Frenemies: The Epic Disruption of the Ad Business (and Everything Else) (30 page)

In October 2017, Mark Zuckerberg sheepishly admitted he should not have been so quick to defend the ability of Facebook's machines to block “fake” news pushed by Russian hackers to subvert the Clinton presidential campaign. “Calling that ‘crazy' was dismissive and I
regret it,” he declared, announcing that Facebook would hire an additional thousand curators to screen news accounts and ads. To prevent ads from appearing in offensive videos, YouTube announced in January 2018 that it would hire “human reviewers” to screen its premium content.

A subtle but meaningful meditation on the consequences of the labors of blinkered engineers, whether at Facebook or Google, was penned by Silicon Valley venture capitalist Roger McNamee,
*
cofounder of Elevation Partners and an early investor in both companies. While he praised the many advances technology has made possible, McNamee lamented the “addictive behaviors” they create, compelling “consumers to check for new messages, respond to notifications, and seek validation from technologies whose only goal is to generate [advertising] profits for their owners. . . . Like gambling, nicotine, alcohol or heroin, Facebook and Google—most importantly through its YouTube subsidiary—produce short-term happiness with serious negative consequences in the long term.” Many people check their smartphones 150 times daily, and spend 50 minutes a day on Facebook. For advertisers, a Facebook executive in Australia promised, they could “target teens who were sad or depressed,” and the ads could make them happier. Facebook and Google have to stop “brain hacking,” McNamee concluded, or government must
intervene.

“People say agencies are dinosaurs. We are not dinosaurs. We are cockroaches. Everybody hates us. Nobody likes to see us. But cockroaches have outlived everyone.”

—Rishad Tobaccowala

Michael Kassan kept popping up from his seat like a jack-in-the-box. He was at the Hearst dinner for 75 advertisers and media notables on the sunny terrace of the Hotel du Cap during the 2016 Cannes Lions Festival. Nervously, he kept glancing over at a table 150 feet away on the balcony perched above the Mediterranean. He had arranged dinner between AT&T's senior executive vice president and global CMO, Lori Lee, her deputy, Fiona Carter, a former BBDO executive, and Omnicom CEO John Wren and BBDO CEO Andrew Robertson. He wanted them to have a relaxed discussion about AT&T's decision to put out for bid its annual $3.8 billion marketing account. In the United States alone, AT&T ad spending trailed only General Motors, Comcast, and Procter & Gamble. Kassan had organized a second dinner for the AT&T marketing team the following night at Tetou in Antibes with the competitive
bidder, WPP's Martin Sorrell and Irwin Gotlieb. Yet with his mouth agape, Kassan saw Sorrell, hovering over the AT&T table when he walked in, boisterously trading friendly jabs with Wren and Robertson and seemingly ignoring the AT&T executives, while his wife, Cristiana, waited at a table about five feet away. Sorrell seemed to be smiling; Wren and Robertson looked puzzled. Each time Kassan jumped up, he saw Sorrell languidly dining within earshot of the AT&T table.

“It was an accident” with no devilish purpose, Sorrell would say later, noting that he was staying at the hotel and had a dinner reservation. Whether it had an impact on AT&T's final decision is hard to affirm. In any event, what AT&T was setting out to do that summer was consequential. The company announced in early June that it would no longer rely on separate agencies like BBDO to handle creative while WPP's MEC did media planning for its AT&T brand, or WPP's Grey did creative and MEC did media planning for its DirecTV. Instead, they wanted one holding company to do all of their marketing and advertising, and only invited Omnicom and WPP to bid. Instead of a media agency to mine data and shape strategy, and a separate creative agency, or confederacies of agencies, in the same room representing the client—as practiced by GE, Bank of America, and Unilever—AT&T went in another direction. Lori Lee says they sought a “holistic” approach, by which she meant a new agency formed to service just AT&T at a separate location and “to come to the table and understand the marketplace and understand our customer base.” There would be no internal competition among agencies. And the client would not, Lee says, “be responsible for stitching together” all the ideas. With the wealth of data now available, AT&T envisioned the media agency ascendant over the creative in a world where ads will increasingly be targeted at individuals. “We want decisions based on data,” not guesses, she says. The creative ideas would flow from the data. And a single entity would coordinate data, creative, media, and analytics.

