 study on the impact of advertising by IHS Markit, a London-based financial services company, concluded that in the United States each dollar spent on advertising alone spawned nineteen dollars in sales and supported sixty-seven jobs across many industries; they predicted that by 2019 advertising would kindle 16 percent of all economic output. A 2016 study of Western Europe for the World Federation of Advertisers, based in Brussels, concluded that each euro spent on advertising equates to seven euros of economic value. Predicting the exact impact of advertising on consumer behavior is not an exact scienceâthough this book will demonstrate that going forward data will yield better evidenceâbut by anyoneâs measure, advertising and marketing packs a mighty economic wallop.
Naomi Klein chose to measure the impact of advertising in a very different way. In her book No Logo,1 first published in 2000, she portrayed advertising âas the most public face of a deeply faulty economic systemâ that promoted sweatshops to produce their often unhealthy products, and that propped up global companies that held sway over politicians to advance globalism, which exported jobs. Her harsh critique of advertising as addictively manipulative was echoed sixteen years later by Tim Wu, whose book The Attention Merchants2 argues that by demanding their content be âfreeâ and refusing to pay subscriptions or micropayments, consumers invite intrusive ads and receive inferior journalism and content.
No question: without advertising many citizens would feel liberated from annoying and often misleading interruptions. But whatâs indisputable is that advertising and marketing dollars serve as an underlying subsidy for much of the media and the Internetâin other words, for our information ecosystem and, often, for the architecture of our everyday lives. Without this free ATM machine, many companies would be doomed. But as any good advertiser knows, asking someone to sit through all the ads in the TV show theyâve recorded because those ads fund the channel the show is on is just about as thankless as asking people to pay more for a product because itâs good for the environment. Some percentage of consumers may make that choice for the greater good; many more will not. Today, the consumer is in control, and increasingly the challenge for advertisers is to create experiences that people will want to have because they will no longer have to have them. That is a tectonic shift for a once comfortable industry, and it is worth a look back at how this economically essential industry got here.
2.
âCHANGE SUCKSâ
âIâm prepared to eat our children, because if I donât somebody else will!â
âMartin Sorrell, WPP CEO
The word advertising derives from the verb advert, which means âto give attention to.â All markets or competitive economies rely on advertising. Thousands of years ago, advertising consisted of Egyptian, Greek, and Roman wall paintings or rock scrawls. Five centuries ago, farmers selling produce relied on word of mouth; villagers selling a service put up signs like TAILOR or BLACKSMITH. With villages transformed into cities as the Industrial Revolution swept across the nineteenth century, sellers of products turned to a better means of communicating with potential buyers. Thus advertising agencies were born.
The first full-service modern advertising agency, N. W. Ayer & Son, emerged just after the Civil War. What would become the primary means of compensating agencies, the 15 percent commission on all advertising, was also introduced in 1905 by N. W. Ayer & Son. The introduction of the automobile early in the twentieth century became an advertising catalyst. As auto companies proliferated, their reliance on ads to distinguish themselves grew, as did the use of billboards to catch the attention of drivers. Radio in the 1920s and television after World War II became inflection points for new waves of advertising. The burgeoning Internet at the dawn of the twenty-first century became another inflection point.
As population and products mushroomed, advertising made it possible for consumers to discover things they needed, or thought they needed. Advertising seduced consumers and created familiar brands. Initially, the ads for those brands were informational, often dull and dutiful. Nineteenth-century newspapers were festooned with dense rows of classified ads, occupying the entire front page of many papers. Increasingly, ads began to flirt with consumersâ emotions. In the 1920s, Edward Bernays, nephew of Sigmund Freud, became the father of the public relations industry. A hundred years after Shelley declared poets the unacknowledged legislators of the world, Bernays announced in his 1928 book Propagandaâa word he used with none of the pejorative connotations it would later acquireâthat now this was true of marketers: âThe conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country.â As one might expect of one of Freudâs kin, Bernaysâs mission was to discover the hidden motives for human behavior and learn how to tickle them. âMen are rarely aware of the real reasons which motivate their actions,â he wrote. âA man may believe that he buys a motor car because, after careful study of the technical features of all makes on the market, he has concluded that this is the best. He is almost certainly fooling himself.â
Today the definition of marketing extends from the damage control of public relations firms summoned when a company like Volkswagen is embroiled in scandal; to survey research before a new product is introduced; to the targeting that data companies like Oracle sell to agencies and brands; to designing corporate logos or rebranding companies, as was done when Time Warner Cable was renamed Spectrum; to corporate positioning advice McKinsey & Company offers CEOs; to direct mail, blogs, podcasts, coupons, sponsorships, naming rights, purchased shelf space, corporate Web sites, in-store promotions, membership rewards programs, exhibitions, and young influencers like the Betches, who are paid to extol products on sites like YouTube.
