Frenemies Page 14
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There are many complaints about Facebook ads. In late 2015, James Murdoch, the CEO of 21st Century Fox, questioned the value of Facebook’s video advertising formats, insisting that when Fox sold a product placement to Pepsi for $20 million and integrated its soft drink into the plot of its hit series Empire, it was a lot more effective than “a two-second viewable in the corner of a screen as you scroll through your Facebook feed. I feel like those sorts of impressions are not really earning anybody’s attention.” (Maybe not their attention but certainly Facebook’s, because these ads provide lucrative ad dollars.) In early 2016, Patrick Keane, a Facebook competitor, extended Murdoch’s argument: “A huge percentage of Facebook’s revenue is sort of the underbelly of the Internet. Just direct response, shitty stuff. Punch the monkey stuff. Silly ads. They’re just trying to get users to download and engage. And they’re able to do it because it’s quantifiable. If it’s on the screen for a second, it counts. There’s no outside referee that certifies that it worked.” Keane’s argument dovetailed with a view repeatedly expressed by Martin Sorrell. It troubled him that clients were paying for ads that often were not viewed by human beings but rather by bots, or automated software. “There’s no way a three-second view on Facebook, and fifty percent of the time the sound is turned off, can be equated to a thirty- or sixty-second TV commercial,” Sorrell complained publicly.
Unverified ads are a burgeoning challenge for Facebook and Google.
So too are efforts by agencies and clients to boost strong digital competitors to the two giants. Their private agenda was not unlike that of nineteenth-century Austrian chancellor Metternich, who maintained the balance of power by building up other nation-states to help resist Russia’s expansion. Some of the other dominant digital companies are not legitimate rival advertising platforms. Apple relies not on advertising but on the sale of its hardware and software and on an iTunes subscription model for music and the sale of apps. At the moment, Amazon’s and Microsoft’s business models rely little on selling ads. Twitter is ad reliant, but Twitter has never earned a profit.
By late 2015, many agencies and clients hoped two digital competitors might bust out: AOL, which was armed with new financial resources when Verizon decided it was too risky to be a dumb pipe and acquired AOL in May 2015, or Snapchat, an emerging social network Facebook competitor. With AOL and the Huffington Post providing content and Verizon providing the pipe and data on its 135 million telephone customers, AOL CEO Tim Armstrong boldly proclaimed to an Advertising Week audience in September 2015 that the new entity “has dreams of being the largest mobile media company in the world.” The competitive target, he said, was Google and Facebook.
The cofounder and CEO of Snapchat, Evan Spiegel, openly aspires to disrupt Facebook, which he mocked as passé. “If you look at the next generation of social media, it’s really pinned on this concept of instant expression,” Spiegel said over a breakfast at Manhattan’s Four Seasons Hotel in October 2015. “And it was only technically possible with the advent of the smartphone, because you have a camera connected to it. People underestimate this transformation. So you can express yourself in real time, in the moment. So you no longer have this weird phenomena, which is really what Facebook is built on, which is that you collect all these experiences and you upload them later. So on Instagram you see these photos three days later. On Snapchat, you see Snaps the moment they are created.”
Martin Sorrell decided in 2016 to ride the Snapchat horse as a rival worth betting on. He decided to sweeten the ad dollars WPP earmarked for Snapchat. “It does become a threatening alternative to Facebook,” he told CNBC, “and I think that’s the big opportunity for them. . . . I think Facebook is concerned about the potential opposition.”
Not that concerned. Sorrell’s threat was pure bluster. Although WPP would over time double the ad dollars it steered to Snapchat, from $90 million in 2016 to $200 million in 2017, it was akin to throwing pebbles in the ocean: WPP’s ad spending on Google rose five times as fast in 2016, totaling $5 billion; WPP purchased $1.7 billion of ads on Facebook in 2016. While Snapchat’s revenues jumped seven times faster in 2016, they only reached $404.5 million. By contrast, Facebook’s ad revenues totaled $27 billion that year. The looming threat to Facebook and Google, which would prompt Sorrell and the agencies and their clients—as well as Facebook and Google—to quake, would not come from Snapchat. It would come from Amazon.
8.