A single dedicated agency for one client is not unique. Before holding companies came to dominate the agency business, this was the universal agency model. Today, WPP has long dedicated a single entity (“One Ford”) to service Ford and another (“Red Fuse”) to service Colgate; later this summer, McDonald's designated Wendy Clark's DDB to replace Publicis's Leo Burnett and to form an agency with its own odd name—We Are Unlimited—to offer one-stop marketing services. What was unusual at the time is that the dedicated AT&T agency would be headquartered near AT&T's offices in Dallas, be under the command of the media agency, and commencing in June 2016 the decision cycle was brutally compressed. Michael Kassan and MediaLink were tasked with organizing an unusually rapid sixty-day competition. The process started with AT&T briefings with MediaLink, followed by a request for proposal sent to the two holding companies, followed by AT&T briefings with two agencies, then meetings to answer agency questions, then meetings for the agencies to make initial and then final strategy and creative pitches, followed by meetings to present the proposed agency structure and the team assigned to the client, and, finally, contract negotiation meetings between the lawyers. AT&T wanted to make a decision in August. “MediaLink project-managed this for us,” Fiona Carter says. They parsed the agency submissions, offered questions for AT&T to ask, and suggested clauses to include in the contract. “They were sort of an objective third party.”

In the end, AT&T chose Omnicom and a dedicated team of nearly five hundred staffers, placing Omnicon's media agency, Hearts & Science, in the driver's seat. “It was the first time a media agency and a creative agency were merged into one agency,” Kassan says. “AT&T's clear intention was to have a truly integrated model where data sits at the center and informs creative and media.” For Sorrell's WPP, losing the AT&T account subtracted some $100 million from its annual revenues.

The jury is still out on whether the single agency approach of AT&T, or McDonald's, represents the future model for agencies. But there is a growing belief that giant companies have to rid themselves of competitive, noncooperative silos. The impediment is often cultural, the sharp elbows of ambitious people, Martin Sorrell says. “The more successful someone is, the more difficult it is to manage them. Getting people to share knowledge and information is not easy. The biggest issue in our industry is how to get people to share.”

Another impediment, as Linda Boff of GE says, is that “big can be slow.” Acknowledging that “big” has buying clout, Boff adds, “But what disrupts big? Speed. Scrappiness. Flexibility.” There is a financial incentive to one agency. Instead of paying fees to multiple agencies, as GE does, a single agency means AT&T pays “lower fees,” says Andrew Goldberg. Perhaps the only thing that is clear, Bank of America's Lou Paskalis half-jokingly says, is that AT&T now “has only one neck to choke.”

Whatever the changes in the agency model, Rishad Tobaccowala is a believer in the resiliency of agencies, big or small, led by media or by creative agencies. “People say we are dinosaurs,” he says. “We are not dinosaurs. We are cockroaches. Everybody hates us. Nobody likes to see us. But cockroaches have outlived everyone. We scurry out of corners. We soldier on and hire people with different skill sets. When I started at Publicis we got two percent of our revenue from digital. Now it is fifty-two percent.”

Among the new agency models is the one being fashioned by Bob Greenberg of R/GA, who regularly says that his is no longer an ad agency. “I built a company around the concept of building a home and next generation replacement for ad agencies designed in the very different
Mad Men
model,” Greenberg says. He doesn't believe ad agencies are resilient cockroaches. Or as he put it in an e-mail:

The Agency Model is dead. It's 70 years old and they're still holding on to “the Art of Persuasion,” as everything is deconstructing around them.

Film is dead, the 30-second spot is dead, outbound creative is dead, the writer/art director model of Bernbach is dead. The DDB model is dead. Magazines are dead. The consulting model is dead. . . . No vision, no investment, no restructuring, no risk, no collaboration, no innovation. . . . Everything is run by accountants and bean counters.

Like deer in the headlights.

A visit to R/GA's loft office space on the eleventh and twelfth floors of a newly constructed building in the burgeoning Hudson Yards neighborhood celebrates the future, not the past. Their 230,000-square-foot space that Greenberg conceived feels more Silicon Valley than New York ad agency. The ceilings soar like an airplane hangar, a rubber carpet mutes the sound, employees share glassed offices, meals are subsidized, snacks are free, employees collaborate in open spaces while gathered around low couches and white Formica tables, everything is digitally connected, including giant overhead screens flashing information from social networks, and there is a fully equipped gym and yoga classes. Few look up from their Formica tables when the white-bearded sixty-nine-year-old Greenberg ambles by in his round, frameless, Ben Franklin–style eyeglasses and descends a giant staircase to the eleventh floor. He has on his accustomed uniform: black jeans, a black, long-sleeved T-shirt, and a black beret; a heap of curly grey Brillo-like hair falls onto his shoulders. He is on his way to a conference room to be joined by members of his executive team: Nick Law, vice chairman and global chief creative officer; Barry Wacksman, executive vice president, global chief strategy office; Stephen
Plumlee, executive vice president, global chief operating officer; and Daniel Diez, executive vice president, global chief marketing officer.

