Frenemies: The Epic Disruption of the Advertising Industry

The first full-service modern advertising agency, N. W. Ayer & Son, emerged just after the Civil War. What would become the primary means of compensating agencies, the 15 percent commission on all advertising, was also introduced in 1905 by N. W. Ayer & Son. The introduction of the automobile early in the twentieth century became an advertising catalyst. As auto companies proliferated, their reliance on ads to distinguish themselves grew, as did the use of billboards to catch the attention of drivers. Radio in the 1920s and television after World War II became inflection points for new waves of advertising. The burgeoning Internet at the dawn of the twenty-first century became another inflection point.

As population and products mushroomed, advertising made it possible for consumers to discover things they needed, or thought they needed. Advertising seduced consumers and created familiar brands. Initially, the ads for those brands were informational, often dull and dutiful. Nineteenth-century newspapers were festooned with dense rows of classified ads, occupying the entire front page of many papers. Increasingly, ads began to flirt with consumers’ emotions. In the 1920s, Edward Bernays, nephew of Sigmund Freud, became the father of the public relations industry. A hundred years after Shelley declared poets the unacknowledged legislators of the world, Bernays announced in his 1928 book Propaganda—a word he used with none of the pejorative connotations it would later acquire—that now this was true of marketers: “The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country.” As one might expect of one of Freud’s kin, Bernays’s mission was to discover the hidden motives for human behavior and learn how to tickle them. “Men are rarely aware of the real reasons which motivate their actions,” he wrote. “A man may believe that he buys a motor car because, after careful study of the technical features of all makes on the market, he has concluded that this is the best. He is almost certainly fooling himself.”

Today the definition of marketing extends from the damage control of public relations firms summoned when a company like Volkswagen is embroiled in scandal; to survey research before a new product is introduced; to the targeting that data companies like Oracle sell to agencies and brands; to designing corporate logos or rebranding companies, as was done when Time Warner Cable was renamed Spectrum; to corporate positioning advice McKinsey & Company offers CEOs; to direct mail, blogs, podcasts, coupons, sponsorships, naming rights, purchased shelf space, corporate Web sites, in-store promotions, membership rewards programs, exhibitions, and young influencers like the Betches, who are paid to extol products on sites like YouTube.

The tentacles of this industry reach wide and deep. It employs an estimated one million people worldwide. One hundred thousand are said to congregate in New York each September alone for the annual Advertising Week in the Times Square area. Then there are the one hundred seventy thousand or so who attend the Consumer Electronics Show, or CES, in Las Vegas in January, the hundred thousand who attend the Mobile World Congress in Barcelona in February, the armies who attend the Association of National Advertisers in different locales, the South by Southwest (SXSW) in Austin in March, the American Association of Advertising Agencies Transformation in Miami or Los Angeles in April, the Cannes Lions International Festival of Creativity in June, and the conferences that Advertising Week’s impresario Matt Scheckner has introduced to London, Tokyo, Mexico City, Shanghai, and Sydney.

It is an industry that has never lacked the capacity to take itself seriously. Jeremy Bullmore, the former J. Walter Thompson chairman, whose company was acquired by Martin Sorrell’s WPP in 1987, today sits in a small, cluttered office at WPP’s London headquarters on Farm Street, where Sorrell relies on him to write sparkling essays about the industry and to help produce a robust annual company report. “Of all the models for successful economies,” Bullmore says, looking out from under bushy white eyebrows that give him an almost cherubic appearance, “nothing yet has been able to compete with a liberal, open market. Which is not to say it’s without flaws. If you go back five hundred years to a village, there were people who have milk and carrots and there were other people in the village who want them.” Only some form of communication can close the distance between “those who want and those who have.” He thinks most of the gap is filled by advertising. “Edison didn’t actually say, ‘Who makes the best mousetrap, the world will beat a path to his door.’ If he had said it, it would have been absurd. If you build a better mousetrap and you’re in the woods, until somebody knows you’ve got the better mousetrap, there’s no point in building it.” He cites the former Soviet Union and its satellites: “Look at Communist countries. No advertising. None of the consumer goods companies thought it necessary or worthwhile to innovate because if you do something that’s quite interesting but you can’t tell anyone about it, and your competition are not doing it, why bother?”

