How media and agencies can secure a healthy future
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The document discusses the changing landscape of advertising and agencies, highlighting the decoupling of ad spend from economic growth and agencies' need to adapt. It presents challenges such as declining agency fees and the growing influence of consultancies in the digital marketing space. Key trends include the rise of Amazon in advertising, the shift towards digital and video platforms, and the transformative potential of AI in marketing strategies.
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How media and agencies can secure a healthy future
- 1. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. © 2017 IHS Markit. All Rights Reserved. How media & agencies can secure a healthy future MAD//Fest London Dr Daniel Knapp, Executive Director, IHS Markit
- 2. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Is this the most misleading chart in advertising? 2 Source: KPCB
- 3. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 1. The end of the mass-media / mass- consumer complex changes everything 3
- 4. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. End of growth? -20% -15% -10% -5% 0% 5% 10% 15% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Ad spend is getting decoupled from wider economic growth US total ad spend GDP 16.5% 13.8% 11.8% 10.4% 7.0% 6.6% 2.7% 2.6% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% LATAM Africa ME APAC World CEE US WE Ad spend CAGR 2016-2021: mature ad markets are post-growth 4
- 5. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Brands scrutinize advertising and promotion spend 5 8.6% 8.4% 8.4% 8.3% 8.4% 8.3% 8.4% 8.2% 8.0% 7.9% 7.4% 7.6% 7.8% 8.0% 8.2% 8.4% 8.6% 8.8% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 A & P spend/revenue for top global advertisers
- 6. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. But counting numbers misses half the story: marketing = experience = product 6 Source: Nike, mobile website
- 7. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 2. Agencies must rebuild and re-emerge as very different companies 7
- 8. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Agency headlines paint a now familiar story 8
- 9. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. But the agency economic model has been under pressure for a longer time than pundits care to admit 9 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Agency fees in long-term decline & down 3.5% CAGR since 2007 0 1 2 3 4 5 6 1992 2000 2005 2012 2015 …while workload for creative staff has been increasing Fees per Scope Metric unit (in 2016 dollars) Scope Metric Units per Creative Source: Michael Farmer – Madison Avenue Manslaughter; Deutsche Bank; own extrapolations
- 10. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. But are the consultants really coming to eat the agencies’ lunch? Data looks daunting at first… 10 142.8 79.9 36.8 19.5 15.4 10.8 7.8 79.4 35.7 28.3 19 16.8 9.6 0 20 40 60 80 100 120 140 160 IBM Accenture Deloitte WPP Omnicom Publicis Interpublic The size of consultancies is daunting, in revenue & market cap… Revenue 2016 Equity Value 414 384 244 133 79 79 50 0 50 100 150 200 250 300 350 400 450 IBM Accenture Deloitte WPP Omnicom Publicis Interpublic …and in terms of employee base #employees in 000sUSDbn Source: Factset, company websites
- 11. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. …and consultancies claims to solve the ‘new problem’… 11 "You know why? He’s in the wrong pitches... He’s actually solving the wrong problem. He’s solving yesterday’s problem on driving more leads, through better campaigns and better creative. Meanwhile, the CEO, his reaction is: ‘I want to take down my marketing spend, not increase it’.” WSJ 31 May, 2017 A consulting leader on Sorrell:
- 12. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. …but in reality agencies and consultancies both compete for ‘digital transformation’ budgets that are incremental to traditional marketing 12 4% 23% 15% 13% 12% 11% 7% 6% 5% 4% Market share ‘digital transformation spend’ Omnicom Health Accenture Interactive IBM iX Deloitte Digital Publicis.Sapient PwC Digital Epsilon Wunderman (WPP) Ogilvy (WPP) HavasSource: Deutsche Bank, Bloomberg $20bn market 8% yoy growth
- 13. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 3. CFO ❤️ CMO 13
- 14. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. CMOs must deliver business results, not just hit marketing KPIs 14 14% 9% 45% 33% “Does your marketing organization have its own P&L to capture revenue?” No, but plan to in the next 24 months No, and no plans to add within next 24 months Yes, has own P&L Yes, but shares P&L with other business units Source: Gartner, n = 348 But the relationship between marketing and the wider business is broken • Tradition: proxy metrics don’t define business outcomes • Complexity: consumer, channel and technology landscape ever harder to orchestrate • Accounting = Culture: marketing typically exists as a cost center under tight financial scrutiny