The tentacles of this industry reach wide and deep. It employs an estimated one million people worldwide. One hundred thousand are said to congregate in New York each September alone for the annual Advertising Week in the Times Square area. Then there are the one hundred seventy thousand or so who attend the Consumer Electronics Show, or CES, in Las Vegas in January, the hundred thousand who attend the Mobile World Congress in Barcelona in February, the armies who attend the Association of National Advertisers in different locales, the South by Southwest (SXSW) in Austin in March, the American Association of Advertising Agencies Transformation in Miami or Los Angeles in April, the Cannes Lions International Festival of Creativity in June, and the conferences that Advertising Weekâs impresario Matt Scheckner has introduced to London, Tokyo, Mexico City, Shanghai, and Sydney.
It is an industry that has never lacked the capacity to take itself seriously. Jeremy Bullmore, the former J. Walter Thompson chairman, whose company was acquired by Martin Sorrellâs WPP in 1987, today sits in a small, cluttered office at WPPâs London headquarters on Farm Street, where Sorrell relies on him to write sparkling essays about the industry and to help produce a robust annual company report. âOf all the models for successful economies,â Bullmore says, looking out from under bushy white eyebrows that give him an almost cherubic appearance, ânothing yet has been able to compete with a liberal, open market. Which is not to say itâs without flaws. If you go back five hundred years to a village, there were people who have milk and carrots and there were other people in the village who want them.â Only some form of communication can close the distance between âthose who want and those who have.â He thinks most of the gap is filled by advertising. âEdison didnât actually say, âWho makes the best mousetrap, the world will beat a path to his door.â If he had said it, it would have been absurd. If you build a better mousetrap and youâre in the woods, until somebody knows youâve got the better mousetrap, thereâs no point in building it.â He cites the former Soviet Union and its satellites: âLook at Communist countries. No advertising. None of the consumer goods companies thought it necessary or worthwhile to innovate because if you do something thatâs quite interesting but you canât tell anyone about it, and your competition are not doing it, why bother?â
As First Lady, Michelle Obama championed learning how to âuse the power of advertising to our favorâ by promoting exercise and eating healthy foods like fruits and vegetables. âWe all know that advertising works, so we figured why shouldnât fruits and vegetables get in on the action?â she said. Advertising also works in negative ways, witness the Camel ads that once successfully touted cigarettes as a health product, proclaiming, âMore doctors smoke Camels than any other cigarette.â Or mentholated cigarettes were pitched as assuring improved health.
But neither advertising nor the industry that produces it works the way it once did. The industry is being disrupted by frenemies advancing from the north, south, east, and west. Martin Sorrell impersonates an alarmed Paul Revere, seeking to rally the traditional ad industry, summoning his WPP troops to meet the âcontinuous disruption threatâ from various competitors. While pacing his all-white, bare-walled London townhouse office, he says, âYouâve got layers. Youâve got our direct competitors, like Omnicom. Youâve got the frenemies, letâs call them Facebook and Google principally. Youâve got the consulting companies, like Deloitte, McKinsey, et cetera. And then youâve got the software companies, like Salesforce.com and Oracle and Infosys, and Indian software companies.â He combats new threats by aggressively investing in digital upstarts and jettisoning companies whose economic performance lags. âWeâve invested in Vice. Weâve invested in Fullscreen. Weâve invested in Refinery29,â each a digital company. And, he adds, âIâm prepared to eat our children, because if I donât somebody else will!â
It does not please Sorrell that one clear beneficiary of this tumult and fearâand the client backlash triggered by Jon Mandelâs speechâis Michael Kassanâs MediaLink. Publically, Sorrell may mute his criticism of Kassan, but he dislikes third parties getting between his agencies and his clients. It annoys him that Kassanâs varied clients flock to MediaLinkânot WPPâbecause they seek a reassuring neutral voice and are distressed by the speed and enormity of change. Sorrell has a broader range of knowledge and business acumen than Kassanâand most contemporaries, for that matter. But Kassan is comforting, providing for his clients what he describes as a cushion, a âmembrane betweenâ the cartilage and the bone. Martin Sorrell would never describe himself as a cushion.