As First Lady, Michelle Obama championed learning how to “use the power of advertising to our favor” by promoting exercise and eating healthy foods like fruits and vegetables. “We all know that advertising works, so we figured why shouldn’t fruits and vegetables get in on the action?” she said. Advertising also works in negative ways, witness the Camel ads that once successfully touted cigarettes as a health product, proclaiming, “More doctors smoke Camels than any other cigarette.” Or mentholated cigarettes were pitched as assuring improved health.

But neither advertising nor the industry that produces it works the way it once did. The industry is being disrupted by frenemies advancing from the north, south, east, and west. Martin Sorrell impersonates an alarmed Paul Revere, seeking to rally the traditional ad industry, summoning his WPP troops to meet the “continuous disruption threat” from various competitors. While pacing his all-white, bare-walled London townhouse office, he says, “You’ve got layers. You’ve got our direct competitors, like Omnicom. You’ve got the frenemies, let’s call them Facebook and Google principally. You’ve got the consulting companies, like Deloitte, McKinsey, et cetera. And then you’ve got the software companies, like Salesforce.com and Oracle and Infosys, and Indian software companies.” He combats new threats by aggressively investing in digital upstarts and jettisoning companies whose economic performance lags. “We’ve invested in Vice. We’ve invested in Fullscreen. We’ve invested in Refinery29,” each a digital company. And, he adds, “I’m prepared to eat our children, because if I don’t somebody else will!”

It does not please Sorrell that one clear beneficiary of this tumult and fear—and the client backlash triggered by Jon Mandel’s speech—is Michael Kassan’s MediaLink. Publically, Sorrell may mute his criticism of Kassan, but he dislikes third parties getting between his agencies and his clients. It annoys him that Kassan’s varied clients flock to MediaLink—not WPP—because they seek a reassuring neutral voice and are distressed by the speed and enormity of change. Sorrell has a broader range of knowledge and business acumen than Kassan—and most contemporaries, for that matter. But Kassan is comforting, providing for his clients what he describes as a cushion, a “membrane between” the cartilage and the bone. Martin Sorrell would never describe himself as a cushion.

Like a doctor with a good bedside manner, Kassan knows his clients have reason to be insecure, and he seeks to address their fears. His clients discuss the accelerated spread of mobile phones, whose approximately six billion global users have replaced the desktop and the television as the dominant platform. They marvel at its awesome power: today’s iPhone 8 has more computing power, says Rishad Tobaccowala of Publicis, than was used for the first space shuttle. They enthuse that a smartphone platform and its embedded GPS open opportunities to track and engage personally with users. They are awed by China’s Tencent, a corporate giant focused on mobile services that connect people, providing access to WeChat. In mid-2016, Tencent had almost 800 million users, 80 percent of whom spend more than an hour a day on one of its sites, especially WeChat, to communicate with family and friends and strangers. They use simple bar codes to partake in 500 million daily transactions, employing 300 million credit cards that link to 300,000 stores, all without switching to another app. If the client does not know, Kassan can explain that WeChat is a one-stop service that combines the varied functions of PayPal, Facebook, Uber, Amazon, Netflix, banks, Expedia, and countless apps. It is clear to Kassan: the mobile future is being shaped in China, not Silicon Valley.