- 15. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 4. Data value capture remains exception 16
- 16. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 92% 90% 85% 78% 75% 72% 83% 65% 55% 45% 40% 8% 10% 15% 22% 25% 28% 17% 35% 45% 55% 60% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Newspapers TV Radio Cinema Out-of-Home Magazines Paid-for-Search OnlineDisplay& Video Progammatic Mobile Social Advertising Spend Structure By Medium in 2017 Media Buy Agency Labor* Digital Media Traditional Media *all agency production & service costs including shoot, talent, creation, advisory, planning, measurement, optimization The value of data already can exceed media value 17
- 17. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Data Explosion = Complexity Explosion 18 1 person 2 genders 4-6 income bands 5 age groups Daypart of 12 hours 5 device types 6 promotional units 2,984 UK post code districts 27,000 Netflix- style genres 174 x 101064,454,40021,6003,600720601 2 12 Possible combinations variables
- 18. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 19 Ground-up redefinition of “computation” purpose-built for AI Advanced algorithms to gain deep relationship insight at Billion-user scale Automated orchestration to deliver real-time decision insights for managers $16.6bn $7.8bn $250m* Massive, easy to deploy array of cloud- based media services $22.6bn AI-Compute Data-Driven InsightAdvanced Algorithms Business IntegrationArea Platform Innovation R&D budget *on personalized recommendations alone! Mastering complexity requires innovation in 4 areas
- 19. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. • Insight value chain is only as strong as the weakest link • Compute, data, algorithms, business integration need to work together symbiotically for transformative results • Few companies can break through high entry barriers of capabilities and money • Reserved for tech giants or sophisticated buyers in high-risk, high-reward industries (e.g. finance, biotech, government) • Total cost of entry is extremely high and sustainable results are not guaranteed But total cost of entry is too high for most 20 Compute Data Algorithms Business Integration insight value chain
- 20. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 5. Amazon will reshape the digital ad landscape 21
- 21. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Amazon’s ad revenue will cross $10bn in 2018 – but Bezos hasn’t even started yet 22 0.5 0.6 0.7 1.1 0.9 1.0 1.1 1.7 2 2.2 2.5 3.7 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Amazon’s Global Advertising Revenue ($bn) CAGR: +58% CAGR: +125% • Added 2,000 advertising staff in 2017 • Consolidated ad products • ~75% margin on ad products • US: Over 50% market share in product search • Germany 90% of growth budget migration from Google • Hasn’t even started yet – limited analytics & self- serve capabilities
- 22. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 7. Platforms have struggles, too 23
- 23. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Mark Zuckerberg, January 2018 “I’m changing the goal I give our product teams from focusing on helping you find relevant content to helping you have more meaningful social interactions.”
- 24. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Facebook Newsfeed algorithm changes over time Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 1 2007 1 2008 2009 1 1 2010 2011 1 2012 2013 1 1 2014 1 1 1 2 2015 2 1 2 6 3 2016 1 1 1 2 1 2 1 1 2 2017 2 1 3 2 6 2 1 1 2018 2
- 25. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 8. The video battle will only heat up 26
- 26. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Advertising Revenue: USA 'Total Video' vs TV ($000s) Total Video Advertising Trad TV Advertising ‘peak old TV’ Linear TV advertising is declining, but ‘total video’ advertising (TV + online video) is climbing to ever new heights 27
- 27. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. But legacy TV’s share of total video advertising down 20ppt in 10 years 28 96.8% 95.3% 93.7% 91.1% 88.4% 85.8% 83.8% 81.0% 78.8% 76.5% 0% 20% 40% 60% 80% 100% 120% 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 USA: Legacy TV’s revenue & share of ‘total video’ advertising Linear TV Advertising Legacy TV Ad-Funded Online Video TV share of 'total video' advertising $000s TV’sshareof‘totalvideo’advertising
- 28. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Legacy TV competes with new players for both TV ad dollars and new spend 29 0 5,000 10,000 15,000 20,000 25,000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 USA: Online Video Advertising Revenue by Player ($000s) Legacy TV Ad-Funded Online Video YouTube Ad-Funded Online Video Facebook Ad-Funded Online Video Other Ad-Funded Online Video
- 29. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Legacy TV will remain the first among many, but glacial erosion continues 30 2017 Legacy TV YouTube Facebook Others 2023 Legacy TV YouTube Facebook Others 2014 Legacy TV YouTube Facebook Others Share of ‘total video’ advertising over time