“We don't call ourselves an agency,” Wacksman begins. “We call ourselves a company for the connected age. We don't just make ads. We help clients solve problems.” To identify as an ad agency “puts you in a box.” A more accurate description of R/GA would be to call it a new kind of marketing enterprise.

Starting in the 1990s, four new technologies—first the Internet, then the smartphone and social media, and now AI—have transformed all businesses, requiring innovation. Apple was among the first to connect its products, continues Wacksman, who has written articles and books on disruption. Apple became “a retailer of music” when it originated the iPod and a content platform with iTunes and its App Store. R/GA's vision is to follow the model of Apple, Google, and Amazon, three companies that define their business broadly and abandon old, familiar ways. Apple can't be defined narrowly as a computer company, any more than Google can be defined as a search company, or Amazon as an online store. Yes, Wacksman says, the railroads would have done better if they had acted as if they were in the transportation business and not just the railroad business. But they would not have leapt into unrelated businesses.

R/GA leapt, says Law, when it helped invent a business product for Nike in 2003, the NikeiD, allowing its consumers to utilize a Nike Web site R/GA fashioned to individually design their Nike products. Nike online sales shot up by one third, says Wacksman. In 2006, when Nike's prime advertising agency, Crispin Porter + Bogusky, was winning awards for its Subservient Chicken campaign for Burger King—which Greenberg dismisses as “a stunt”—R/GA helped invent Nike+. They designed and placed software in Nike shoes to allow users to collect data on their performance. Forty million Nike customers signed up for Nike membership, Greenberg says, granting Nike a
bounty of data and an ability to communicate with its customers directly. Four years later, R/GA produced the software for the Nike+ FuelBand, a wearable device that allows customers to gauge their performance but also allowed Nike to gather data to improve its products and communicate with its consumers. With a one-on-one relationship with customers, Law says, “Over time, Nike did fewer ads.” And while Greenberg insists that R/GA is not an agency, he does boast that R/GA has nudged aside Crispin Porter as “the biggest agency on their roster.”

The Nike membership community R/GA boosted is today imitated by many brands. Unilever, for example, purchased the Dollar Shave Club for $1 billion not just to compete with Gillette, but to capture its membership community of customers who communicate directly with the company.

Technology and digital is at the core of R/GA's DNA. “It's not enough for Martin Sorrell to say he is willing to eat his own children or to acquire companies,” Greenberg says. “He's not a disrupter, an innovator.” On another visit, Greenberg would say of Sorrell, “At the end of the day, Martin is a forensic accountant. He's truly brilliant. But he has too much control for innovation. I would never work for Martin. He's too controlling.” He does work for Michael Roth, CEO of IPG, his parent company, who he praises for granting R/GA operating freedom. Roth says of Greenberg, “Bob is a visionary. . . . Everyone thinks he's this technology genius. He is that. But he's also a very good businessman. I don't think he gets enough credit for that.” With R/GA profit margins of 20 percent, Roth has reason to be content. (So does Sorrell, whose 2016 WPP revenues of almost $20 billion were fifty times greater than R/GA's $406 million, and more than twice IPG's, and though its profit margin of just over 17 percent was slightly below R/GA's, it certainly did not reflect a company in decline.)

In the conference room, Wacksman swaggered that R/GA won more Cannes Lions awards than any agency in 2015 and a raft of awards in 2016. R/GA now had six revenue spigots. Its two thousand employees in eighteen worldwide offices harvest revenues first from what it labels its Agency work, creating advertising and marketing campaigns, including the design and development of products and services for Nike. Among R/GA's many unusual ad ventures, perhaps none is more celebrated than the campaign Nick Law supervised and the agency donated to the Ad Council, “Love Has No Labels.” Meant to show how love can knock down barriers, we see a succession of couples who appear as skeletons behind a giant X-ray screen. They kiss, embrace, dance, and when each steps out from behind the screen we see, holding hands, same-sex couples, mixed-race couples, couples of different religions and ethnicities.

The revenue from the software and products they create for clients like Nike is grouped under a second revenue stream, its Intellectual Property arm.

A third revenue source is their in-house Studios, which produce polished commercials and podcasts and social media messages for current clients such as Samsung, Google, Nike, Lego, Apple's Beats, Pepsi, and Mercedes. They crafted, for example, the “Hear What You Want” ads for Apple's Beats by Dr. Dre, featuring controversial athletes like Kevin Garnett and Colin Kaepernick tuning out the noise from mobs of haters by putting on their Beats earphones and listening to music that puts them in another state of mind. R/GA's Agency, Intellectual Property, and Studio arms collectively produce about 60 percent of its revenues, and the products R/GA creates produce about 20 percent.