But this frightens his clients, because they know China is a hard market to crack, and they know the U.S. companies that control mobile will drive hard bargains with agencies and advertisers. They also know the limitations of mobile. Ads on mobile phones soak up battery life, are constricted by small screens, and are so intrusive and irksome to consumers that about one quarter of Americans and one third of Western Europeans sign up for ad blockers to prevent the interruptions. How, clients anxiously want to know, do they reach the mass audience so essential to introducing new products and to building brand identity when ads on mobile phones are not as effective and consumers are dispersed among many new channel choices and social networks? And what the hell do they do to reach the next generation—including the digitally savvy millennials age twenty-one to thirty-four, and the even younger Generation Z born after 1997, who detest being hawked to? A reason people might be annoyed by ads is because, on average, citizens are bombarded daily by an astonishing five thousand marketing messages.

Kassan’s clients and agencies do marvel at new data mining tools that offer advertising and marketing companies more weapons to target consumers. But they’re also frightened by some of Kassan’s digital clients—Facebook and Google in particular—who cooperate with advertisers but also compete by collecting massive amounts of data, which they do not fully share. These digital frenemies use this data and the marketing services they’ve acquired—like Google’s DoubleClick and Facebook’s Atlas—to become agency and platform rivals. More and more of his clients are terrified of Amazon, for Amazon has even better data than Facebook or Google, because it tells when a consumer made an actual purchase decision, and like Facebook and Google it walls off its data. Particularly worrisome to brand clients, Amazon promotes its own products, as Google is accused by the European Union of using search to steer users to its own products. For example, if you ask Alexa, Amazon’s digital assistant, to choose a battery, it will choose an Amazon battery, the reason Amazon batteries dominate battery sales on Amazon.

Kassan’s clients and agencies also worry about something else: the data that will yield rich targeting information could trigger a backlash if citizens come to believe their privacy is violated and clamor for government protection. While more data fortifies agencies with better tools to target consumers, it also unnerves them because it arms clients with information about which of their ads sell and which don’t. And technology does something else: it democratizes information, giving citizens more choices, more ability to skip ads, to voice their opinions, to vote with their fingers and flee traditional media platforms.

Everyone in the advertising and marketing business marvels at the platform choices technology enables. Consumers can be reached via an ever-expanding number of TV channels, social networks, apps, blogs, podcasts, and e-mail alerts. But they fear the miniaturization of the mass audience and wonder how to introduce a new product so that it captures people’s attention in this new world.

The advertising industry collectively worries that what they think of as their art—big creative ideas—will be replaced by machines weaponized with data and algorithms and artificial intelligence. The primary machine we increasingly rely on is the smartphone, and many in the industry would not be comforted to listen to Tim Armstrong, the CEO of AOL and before that Google’s senior vice president of advertising for the United States and Latin America. In 2015, Armstrong sketched a future in which marketers will have to talk to a consumer via their mobile machine: “And the machine is going to highly disrupt what kind of advantage and what kind of messaging and what kind of interaction you have with a consumer.” Within five years, he continued, six billion people will be connected to the Internet, meaning marketers “are going to have to interact with their machine, which we refer to around here as ‘the second brain.’ You’re going to have an advertising model that works fluidly for the consumer but also works fluidly for what that machine is.” He illustrates the machine’s power by telling of a visit he made that week to a Mastercard board reception where they displayed future products. One was a gas station pump that recognized your Mastercard and regulated the price at the pump based on whether you were a regular customer or not. “In the future, the pump pricing may change based on what type of customer you are and whether you’re in a points program. But also, the company will have a lot more information on you.” And the smartphone will “keep track of all your relationships with all the companies you deal with. The exponential power of using that data will change consumer behavior. It will shift more power into the consumers’ hands. And it will shift more power to companies that move faster into this world.”

Marketers will have to befriend the machine, he continued. “The phone or machine will be as powerful as a second you, with a lot more ability to use software to simplify things for you. Today, the consumer does all the work. You have to get in your car and drive to the store. You have to go online to Amazon and figure out what you want to buy. But in the future if you have this machine that has a deep understanding of what you do, when and how you do it, the things that may be helpful for you, it’s likely that the onus on the consumer to do all the shopping will shift to the corporation.” Information for the consumer will be screened and presented by your smartphone’s digital assistant, which will be more sophisticated versions of Amazon’s Alexa, Apple’s Siri and its HomePod speaker, Google Home, and Microsoft’s Cortana. “It may watch how you behave over the course of a year and say, ‘Here are all the things you’re doing and here are three or four products that may help you live a longer life, may help you save twenty percent of your income.’” The digital assistant becomes your agent, potentially supplanting the middleman, including the agency middleman.

