Fireside chat with Michael Farmer and Sir Martin Sorrell.
We had an amazing opportunity to attend a fireside chat this week between Michael Farmer (author of Madison Avenue Manslaughter) and Sir Martin Sorrell (Executive Chairman of S4 Capital and former Founder / CEO of WPP). In their consistent manner, Michael and Sir Martin held nothing back as they talked about the history and current state of advertising and the advertising industry.
With the gloves off and mischief running thick, we got a glimpse into the minds of some of the most celebrated people in the industry. Here are some of the topics and takeaways.
Digital Only Future
Sir Martin continued to hammer home his mantra for S4 of Faster, Better, Cheaper using digital as the conduit and enabler. He discussed his investment philosophy in the likes of Media Monks and Mighty Hive as “only investing in digital companies.” He will leave the traditional advertising and marketing communications behind him with WPP and only look towards the future - in which he sees as digital only. He frames “digital only” as first party data, content creation and programmatic and a unitary structure - meaning that the acquisition companies are more acquihire versus earn out (which we’ll get to later).
Our Take: Two things: First, while we agree that digital is the future, we believe there is still a role for traditional advertising within the marketing of a brand. While acquisition is just a piece of the puzzle in the future of brands, it’s still a crucial aspect for growth. And traditional advertising still plays a role in that.
Second, we believe that by looking at digital as media, content and advertising, we may be missing the mark on digital altogether. Digital is so much more than advertising. Not only does it provide the ability to target better, track conversations, and personalize messaging but it also allows brands to build more engaging experiences for the consumer. Using technology to enable a more fruitful experience with the consumer at crucial touchpoints outside of advertising gives a brand the ability to build long-lasting trusting relationships, increasing the lifetime value of a consumer. It also, builds a dynamic view of the industry creating opportunities to build new experiences, products and services for new revenue streams.
Sir Martin talked a lot about the power of first party data - without getting into too many specifics. He views first party data as the lifeblood of the digital future allowing media and advertising to become increasingly programmatic, personalized and faster.
Our Take: We 100% agree with this. The currency of future brand building is first-party data. However, the tricky aspect of this is the ownership of this data. From what I gathered in the way Sir Martin spoke, it sounded like he wanted S4 to own that data to be able to utilize it in programmatic not only for the direct client, but to power the machine that he is building across clients. As data privacy and ownership will create a new path in the near term, I believe we’ll see the clients starting to take complete ownership of the data - only leasing it to their agencies to support marketing efforts. Companies are quickly finding that their future growth and intellectual property will be in the relationship with consumers. So the first-party data that powers that is the currency.
In-House Agencies & Consultants
Michael Farmer asked the question that’s on all of our minds about the evolution of the advertising industry. As traditional consultancies are making land grabs in the advertising space and advertisers themselves are pulling resources internally to create In-House agencies, where does that position advertising agencies? Sir Martin didn’t answer the question head on, but did discuss the structure of each challenger. He says that consultancies like McKinsey are the gold standard when it comes to the future of an advertising holding company. They have a single brand with multiple disciplines coming together under that umbrella to truly solve client challenges. He also mentioned that in the consulting industry, there is a refreshing air of non-compete within their client businesses - meaning multiple consultancies work with the same clients on different challenges, breaking down the competitive silos that are found in the advertising industry.
Sir Martin didn’t have much to say when discussion the In-House agency trends only the fact that clients aren’t buying relationships with agency brands anymore, they simply want the best people to work on their business, regardless of company.
Our Take: As referenced above, we are starting to see a lot of intellectual property and experience ownership go in-house. Agencies and consultancies are being utilized to come up with big ideas, take those ideas through concept, prototype and all the way to implementation, then hand everything off to the client organizations to execute. This new normal reflects the perfect environment for consultancies to thrive - helping their clients solve their business challenges from a strategic perspective and enabling the client organization to execute and implement. This is a new muscle that advertising agencies will have to develop. The knee-jerk response from an agency perspective is to react to a brief with a communications strategy - not to truly diagnose a problem and solve that challenge from a strategic leadership point of view.
Holding Company (Financial v Operational v Unitary)
Micheal did an amazing job in continuously asking Sir Martin about the transformation on the holding company model - especially about what he would have done different with WPP. Here Sir Martin talked about his Unitary Structure mentality saying that holding companies have a new role in the industry - one of operational lead versus as an investment arm. He discussed the transformation from acquisition and earn-out which leads to fragmentation within the holding company into one of collaboration with an almost acquihire mentality. He says when S4 makes and investment they expect the company’s leadership team to stay on for the long run and work and learn together with other agencies to support the bigger whole of the S4 vision.
Of course, Sir Martin was feeling a little mischievous, so he talked about the strengths and weaknesses across all holding companies, calling out individuals for their successes or failures. He mentions that within the industry now, he sees some companies executing well on the strategic planning of the holding company, but falling short on tactics. And other companies executing really well on the tactical level while falling way short on the strategic front.
However, the thing that came across from what he learned at WPP is that the acquisition model of the past to continuously find areas of profit margin and hoping for ‘horizontality’ was the wrong approach and has lead to in-fighting within the holding company. Being able to start over at S4, he’s looking to find those companies that are not only completely digital, but those leadership teams that will stay on for the long run. He’s also very adamant that they find a way to cross pollenate ideas - thinking about the amount of knowledge that is gained every day sitting in client meetings and brainstorm sessions.
Our Take: We agree with the client thoughts on this one - “we want the best person to work on our business - regardless of the company that is on their business card.” Which is why we created Chinatown Bureau to support this mentality and bring in the right talent for the right project at the right time. We also believe there is an opportunity for current holding companies to utilize talent better for their client challenges, by breaking down P&Ls and allowing the right talent to work on the right client challenge regardless of the company. Which is what I liked about how Sir Martin was saying about his vision for S4. And as holding companies move from a financial shell towards an operational, strategic lead, this will have to be done to succeed for their client organizations.
It’s always interesting to talk to Sir Martin and hear his thoughts about the evolution of the industry. And with the ability to take 30 years of learning with WPP to start from scratch right as the industry is shifting towards a digital future, we know we’re up for a new challenge that no one has ever seen or is really prepared for. Sir Martin is plotting his course with S4 - as are we at Chinatown Bureau. It’ll be fun to see how things play out.