THE RISE OF MEDIA AGENCIES
“We always had the view that the less a media owner knows about what our objectives are and what our needs are, the more leverage we have in a negotiation. If he knows what I need, why would he discount it?”
—Irwin Gotlieb
In Hollywood, if you utter only certain first names—Warren or Barbra or Jeffrey—the film community knows you mean Warren Beatty, Barbra Streisand, or Jeffrey Katzenberg. In the advertising community, if you say Irwin, people know you mean Irwin Gotlieb, the global chairman and architect of GroupM, the powerful media agency. Michael Kassan refers to Irwin as “my closest friend,” usually speaks to him at least once a day, and says of him, “In our industry, Irwin Gotlieb is Yoda.”
Comparing media agencies to creative agencies, Gotlieb’s boss, Martin Sorrell says, “Media agencies are better compensated than creative agencies. The engine room of WPP is the media agency’s billings.” Of the many companies that fly the WPP flag, GroupM is the largest single profit contributor. And media agencies were the target of Jon Mandel’s attack on the holding companies. Traditionally, a media agency supervises marketing campaigns: planning strategy, targeting where ads will appear, negotiating ad rates, and buying ads or promotional messages on media platforms. By the end of 2015, the foremost competitors to GroupM were the media agencies of Publicis, Omnicom, Dentsu, IPG, and Horizon. GroupM has ten companies under its wing, including Mindshare, the biggest of its four media planning and buying entities, and Xaxis, the world’s largest programmatic buying arm. Together, GroupM’s companies lavished on various platforms a total of about $75 billion advertising dollars, which in 2015 represented almost one fifth of all global ad dollars. GroupM is paid primarily on what is known as Scope of Work, or SOW, which means the agency submits how it will staff the account and the client approves a preagreed profit margin, one that goes up or down based on the success (the key performance indicator, or KPI) of the campaign. Generally, GroupM’s profit margins are a couple of percentage points higher than WPP’s 17.4 percent.
In appearance, Irwin Gotlieb looks as if he just slid out of a barber’s chair. Not a silver or black hair is out of place; he keeps it swept back at the sides and combed flat atop his head, like the deck of an aircraft carrier; he wears tailored suits, and if not adorned with an expensive tie, the top two buttons on his starched shirt are open just so. He speaks slowly, as if inspecting each word. This very careful man has traveled a long, circuitous path from his birth in Dalian, China, formerly Port Arthur. His parents, Genya and Jacob, were refugees from Belarus who after World War I separately traveled by train across Siberia to China, because Japan allowed Jews to relocate to Japanese-occupied China and each had relatives who had immigrated there. His mother’s family fled to Harbin seeking business opportunity; Jacob followed a more circuitous route. His parents died when he was young, and as a child he joined the youth organization of Ze’ev Jabotinsky, the commander of Betar, a radical Zionist organization that was at war with the British who occupied Palestine. By eighteen, Jacob Gotlieb was a fervent Zionist serving in the Polish army and, according to his son, was deemed “a troublemaker as a Zionist and had to get out of the country.” Desperate, Jacob tried to flee from Poland to Palestine, but was blocked. He came to Harbin seeking safety.
Jacob and Genya met and married in China. Irwin was born in June 1949, and in 1950 Irwin and an older sister and their parents boarded a coal tanker that was retrofitted to sardine 1600 refugees
. The journey took six months to reach Israel, where his father’s brother owned movie theaters and meatpacking plants. Irwin says his father came to Israel carrying precious stones, and had managed to bring on the boat thirteen crates containing crystal and silverware and even a refrigerator, half of which he traded to Chinese officials in order to escape China. “He kept the good stuff,” Irwin says. To this day, it’s a mystery how his father collected this haul. “This is hearsay, I never got it from him because there were things the man would not talk about.” He’s uncertain how his father, though thirty-seven at the time, not only wasn’t in the Israeli military reserves but had been excused from service. “From what I was told he made a deal to serve in the foreign ministry for a year without pay in return for a deferment of his reserve duty.” He knows this wasn’t the total truth. Nor does he know why his father flew alone to Tokyo in 1952 and three months later summoned his family to join him at their new home in Kobe, Japan, where he had started a thriving pearl and diamond business. Jacob Gotlieb, his son says, “did other things that were strange.” He maintained an apartment in Tel Aviv, and would regularly fly there and visit his good friend, Menachem Begin, who had been the commander of Irgun, the clandestine underground militant organization that grew out of Jabotinsky’s Betar.