Agency employers stewed over all this. And as they also stewed over Jon Mandel’s claims in 2015, Michael Kassan heard a new drumbeat from various clients: trust. Or mistrust. Kassan was all too aware of the views of a frequent client, Beth Comstock, who was promoted to vice chair of General Electric after the innovations she instigated as their CMO. “You hear this time and time again, a lot of people are frustrated that there’s a disconnect between their agency and what they want,” she says. “I think we want more media properties to come to us,” to bypass the agency and collaborate directly on creating an ad campaign, as the New York Times did in creating an award-winning virtual reality campaign for GE. Over the years, she says, the mistrust between client and agency intensified because the media-buying agencies came to see themselves as the customer. “They gathered all the clients together. They negotiated the sales.” They, not the client, directly paid for the ads. They didn’t always assign their best people to a client’s account. They were sometimes opaque about rebates or why they placed bets on different media platforms. To Comstock the trust issue boils down to this: “Are you working for me or for the media company? I’m paying you!”

Agencies are naturally anxious not to become superfluous middlemen, supplanted by clients who seek lower costs by building their own in-house marketing departments, or by turning to advertising platforms that retain MediaLink—like the New York Times, the Wall Street Journal, or Vox, which double as ad agencies, going directly to brands and offering to craft their ads. Agencies worry that as consumers shift to the convenience of online buying and do it on their iPhones, reliable advertising clients like department stores and retail outlets will do more than contract—they will perish. Big agency holding companies “are dinosaurs,” thinks Bob Greenberg of R/GA, a thriving digital agency, because they grow by buying companies and become hobbled by an inability to harmonize disparate cultures, while at the same time being challenged by formidable consulting companies with deeper pockets and intimate relationships with the CEOs of major brands. They are collapsing, he says, because “everything is run by accountants and bean counters.” Greenberg obviously makes an exception for IPG, the holding company which acquired his R/GA.

“Change sucks,” sighs Rishad Tobaccowala, the resident futurist for Publicis. “I hate change. I work for the same company I joined thirty-four years ago. I live in the same area of Chicago for thirty-six years. I met my wife in India when I was twelve. I hate change. The reason why change sucks is if you do something different, you don’t know what you’re doing. Therefore you make mistakes. You make a fool of yourself.” Senior executives don’t want to look foolish, or admit they don’t have answers. “So what people do is they put out press releases pretending they know what they’re doing. And they hope this will go away before they retire. But it is happening faster.”

In human terms, what marketing execs like Tobaccowala, Sorrell, and Kassan know all too well is that many of the jobs held by their employees are threatened by technology. They know that new technologies like programmatic or computerized buying of advertising eliminate jobs. They know personalized ads dispatched by Instant Messages (IMs) or e-mails can be created by machines. They know algorithms and machines powered by AI increasingly decide what we see or read. They know, as Kassan says, “Technology is the number one threat to agencies. Technology allows for a more direct relationship between a buyer and a seller, with less need for an intermediary.”

Deep down, Kassan, like most media executives he advises, fears that marketing dollars will not just be redirected, they will actually shrivel. Their fear calls to mind this brief exchange between two friends in Hemingway’s The Sun Also Rises:

Bill Gorton: “How did you go bankrupt?”

Mike Campbell: “Two ways. Gradually and then suddenly.”

3.

GOOD-BYE, DON DRAPER

“Today clients are not married to an agency. They are only dating.”