Like a doctor with a good bedside manner, Kassan knows his clients have reason to be insecure, and he seeks to address their fears. His clients discuss the accelerated spread of mobile phones, whose approximately six billion global users have replaced the desktop and the television as the dominant platform. They marvel at its awesome power: todayâs iPhone 8 has more computing power, says Rishad Tobaccowala of Publicis, than was used for the first space shuttle. They enthuse that a smartphone platform and its embedded GPS open opportunities to track and engage personally with users. They are awed by Chinaâs Tencent, a corporate giant focused on mobile services that connect people, providing access to WeChat. In mid-2016, Tencent had almost 800 million users, 80 percent of whom spend more than an hour a day on one of its sites, especially WeChat, to communicate with family and friends and strangers. They use simple bar codes to partake in 500 million daily transactions, employing 300 million credit cards that link to 300,000 stores, all without switching to another app. If the client does not know, Kassan can explain that WeChat is a one-stop service that combines the varied functions of PayPal, Facebook, Uber, Amazon, Netflix, banks, Expedia, and countless apps. It is clear to Kassan: the mobile future is being shaped in China, not Silicon Valley.
But this frightens his clients, because they know China is a hard market to crack, and they know the U.S. companies that control mobile will drive hard bargains with agencies and advertisers. They also know the limitations of mobile. Ads on mobile phones soak up battery life, are constricted by small screens, and are so intrusive and irksome to consumers that about one quarter of Americans and one third of Western Europeans sign up for ad blockers to prevent the interruptions. How, clients anxiously want to know, do they reach the mass audience so essential to introducing new products and to building brand identity when ads on mobile phones are not as effective and consumers are dispersed among many new channel choices and social networks? And what the hell do they do to reach the next generationâincluding the digitally savvy millennials age twenty-one to thirty-four, and the even younger Generation Z born after 1997, who detest being hawked to? A reason people might be annoyed by ads is because, on average, citizens are bombarded daily by an astonishing five thousand marketing messages.
Kassanâs clients and agencies do marvel at new data mining tools that offer advertising and marketing companies more weapons to target consumers. But theyâre also frightened by some of Kassanâs digital clientsâFacebook and Google in particularâwho cooperate with advertisers but also compete by collecting massive amounts of data, which they do not fully share. These digital frenemies use this data and the marketing services theyâve acquiredâlike Googleâs DoubleClick and Facebookâs Atlasâto become agency and platform rivals. More and more of his clients are terrified of Amazon, for Amazon has even better data than Facebook or Google, because it tells when a consumer made an actual purchase decision, and like Facebook and Google it walls off its data. Particularly worrisome to brand clients, Amazon promotes its own products, as Google is accused by the European Union of using search to steer users to its own products. For example, if you ask Alexa, Amazonâs digital assistant, to choose a battery, it will choose an Amazon battery, the reason Amazon batteries dominate battery sales on Amazon.
Kassanâs clients and agencies also worry about something else: the data that will yield rich targeting information could trigger a backlash if citizens come to believe their privacy is violated and clamor for government protection. While more data fortifies agencies with better tools to target consumers, it also unnerves them because it arms clients with information about which of their ads sell and which donât. And technology does something else: it democratizes information, giving citizens more choices, more ability to skip ads, to voice their opinions, to vote with their fingers and flee traditional media platforms.
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