His dad was stubborn and difficult, and Irwin was closer to his mother. “My mom was the brilliant one,” Irwin says. “She was an incredible mathematician and pianist. She pushed me on both.” She made him practice piano three hours a day, and by the time he was thirteen “I was concert level.” The day after his Bar Mitzvah he stopped playing. (He resumed in 2014.) A precocious student who skipped grades, Irwin learned to speak nine languages, and by age fifteen his parents decided to send him to college in the United States.
He came to New York and enrolled at New York University. But he never attended, and never told his parents. Like his father, he lived a double life; for the next several years, “they thought I was in school.” What did he do? “I partied a lot.” He got a job in the media department of Norman, Craig & Kummel. He met Elizabeth Billick at Fridays, a popular singles bar on East Sixty-first Street and First Avenue. Much like he would later do in shrewdly negotiating advertising deals, he asked for her phone number but waited three weeks to call. Why? “I didn’t want to show my cards!” They’ve been married forty-eight years and have a daughter and two grandchildren in California.
Irwin worked for a variety of agencies—his second ad job was at SSC&B, followed by associate director of broadcast programming at Benton & Bowles in 1977. He grew deeply frustrated by the parochialism of America and the advertising industry. “In the seventies I was a closet sushi eater,” he says. He’d sit at the bar of a sushi restaurant on West Forty-eighth Street and be the only non-Asian in the restaurant. “The United States has historically been a very parochial country,” Gotlieb says. “We’re an island. We’re separated from the rest of the world and there was this attitude at Benton and Bowles in the mideighties that London was a branch office. The difference in my DNA was that I always knew there was a very large world out there.” In 1989, Benton & Bowles changed his title to global head of broadcasting. He left in 1993 to found and serve as CEO of MediaVest Worldwide, the first time a U.S. media department was spun out as a stand-alone company.
Martin Sorrell recruited him in 1999 to serve as chairman and CEO of Mindshare Worldwide, which he forged into a global powerhouse by bringing into its fold the media agencies of Ogilvy and J. Walter Thompson. In 2003, WPP consolidated all agencies under his watch into GroupM, anointing him global CEO. A passionate technologist, Gotlieb was early to spot the growing strategic importance of data in marketing campaigns. By 2015, he had hired a total of 2,500 engineers and analytics specialists.
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Gotlieb’s ascent reflected a trend in the advertising business. With their deep pockets, holding companies started acquiring media agencies. In the United States, one of the first acquisitions was IPG’s purchase of Western International Media, the company Michael Kassan sold. This 1994 acquisition had been preceded in France, when the WCRS Group bought Carat in 1979 (later acquired by Dentsu), and in the UK in 1988, when Saatchi & Saatchi spun off Zenith into a separate agency (now owned by French giant Publicis).
Eventually each holding company would have its own media agency with a primary seat at the client table. Each agency had a large pool of ad dollars, which gave it more leverage to demand lower prices from the ad seller. With clients ever more reliant on the data and targeting and media-buying prowess of media agencies, their profit margins came to exceed those of the creative ad agencies.
“A big difference between today and the Mad Men era is that Bill Bernbach and David Ogilvy were media figures,” says celebrated ad man Jeff Goodby, cofounder and cochair of Goodby, Silverstein & Partners. “Today, the business-side people tend to be the public figures.” Martin Sorrell, not David Droga or Bob Greenberg, is the advertising celebrity featured in ads for the Wall Street Journal. Observes another creative from Mad Men days, Jerry Della Femina: “My agency has my name, Della Femina, on it. There isn’t any agency with a human name on it anymore. No Carl Ally. No Papert, Koenig, Lois. No Doyle Dane Bernbach. Agencies are named very much like rock groups—72andSunny.” Della Femina overstates, neglecting Droga and Goodby and several others. But his argument is more valid than not.
