Frenemies: The Epic Disruption of the Ad Business (and Everything Else) (5 page)

Marketers will have to befriend the machine, he continued. “The phone or machine will be as powerful as a second you, with a lot more ability to use software to simplify things for you. Today, the consumer does all the work. You have to get in your car and drive to the store. You have to go online to Amazon and figure out what you want to buy. But in the future if you have this machine that has a deep understanding of what you do, when and how you do it, the things that may be helpful for you, it's likely that the onus on the consumer to do all the shopping will shift to the corporation.” Information for the consumer will be screened and presented by your smartphone's digital assistant, which will be more sophisticated versions of Amazon's Alexa, Apple's Siri and its HomePod speaker, Google Home, and Microsoft's Cortana. “It may watch how you behave over the course of a year and say, ‘Here are all the things you're doing and here are three or four products that may help you live a longer life, may help you save twenty percent of your income.'” The digital assistant becomes your agent, potentially supplanting the middleman, including the agency middleman.

Agency employers stewed over all this. And as they also stewed over Jon Mandel's claims in 2015, Michael Kassan heard a new drumbeat from various clients: trust. Or mistrust. Kassan was all too aware of the views of a frequent client, Beth Comstock, who was promoted to vice chair of General Electric after the innovations she instigated as their CMO. “You hear this time and time again, a lot of people are frustrated that there's a disconnect between their agency and what they want,” she says. “I think we want more media properties to come to us,” to bypass the agency and collaborate directly on creating an ad campaign, as the
New York Times
did in creating an award-winning virtual reality campaign for GE. Over the years, she says, the mistrust between client and agency intensified because the media-buying agencies came to see themselves as the customer. “They gathered all the
clients together. They negotiated the sales.” They, not the client, directly paid for the ads. They didn't always assign their best people to a client's account. They were sometimes opaque about rebates or why they placed bets on different media platforms. To Comstock the trust issue boils down to this: “Are you working for me or for the media company? I'm paying you!”

Agencies are naturally anxious not to become superfluous middlemen, supplanted by clients who seek lower costs by building their own in-house marketing departments, or by turning to advertising platforms that retain MediaLink—like the
New York Times
, the
Wall Street Journal
, or Vox, which double as ad agencies, going directly to brands and offering to craft their ads. Agencies worry that as consumers shift to the convenience of online buying and do it on their iPhones, reliable advertising clients like department stores and retail outlets will do more than contract—they will perish. Big agency holding companies “are dinosaurs,” thinks Bob Greenberg of R/GA, a thriving digital agency, because they grow by buying companies and become hobbled by an inability to harmonize disparate cultures, while at the same time being challenged by formidable consulting companies with deeper pockets and intimate relationships with the CEOs of major brands. They are collapsing, he says, because “everything is run by accountants and bean counters.” Greenberg obviously makes an exception for IPG, the holding company which acquired his R/GA.

“Change sucks,” sighs Rishad Tobaccowala, the resident futurist for Publicis. “I hate change. I work for the same company I joined thirty-four years ago. I live in the same area of Chicago for thirty-six years. I met my wife in India when I was twelve. I hate change. The reason why change sucks is if you do something different, you don't know what you're doing. Therefore you make mistakes. You make a fool of yourself.” Senior executives don't want to look foolish, or admit they don't have answers. “So what people do is they put out press
releases pretending they know what they're doing. And they hope this will go away before they retire. But it is happening faster.”

In human terms, what marketing execs like Tobaccowala, Sorrell, and Kassan know all too well is that many of the jobs held by their employees are threatened by technology. They know that new technologies like programmatic or computerized buying of advertising eliminate jobs. They know personalized ads dispatched by Instant Messages (IMs) or e-mails can be created by machines. They know algorithms and machines powered by AI increasingly decide what we see or read. They know, as Kassan says, “Technology is the number one threat to agencies. Technology allows for a more direct relationship between a buyer and a seller, with less need for an intermediary.”

Deep down, Kassan, like most media executives he advises, fears that marketing dollars will not just be redirected, they will actually shrivel. Their fear calls to mind this brief exchange between two friends in Hemingway's
The Sun Also Rises
:

Bill Gorton: “How did you go bankrupt?”