—Michael Kassan

Mad Men’s Don Draper was a fictional stand-in for midcentury advertising executives like David Ogilvy, Bill Bernbach, and George Lois, who reigned at a time when the creative departments ruled agencies, when a single street—Madison Avenue—was synonymous with advertising. In those days, there was no need for a company like Michael Kassan’s MediaLink. In fact, Kassan and MediaLink would have been treated as an interloper, for the ad agency, as Jon Mandel and clients like GE’s Beth Comstock claimed, was the agent of the client.

Newspapers starting in the late nineteenth century began to compensate agencies with a fixed 15 percent commission on all advertising placed in their pages. Magazines followed, then radio and television. It was an unusual compensation system—the ad was paid for by the advertiser, but it was the seller of the advertising, not the buyer, that paid a percentage of the fee to the agency. In addition, agencies were paid a 17.65 percent commission on all ads created, and were separately reimbursed for production costs. The arrangement “was pretty lush,” concedes Miles Young, the CEO of Ogilvy & Mather until 2016.

Randall Rothenberg has been immersed in the industry for more than a quarter century. He wrote one of the most instructive and entertaining books about advertising, Where the Suckers Moon: An Advertising Story,1 and today serves as the spokesman for digital companies as president and CEO of the Interactive Advertising Bureau. He believes the commission system fortified the agency business, boosting their profit margins. “There was collusion between the agencies and the publishers to keep prices high. The myth was that the client was the marketer. In fact, the client was the publisher. The ad agency acted as a broker for the publisher.” Ad agencies did not often haggle with publishers on price. The more ad dollars publishers received, the more the agency got paid.

Doyle Dane Bernbach’s Bill Bernbach—the creative decision-maker behind such iconic ad campaigns as Volkswagen’s “Think Small,” and “You Don’t Have to Be Jewish to Love Levy’s”—reigned at a time when ad agency execs and their place in the world was secure. When the CEO of fledging Avis offered his account to Bernbach, he qualified his acceptance by telling him, “But you must do exactly what we recommend.” 2 The campaign Bernbach crafted—“When You’re Only No. 2, You Try Harder. Or Else”—changed Avis’s fortunes. George Lois, like Bernbach a Bronx-born maverick, had won a basketball scholarship to Syracuse, and his hulking physicality and booming voice could be menacing. More than once, Jerry Della Femina, a creative colleague, recalls Lois screaming at clients, “I’ll jump out this window if you don’t approve this ad!”

“In the old days, creative guys were the only ones in the room to pitch clients,” recalls Michael Kassan, whose advertising career started in media buying. “They never met Harry”—Harry Crane, media buyer and head of Sterling Cooper’s TV department—“who was treated as a nerd in Mad Men. But in the late 1970s, independent media buyers spun off as companies, and in the ’90s they gained respect. The suede-shoes guys challenged the power of the white-shoes guys.”

A recurring debate within agencies in the Mad Men era was over what constituted a great ad campaign. In the 1950s, Rosser Reeves, the chairman and creative head of Ted Bates & Co., argued that advertising was a quasi science. He promoted what he called a “Unique Selling Proposition,” claiming that one idea that consumers could latch on to foretold whether an ad campaign would succeed. It had to be unique, but it also had to win the approval of survey research predicting it would sell. Colgate ads for toothpaste that “comes out like a ribbon and lies flat on your brush” was unique, but it wouldn’t sell, he said. Colgate ads for toothpaste that “cleans your breath while it cleans your teeth” was both unique and successful. Recruited to pioneer thirty-second TV ads for Dwight Eisenhower’s 1952 presidential campaign, Reeves ordered a Gallup poll that identified three issues on which the Democrats were vulnerable: corruption, the economy, and the Korean War. Reeves coined the phrase “Eisenhower, Man of Peace,” and portrayed Ike as a war hero returned to America to bring about domestic and international peace. His opponent, Adlai Stevenson, who didn’t own a television and thought TV ads talked to citizens as if they were second graders, countered by spending 95 percent of his TV ad budget on a half-hour telecast of his speeches. He reached a minuscule audience.3