A second consequence of the ascendancy of the media agency was the further erosion of trust between client and agency. The media agency’s hefty profits, coupled with assurances to clients that “we can buy you media at a lower price aroused the suspicions” of clients that “we are making millions,” moans Publicis CEO Maurice Levy. There were reasons to believe agencies were extravagant. In Mad Men days, many agencies had private chefs; profligate liquid lunches and dinners were billed to clients; Interpublic CEO Marion Harper once commanded a fleet of five airplanes, including his private DC-7 with French Provincial furniture, a king-size bed, and a sunken bath. Harper flaunted his ostentation, once telling an interviewer, “We can’t support people with little thoughts or little dreams.”*
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There are those, like former Ogilvy CEO Miles Young, who believe Gotlieb’s famed negotiating skills can be traced to his upbringing in China: “He’s very Mandarin. He’s very opaque, but in a good way. He reads the market well. He’s subtle.” Gotlieb declines to attribute his approach to the lessons learned in China, though his self-description qualifies as an endorsement of Young’s observation: “We always had the view that the less a media owner knows about what our objectives are and what our needs are, the more leverage we have in a negotiation. If he knows what I need, why would he discount it?” Yet he appreciates that when the negotiation ends, both sides need be able to claim victory: “I tell this to my people all the time: negotiation isn’t about shouting louder, or hondling longer. It’s not about wielding a heavier sledgehammer. You have to have a strategy. And you have to have some level of insight into what shaped the other party’s position. And then as gently as possible you back them into a corner and force the outcome. And if you do it right, it doesn’t get unpleasant, and both sides feel pretty good about it as they walk away because it was the right thing for both sides. And don’t put anyone out of business, because you’re going to need them.”
The Chinese-born Gotlieb and the British-born Sorrell shared a conviction that to grow, WPP had to expand globally. By 2015, only 37 percent of WPP’s revenues came from North America, with 30 percent generated in Asia, South America, Africa, and the Middle East. In non-Western countries, Stephan Loerke, managing director of the World Federation of Advertisers, says, “Understanding of the value of advertising has increased appreciably in recent years.” In many countries, Loerke says, governments push harder to support advertising. “You go to China or Brazil and it’s different. The first question they ask is, ‘How do we maximize the e
conomic engine that advertising represents?’” Not surprisingly, the Chinese government banned ad blockers.
Unlike Facebook and Google, or media companies like Rupert Murdoch’s News Corp, that confronted a red stop sign in China, Gotlieb and WPP received a green light. GroupM has more freedom to mine customer information since there are fewer privacy restrictions in China. Why? “Because in China people know they’re being watched,” and because people are more willing to share their data, says Bessie Lee, who until 2017 was WPP’s CEO in China.* With China now its third largest market after the United States and the UK, WPP in November 2015 combined three thousand GroupM and other agency employees into a single Shanghai campus.
Keith Weed describes a week he spent in Shanghai, where three companies—Tencent, Alibaba, and Baidu—dominate nearly three quarters of all time spent on mobile, and where Tencent’s thriving WeChat alone had 650 million customers. He experimented by touring the city with a local Unilever employee who carried no cash and only her mobile phone. They relied totally on the WeChat messaging app that afternoon. Using the app, they ordered a car. From the WeChat platform, “We booked ahead on Alipay and she paid for lunch on WeChat.” They ordered merchandise from Alibaba and paid via mobile. They fetched movie tickets on WeChat. Six years ago, he says, China was “a pale copy of Silicon Valley. Now there’s real innovation there. In messaging, they’re ahead of us. They want messaging to be the portal to the Internet.”
In India, where the population is projected to one day exceed China’s, the government is more welcoming to capitalism. Visiting with Prime Minister Narendra Modi in October 2015, Sorrell told a local reporter that “India will be one of the great advertising and marketing places in the world.” The advertising and marketing agencies his company owned or partnered with gave WPP a market share in the country of about 45 percent. Part of India’s appeal, Rishad Tobaccowala says, is that half of all Indians are less than twenty-five years old. Facebook expected India to soon surpass the United States as its largest market. With a contract from the energy department in India, Edelman public relations opened a twenty-eight-person advertising department in Mumbai. India is an alluring marketing opportunity, albeit with pitfalls. India’s advertising expenditures are only 5 percent of those in the United States, Tobaccowala says, and that’s because there are not enough consumers with disposable income for advertisers to reach, and because a creaky digital infrastructure impedes the Internet and mobile phones.