Mike Campbell: “Two ways. Gradually and then
suddenly.”

“Today clients are not married to an agency. They are only dating.”

—Michael Kassan

M
ad Men
's Don Draper was a fictional stand-in for midcentury advertising executives like David Ogilvy, Bill Bernbach, and George Lois, who reigned at a time when the creative departments ruled agencies, when a single street—Madison Avenue—was synonymous with advertising. In those days, there was no need for a company like Michael Kassan's MediaLink. In fact, Kassan and MediaLink would have been treated as an interloper, for the ad agency, as Jon Mandel and clients like GE's Beth Comstock claimed, was the agent of the client.

Newspapers starting in the late nineteenth century began to compensate agencies with a fixed 15 percent commission on all advertising placed in their pages. Magazines followed, then radio and television. It was an unusual compensation system—the ad was paid for by the advertiser, but it was the seller of the advertising, not the buyer, that paid a percentage of the fee to the agency. In addition, agencies were paid a 17.65 percent commission on all ads created, and were separately
reimbursed for production costs. The arrangement “was pretty lush,” concedes Miles Young, the CEO of Ogilvy & Mather until 2016.

Randall Rothenberg has been immersed in the industry for more than a quarter century. He wrote one of the most instructive and entertaining books about advertising,
Where the Suckers Moon: An Advertising Story
,
*
and today serves as the spokesman for digital companies as president and CEO of the Interactive Advertising Bureau. He believes the commission system fortified the agency business, boosting their profit margins. “There was collusion between the agencies and the publishers to keep prices high. The myth was that the client was the marketer. In fact, the client was the publisher. The ad agency acted as a broker for the publisher.” Ad agencies did not often haggle with publishers on price. The more ad dollars publishers received, the more the agency got paid.

Doyle Dane Bernbach's Bill Bernbach—the creative decision-maker behind such iconic ad campaigns as Volkswagen's “Think Small,” and “You Don't Have to Be Jewish to Love Levy's”—reigned at a time when ad agency execs and their place in the world was secure. When the CEO of fledging Avis offered his account to Bernbach, he qualified his acceptance by telling him, “But you must do exactly what we recommend.”
*
The campaign Bernbach crafted—“When You're Only No. 2, You Try Harder. Or Else”—changed Avis's fortunes. George Lois, like Bernbach a Bronx-born maverick, had won a basketball scholarship to Syracuse, and his hulking physicality and booming voice could be menacing. More than once, Jerry Della Femina, a creative colleague, recalls Lois screaming at clients, “I'll jump out this window if you don't approve this ad!”

“In the old days, creative guys were the only ones in the room to pitch clients,” recalls Michael Kassan, whose advertising career started in media buying. “They never met Harry”—Harry Crane, media buyer and head of Sterling Cooper's TV department—“who was treated as a nerd in
Mad Men
. But in the late 1970s, independent media buyers spun off as companies, and in the '90s they gained respect. The suede-shoes guys challenged the power of the white-shoes guys.”

A recurring debate within agencies in the
Mad Men
era was over what constituted a great ad campaign. In the 1950s, Rosser Reeves, the chairman and creative head of Ted Bates & Co., argued that advertising was a quasi science. He promoted what he called a “Unique Selling Proposition,” claiming that one idea that consumers could latch on to foretold whether an ad campaign would succeed. It had to be unique, but it also had to win the approval of survey research predicting it would sell. Colgate ads for toothpaste that “comes out like a ribbon and lies flat on your brush” was unique, but it wouldn't sell, he said. Colgate ads for toothpaste that “cleans your breath while it cleans your teeth” was both unique and successful. Recruited to pioneer thirty-second TV ads for Dwight Eisenhower's 1952 presidential campaign, Reeves ordered a Gallup poll that identified three issues on which the Democrats were vulnerable: corruption, the economy, and the Korean War. Reeves coined the phrase “Eisenhower, Man of Peace,” and portrayed Ike as a war hero returned to America to bring about domestic and international peace. His opponent, Adlai Stevenson, who didn't own a television and thought TV ads talked to citizens as if they were second graders, countered by spending 95 percent of his TV ad budget on a half-hour telecast of his speeches. He reached a minuscule audience.
*