- 30. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 9. Voice will perk advertisers’ ears 31
- 31. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 0 1 2 3 4 5 6 7 8 2016 2017 2018 2019 2020 World: selected voice assistant (system/ OS level) capable devices (bn) Smart Speaker Tablet Smartphone PC Games Console DMA Smart TV More than 7bn voice assistant capable devices in use by 2020: 7% of marketers see them as top priority 32
- 32. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Emerging multi-channel marketing strategy on voice assistants branded skills ‘on assistant’ paid media (spots, sponsorships, promotions), e.g. via VoiceLabs aural identity (e.g. earcons) Underlying search engine (e.g. Google, Bing) Store placement strategy(e.g. Amazon placement strategy) Trigger consumer actions on voice through off- voice brand advertising Hijacks, Exploits Continuous monitoring & intelligence Voice direct Voiceindirect Outsidevoiceecosystem Algorithms 33
- 33. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 10. AI – mislabeled, misunderstood, massive 34
- 34. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Three modes in which AI is set to transform advertising AI MARKETING WITH PROGRAMMATIC 2.0 MEDIA BUYING AD ORCHESTRATION CREATIVE 2.0 INFLUENCER ENGAGEMENT AI MARKETING OF SERVICE EXPERIENCES CAMPAIGNS VOICE CAMPAIGNS AI MARKETING TO SEO VOICE SEARCH VRM AI MANIPULATION Source: OMD, modified examples by IHS Markit 35
- 35. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 11. Regulation moves from data to consequences of calculation 36
- 36. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. A must-read to anticipate what is coming 37 Source: University of Oxford (website screenshot)
- 37. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. XAI (explainable AI) may become the new accountability paradigm Source: DARPA 38
- 38. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reality Check “People worry that computers will get too smart and take over the world, but the real problem is that they’re too dumb and they’ve already taken over the world.” Pedro Domingos, The Master Algorithm 39
- 39. Confidential. © 2017 IHS MarkitTM. All Rights Reserved. © 2017 IHS Markit. All Rights Reserved. Thank you! Please feel free to get in touch: [email protected] @_dknapp +44 794 600 7813
Editor's Notes
- #5: Advertising is a sub-GDP growth activity and so are the fees that agencies extract. However, this is not a new phenomenon linked to digital disruption. Advertising share of GDP has been falling steadily since the mid-1980's globally and in mature markets.
- #6: A shift away from long-term brand building and towards price and promotion has also impacted the agencies. We track the rise of the hard discounters, value-oriented retailers and private label.
- #7: Companies are increasingly allocating “customer experience” to the marketing budget — such as the costs associated with developing apps that allow brands to form a direct connection with their customers. “Marketing spending is going up healthily but increasingly the money is going towards customer experience rather than traditional advertising,” says Mr Manning. This presents a big challenge to the holding companies. The holding companies are in the conventional advertising business.” experience
- #10: SMU: Fees paid for each piece of work. This is a measure of agency deliverable, adjusted for complexity. For example, a deliverable might be getting a commercial through the creative development process and into production.
- #20: Google Hardware purpose-built for AI that can handle an explosion of parameters to answer new questions exponentially faster. Facebook - Advanced algorithms for organizing knowledge to manage insights into the networks of relationships and behaviors at scale Neflix - Automated orchestration between systems and constant delivery of causal insights into the hands of business decision-makers in near real-time Amazon: Massive cloud infrastructure powering media services end-to-end from content recommendations to video transcoding
- #21: DK: Cost of entry or cost of ownership? Decide & standardise!
- #23: Amazon Advertising is piloting keyword-based retargeting (i.e., search retargeting) functionality within its DSP, which allows advertisers to target people across the web based on their Amazon search queries. No information on when it might become generally available. Ad ambitions reshaping data policies.
- #33: ** includes system and OS level only – not downloadable app
- #38: This disclosure would address (1) why certain data is a relevant basis to draw inferences; (2) why these inferences are relevant for the chosen processing purpose or type of automated decision; and (3) whether the data and methods used to draw the inferences are accurate and statistically reliable.
- #40: Nicht nur ein technischer, sondern auch ein massiver kultureller Wandel