Sir Martin built the business from scratch, so he was understandably reluctant to hand over the reins, but many already felt that an over-reliance on the traditional ‘siloed’ agency model (long-term client partnerships and marketing plans) rendered the group unwieldy in the face of left-field competition from market disruptors such as Alphabet’s (US:GOOGL) Google and Facebook (US:FB). A growing number of companies have brought their advertising function in-house, or will utilise agencies for a single campaign, rather than choosing a single agency to handle all their business.
Whatever the misgivings over Sir Martin’s departure, it would have seemed obvious that the group needed to evolve following a slew of client losses through 2018. That meant simplifying the corporate structure by hiving off non-core business units, while implementing a single technology strategy that would help meld the creative and digital functions of the group, enabling closer commercial relationships with the dominant media technology giants.
It is probably a little too early to gauge whether the turnaround plan is having the desired effect, evidenced by contrasting like-for-like revenue performance over the third and final quarters of 2019. It is simply more difficult to effect change in large, complex organisations, although the sale of a 60 per cent stake in data analytics firm Kantar to Bain Capital (and the resultant reduction in leverage) appears timely given our current woes.
With marketing budgets slashed across the board, nobody would have expected a positive shine on the group’s first-quarter 2020 update. The market has already priced in a lot of bad news, but the outcome could have been worse. Revenue less pass-through costs declined by 3.3 per cent year on year, although the impact of Covid-19 can be better appreciated through the 7.9 per cent reversal recorded in March. The group had already announced that it was shelving its full-year dividend and share buyback programme, while salary-sacrifice and part-time working initiatives are already in train, in addition to planned cuts in the workforce. The good news is that some sectors are holding up better than others and the group still managed to book $1bn (£804m) in new business through the quarter.
It may not seem immediately obvious, but it is possible to draw a parallel between the way that advertising is evolving through digital channels and the way in which novel therapies are being made possible through an enhanced understanding of the human genome.
Both the advertising and biotech industries are now able to take a more targeted approach to their endeavours, eschewing a one-size-fits-all mentality to one guided by individual needs and preferences. This bespoke approach is set to become the default position as the understanding of underlying data sets becomes more refined over time.
For advertising agencies such as WPP, the rate of change must have seemed daunting. A decade ago, the general approach to digital marketing did not differ markedly from conventional advertising, even though an advertiser could opt for websites popular with their target market. But there was relatively limited access to data covering demographics, click-through rates, previous purchases or search patterns. It is this information that allows digital advertisers to track you from device to device and platform to platform.
You cannot develop detailed analytical algorithms overnight, but the online dominance achieved by the likes of Google, Twitter (US:TWTR), Facebook, and YouTube has opened new opportunities for advertisers at the expense of traditional channels. This manifests in different ways, but anyone who goes online regularly would have probably noticed how the lines between advertising and content are gradually becoming blurred.
The proliferation of pay-to-view services such as Netflix (US: NFLX) also poses a dilemma for advertising agencies, but at the heart of the issue is the ability of individuals to control the media they consume. You will not find a better illustration of how disruptive these changes have been than the declining influence of the major TV networks in the US. Put simply, advertisers can no longer rely on a captive audience in the digital age.