Reeves's peer Bill Bernbach had a very different view. He was not a slave to research, relying instead on gut instinct. Research, he told Martin Mayer,
*
“can tell you what people want, and you can give it back to them. It's a nice, safe way to do business.” But it usually produced pedestrian ads. “Advertising isn't a science, it's persuasion. And persuasion is an art.” Another legend, David Ogilvy, was both Reeves's protégé and at one point his brother-in-law, but their philosophical differences grew so intense that they stopped speaking to one another. Ogilvy extolled the value of a consistent brand personality shaped by what he called “trivial product differences.” In many an Ogilvy print ad, the headline and graphics were followed by short essays touting the brand. In one famous ad, after the bold headline—“At 60 miles an hour the loudest noise in this new Rolls-Royce comes from the electric clock”—the text enumerated thirteen reasons to buy the luxurious car. In the consumer's mind, he believed, the brand stood for something.

Ogilvy broke with Bernbach as well, albeit less vociferously, asserting that Bernbach's “art” got the better of his content. “What you say in advertising is more important than how you say it,” Ogilvy declared.

Bernbach firmly disagreed. “Execution can become content,” he replied. “It can be just as important as what you say.”
*
It was an argument without end.

Whatever differences divided the industry's titans, however, they were united in the belief that it was the companies doing the buying—the advertisers—that ultimately wielded the power. Fearful of offending white viewers, initially advertisers vetoed the idea of an all-black variety show starring Sammy Davis, Jr. With tobacco ads making up
almost 10 percent of their ad revenue, network newscasts rarely reported on smoking's health risks. Over the years, when program schedules were decided, the head of network sales was always in the room, for no network wanted an ad to appear in what was deemed an unfriendly environment. A medium dependent on advertising for its revenue knows that its primary business obligation is to corral an audience for its ads. Bill O'Reilly seemed to be surviving his sexual harassment scandal at Fox, until a group launched a successful boycott campaign against his show's advertisers. When advertisers fled
The O'Reilly Factor
in April 2017, Fox News quickly pulled the plug on cable TV's top-rated anchor.

Over time,
for industry-specific reasons and also due to a larger shift in American business culture, ad agency clients began to bring more and more scrutiny to bear on the whole cost structure. Jon Mandel's
j'accuse
moment did not come out of a clear blue sky. After the 2008 economic crisis in particular, CEOs increasingly turned to their chief financial officers or chief procurement officers to more closely monitor marketing spending. Inevitably, the power of CMOs, who hired the agencies, eroded. “In Don Draper's days there was never a procurement department,” says Wendy Clark, who has been a CMO of Coca-Cola and AT&T and is today the North American CEO of Bill Bernbach's former agency, DDB Worldwide. “In new business briefs,” she says, in addition to the CMO “we have two procurement officers in meetings.”

Irwin Gotlieb saw this beginning to happen in the early 1990s, when procurement officers would hire auditing firms like Accenture and Ebiquity to monitor agencies. They became the agency's adversary, he explains. “They got compensated for generating savings,” and they had a built-in “conflict of interest. They ran around saying, ‘The sky is
falling!' And then they sold you umbrellas.” By slicing marketing costs, they boosted short-term company earnings at the expense of the long-term health of companies, he argues, correlating marketing dollars with growth. An inevitable consequence, he says, was a loosening of the bond of trust between client and agency.

“Today clients are not married to an agency. They are only dating,” observes Kassan. Clients who previously conducted agency reviews every ten years now accelerated their review cycles, sometimes dramatically. Keith Reinhard, the chairman emeritus of DDB Worldwide, retained Anheuser-Busch as a client for thirty-three years, and he dealt directly with the family patriarch, August Busch. “We had a top-to-top relationship,” he says. “But when product managers came in under CMOs, that diminished, and in some cases eliminated, top-to-top relationships.” Today, many CMOs are not members of their CEO's C-suite or top executive team—CEOs, COOs (Chief Operating Officers), CTOs (Chief Technology Officers), and CFOs (Chief Financial Officers)—and their tenure is often just a few years. David Sable, the CEO of Young & Rubicam, laments, “The biggest difference between our day and Don Draper's is the relationship between agencies and clients. In those days, you had a problem and you called your agency. You were partners.”

