Martin Sorrell on Challenging the Ad Industry Giants He Helped Create

In an industry built on creativity, it's a testament to both his longevity and ingenuity as a shrewd businessman and negotiator that Martin Sorrell, the former chief executive of WPP, has become synonymous with advertising. And while much has changed over the three decades since Sorrell turned a wire shopping-basket company into an advertising behemoth, after a little more than a year into his new stint as executive chairman of S4 Capital, he's proving that you can indeed teach an old dog new tricks. [kickout id="4" label="cover"] Ahead of his keynote appearance at Adweek’s NexTech conference program on July 24, the 74-year-old Englishman—honored in his homeland with a 2000 knighthood and a staunch Brexit "remainer"—sat down to discuss how media power dynamics in the digital age have rejiggered spend negotiations, the problems with zero-based budgeting and how in-housing is akin to a "marketing Brexit." Adweek: What issues do the larger agency networks face at the moment? Martin Sorrell: If you look at the travails of the big traditional agencies, they can't shift their model; they can't get out of their [own] way. Another problem, I think, is what I call management by spreadsheet. We're seeing a number of the holding companies making sort of centralized decisions which ignore the realities of the business at a local level. I'll give you a direct example: Putting the healthcare businesses back into the individual agencies is suicide. That's going to be $600 million of revenue that will disappear because they'll get lost in the verticals and the agencies. These are different types of businesses with people running them, and you compound the error by putting them into a Wunderman or JW Thompson, which is wrestling with other issues as well. How significant are consultancies now in media? They are a potent force at senior levels in the organization. I always remember the day that Kraft-Heinz bid unsuccessfully for Unilever. I was in Unilever House talking to [CMO] Keith Weed about how we could help implement Accenture's €1 billion zero-based budgeting (ZBB) program. The net result was to encourage Unilever to have another €1 billion ZBB program. But, you know, this is the environment in which we're living. So what we have to do is to work with our clients to be more efficient. But the consultancies get in at a C level and effectively sold them efficiency on that ZBB program. [kickout id="2" label="CAH"] Has the emergence of digital and international media owners skewed the power dynamic in spend negotiations, compared to the '80s and '90s, when media buyers would negotiate trading deals with media owners on a national level and scale was more weighted in their favor? In the old days, scale—in terms of spend—was critically important, but it's not so important now. I think what is more and more important in the digital media marketplaces is brainpower. It's about being able to take the data, analyze it, then coming up with the right content and distributing it most effectively. And it's a continuous loop, and that's why agility is so much more important. Facebook and Google have scale and brainpower. And data. You famously termed the likes of Facebook and Google "frenemies" in the past. What makes you think they are friendlier now than before? They are friendlier frenemies than they were beforehand. … It might be because they've matured. It may be the cause of more regulation or the threat of more regulation. What's happened over the last three or four years have been concerns around brand safety, privacy and interference in elections, which has put tremendous pressure on them. It was a seminal moment when Apple and Amazon crossed a trillion [dollars in market cap]. ... I remember Lloyd Blankfein of Goldman Sachs [saying] no nation state would ever let a company get to [a] $2 trillion [market cap] because it signals too great a concentration of power. [kickout id="3" label="sider"] So I think they have become friendlier, in part but not solely, because Facebook has 30,000 people now monitoring editorial content and Google has [something like] 15,000 people doing the same. So there's this sort of gradual, maybe grudging acceptance that these are not pure tech companies; these are in addition media companies. Another way to put Facebook and Google: walled gardens. What are clients' attitudes toward walled gardens these days? It was 2016 when it became apparent that the walls in the walled gardens were getting larger, and that signaled to our clients a fight that was taking place over the control of data. After 2008, because of the focus on cost, clients were stripping out their marketing expertise. And then in 2016, this was the walled gardens saying that because of privacy, brand safety, interference in elections and the threat of regulation that they were going to control data. So [clients] saw the walls of the walled gardens getting bigger and data being less accessible for them and the direct relationship with the consumer becoming even more important. Therefore, clients started to say, "Well, we've denuded ourselves of marketing resources, so to build that up, we've [got] to take back control." There's a sort of a marketing Brexit here, if you like: We're going to take back control of our destiny. We are going to increase our internal marketing support system. We're going to in-house, not just on media but on creative too. [kickout id="1"] What are your thoughts on in-housing? Why does Unilever buy a Dollar Shave Club? It's because they want to establish a direct relationship using the first-party data with the consumer. They know that Facebook, Google ... have the data and will not make it all available to them and may—in the case of Amazon, Tencent or Alibaba, in particular—start creating their own brands. So remember when I said [that in] 2008 [agencies] started to reduce internal resources because of cost focus? [And how] since 2016, the walled gardens started to get bigger and they said we're not going to allow you access to the data? What are the clients to do? I mean, from what we see, in-housing is not just on media but on content too is increasing. Clients are willing to experiment to a degree that I've never seen before. So if you show them an idea or a different way of working or opportunity, their Pavlovian reaction to that is, "Let's test it." One of the problems of ZBB is that it put too much pressure on the cost, and now it comes back to this: "Take back control."

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Martin Sorrell on Challenging the Ad Industry Giants He Helped Create

S4 Capital executive chairman discusses in-housing, zero-based budgeting and reining in Big Tech

Ronan Shields

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Ronan Shields