Art & Commerce: The Runner’s High

This year is already turning out to be a tumultuous one for the advertising industry, with a number of notable accounts shifting without reviews. But a couple of recent events foreshadow even more upheaval.

The first is Nike’s decision to put its lead agency of the past 25 years, Wieden + Kennedy, into review for a longstanding assignment. A month before the review was made public, Nike CEO Mark Parker told investors, as Adweek reported: “The Nike brand will always be our strongest asset, but consumers are looking for new relevance and connections. … It’s really all about going deeper to get deeper connections and deeper insights, to get more innovation and more relevance, and to make us ultimately more competitive in each of the discrete pieces of our business. You’ll see the Internet move from a bit of a hobby for Nike to a massive commitment.” In other words, goodbye mass marketing era, hello digital innovation era. What’s happening at Nike will be repeated across the entire universe of clients, I predict, and it will happen faster than the agency business can handle.

Everyone knows that Nike was one of the greatest practitioners of mass marketing, creating iconic campaign after campaign and catapulting the brand into a commanding market-share position in athletic footwear and apparel. Fewer people know that Nike in recent years has been one of the most adept marketers in the digital channel, creating a multitude of successful interactive applications. (Full disclosure: My agency, R/GA, is one of Nike’s main digital agencies.) Nike’s investments in digital have allowed the company to reinvent entire categories—running, for one—through digitally enabled products like Nike+. Nike’s success in the digital channel is attributable to a combination of shrewd investment in, and an even shrewder understanding of, the power of the medium.

Unlike perhaps any other marketer, Nike realized early on that the Web did not represent just another communications medium. Because of this insight, Nike focused on reinventing core parts of its business through experiences and applications that changed the way consumers related to the brand—like NIKEiD in product customization and Nike+ in creating an online community. Nike+ runners have logged 13 million miles since the product became available last August. Nike creates experiences that are useful to their consumers rather than static marketing messages that aren’t. More than almost everyone else, Nike has transformed its brand communications from great storytelling to a digital world of customer connections.

Nike is going where the entire industry will ultimately head, throwing the traditional agency business into a state of flux. Thus, it’s no surprise that recruiters are pounding the pavement in droves, searching for the digital talent that traditional agencies desperately need to drive the transition they all must make. Or that agencies (including Wieden as well as Ogilvy) are trumpeting new appointments to lead their digital efforts. If I headed a largely traditional ad agency, I’d fear the same call Wieden got—and I’d be out hunting for talent. However, talent alone will not transform agencies from a traditional model to one rooted in digital technology. The transformation also requires changes in thinking, culture and process that are painful and difficult—but not impossible—to make.

A second recent event concerns last Thursday’s Grandy Award, at the International Andy Awards, to Nike+. This was the first time in history that an interactive application won the grand prize at a major international advertising competition. The last three Grandy winners had been television spots: “noitulovE” for Guinness, and “Grrr” and “Cog” for Honda. In fact, until now, the Grandy winner had always been a TV spot or a body of work centered in television. Many Grandy winners have gone on to win the Film Grand Prix at Cannes.

I was a member of the jury that awarded Nike+ the Grandy—albeit a nonvoting member because Nike+ was submitted by my agency. The jury was headed by Mark Tutssel, chief creative officer of Leo Burnett, and included Bob Scarpelli of DDB, Andrew Keller of Crispin Porter + Bogusky, Mark Waites of Mother, Ty Montague of JWT, and 10 other household names. In fact, I was the only member of the jury who wasn’t from a traditional advertising agency.

After choosing winners in television, print and interactive, it came time to select one entry for the best of show. Given my knowledge of the backgrounds of my fellow jury members, I believed the probability of Nike+ winning a Grandy was close to zero—and in fact, in early voting rounds it came in third place behind a well-known TV campaign and an integrated campaign. But ultimately, the debate about what constitutes a best of show at an international competition like the Andy Awards reached this conclusion: Either the work represents the best example of an integrated campaign, or it epitomizes the kind of innovation that moves our industry forward. And so, when the final votes were tallied, Nike+ won.

Nike+ is unlike anything previously developed by Nike, or anyone else for that matter. It represents one way forward for marketers: products that transform the relationship between brand and consumer. There will be many other ways forward (we are, after all, a creative industry), but hardly any of them will lead back to television.

The two pieces of Nike news are watershed events for our industry, representing a clear break between the analog past, which clients are abandoning, and the digital future, which the entire industry must embrace. Which brings me to the paradox these pieces of news represent. Whereas everyone “talks the talk” about the importance of digital, many clients fail to match the talk to the investment. Instead, we have what I call “the 0.1 percent problem.” If a company with $5 billion in annual revenue spends $5 million a year developing interactive applications, that’s just one-tenth of 1 percent of its revenue. This is the budgetary equivalent of a person earning $100,000 annually going out for a $100 dinner once a year. Yet many clients are far larger and spend far less than even 0.1 percent.

Looked at in this way, the economics of advertising simply don’t make sense any more. We recently met with Fortune 500 companies that have nearly no budget for developing digital marketing programs. The same clients who don’t even want to commit 0.1 percent to the Internet—the most important media revolution in our lifetime—will gladly spend $1 million a pop for a TV commercial production that yields 30 seconds of content and is almost entirely unmeasurable.

It’s no wonder, then, that so many ad agencies haven’t moved from talking the talk to actually walking the walk when it comes to the digital landscape. As long as clients continue to spend the lion’s share of their dollars on traditional, narrative-driven campaigns, it makes no sense to reinvent your entire agency to embrace new digital forms of engagement, Nike’s moves notwithstanding. However, when the budgetary shift really picks up steam, many agencies will be caught off guard.

Nike may have been the first to predict this change, but its move isn’t an anomaly. All marketers will soon be heading in the same direction as Nike, although inevitably they will each take a different path. The only question is: Which agencies will be joining them for the ride?