Connected to the rise of procurement officers was the end of the 15 percent commission to compensate agencies. “The agency did not have to put forward a proposal for agency compensation, justifying how many people worked on the account or what they did. Compensation was worked out by how much money the client was prepared to spend on media,” Michael Farmer writes in his book,
Madison Avenue Manslaughter
.
*

The first major client
to rebel was Shell, which in 1960 decided to abandon its agency, J. Walter Thompson, and replace the commission system with a fee system. The new agency was Ogilvy, whose head, David Ogilvy, claimed credit for the new form of compensation, which would over the next three decades spread almost everywhere. “Experience has taught me that advertisers get the best results when they pay their agency a flat fee,” Ogilvy explained in his memoir. An agency is “expected to give objective advice,” and may not be able to when its compensation is based on how much the client spends on advertising. “I prefer to be in a position to advise my clients to spend more without their suspecting my motive. And I like to be in a position to advise clients to spend
less
—without incurring the odium of my own stockholders.”
*

Ogilvy was correct about aligning the interests of the agency and the advertiser, but he was unmindful of the consequences for agencies. The 15 percent commission system plus a commission on all production costs did undermine trust; but the fee system undermined the creative agencies. “The commission system was an absurd system,” admits Jeremy Bullmore. “But it worked. What it did was make agencies compete on services, not price.” A fee-based system invited CFOs and their procurement officers to drill down on costs, to question why a high-priced copywriter could not be replaced by a junior copywriter. Over time, says Miles Young, it slashed the earnings of agencies “by maybe one third or half.”

Of course, no change was more disruptive to the advertising community than the proliferation of consumer choices brought about by new technologies. “In Don Draper's days you had probably six media
channels to engage with the consumer,” Bill Koenigsberg of Horizon Media says. “You had television. You had print. You had radio. You had newspapers. And you had out-of-home”—outdoor advertising, for example. There was also, he said, “below-the-line direct marketing,” including direct mail. “Today the ability to engage with consumers lives in hundreds of different media channels. That channel explosion is a huge difference.” It lives, as well, in billions of smartphones, personal devices with our own apps that we carry everywhere, sometimes to bed, and that allows advertisers to reach, and often to annoy, consumers. People spend more time on their mobile phone than watching television, says Carolyn Everson, Facebook's vice president of global marketing solutions. Armed with more data that yields more information about each consumer, instead of spraying the audience with a TV shotgun ad and not being sure who has been hit, digital companies like Facebook say they let advertisers aim a rifle at individual consumers. This innovation is promised by every digital platform. “As opposed to marketing at people, it is marketing for people,” she says. “The biggest difference from Don Draper days is data,” says Keith Weed, a three-decade Unilever veteran who oversees marketing and communications for the world's second largest advertiser. “Data has always been there. The difference is the ability of the computer to analyze the data.”

But even with the data, the marketers are not in control. “The single biggest difference between today and Don Draper days,” thinks Rishad Tobaccowala of Publicis, “is that consumers are increasingly determining what they want to interact with, and when.” Today, the consumer is the real king. Tobaccowala dates the empowerment of consumers to 2007, the year Apple introduced the iPhone, the first smartphone, the same year Facebook shifted its audience focus from college students to everyone, and the same year Amazon's Kindle was introduced. In years past, advertising was based on a premise that
information was scarce. Advertising informed us of products. We traded our attention for information, industry observer Gord Hotchkiss has written on
MediaPost
, an online marketing publication. Today we are glutted with information and have “too little attention to allocate to it. . . . This has allowed participatory information marketplaces such as Uber, Airbnb, and Google to flourish. In these markets, where information flows freely, advertising that attempts to influence feels awkward, forced and disingenuous. Rather than building trust, advertising erodes it.” Evidence of advertising fatigue is found in ad blockers and in Nielsen data that says half of those who watch TV shows they have recorded on their DVR devices skip past the ads.