Frenemies: The Epic Disruption of the Ad Business (and Everything Else) (15 page)

The assertion that Facebook and Google compete with agencies gathered force in 2016. Agencies were agitated that neither Facebook
nor Google shared data with measurement umpires like comScore or Nielsen, which would have enabled an independent assessment of an ad's effectiveness. Martin Sorrell regularly accused Facebook and Google of seeking “to grade their own homework.” This fed into suspicions that their real aim was to displace agencies.

Facebook and Google are also seen as poaching talent from agencies. Facebook hired a creative director from Saatchi & Saatchi to work for its own chief creative officer, Mark D'Arcy, who had spent two decades as a copywriter and as a chief creative officer for agencies and media companies. D'Arcy later hired Andrew Keller, former Crispin Porter + Bogusky CEO, as global creative director of what it calls its Creative Shop. Everson demurs, saying, “We have zero interest in creating competition with agencies.” Facebook employs a staff of 220 under D'Arcy and Keller, and their mission, Everson says, “is to inspire the creative agencies,” not compete with them. Few would see the line between inspiration and competition as being as clear and bright as Everson does. Certainly, Facebook's chief creative officer does not. D'Arcy concedes that his team does at times compete with agencies. He says Facebook “partners with ad agencies sixty percent of the time,” which of course means they don't forty percent of the time. “We have absolutely no interest in serving as an ad agency,” he insists. But he adds, “Nor do we think any business has a monopoly on creativity.”

Facebook's business is reliant on selling ad space, so of course Facebook pitches advertisers. Smaller advertisers routinely reach out to Facebook directly, as do many larger advertisers.
Advertising Age
reported that half of the top fifty global advertisers assign teams of their people to embed with Facebook and Google teams to figure out how to better reach their consumers. “Facebook is not saying to us, ‘Why do you work with agencies?'” says Anne Finucane of Bank of America. “They are saying to agencies and to us, ‘Don't put up a brick wall between the client and us.' We agree. But the agencies don't want this.
The agencies make no less money. But they want control.” For a company like Facebook that helps advertisers shape creative approaches to its users and seeks to better understand client needs, it is probably inevitable that they will usurp some agency functions, including that of go-to adviser.

Each quarter Facebook
rents a large space in Manhattan and invites client and agency representatives for a full-day briefing on how mobile, and particularly mobile video, is the new frontier of advertising, the new television. The audience of three hundred to four hundred is dominated by people under thirty-five. To emphasize the reach of mobile video, a Facebook executive told them: 100 million hours of video was watched daily on Facebook, more time than viewers spent before their TV sets. They screened an old Bulova watch black-and-white TV ad as a warning that the ad formats and length, and how mobile ads were presented, had to be very different. They offered the testimony of Facebook advertisers who extolled the success of their Facebook ads. They invited to the stage Zach King, a young video star with thirteen million Facebook followers who described how he became what is known as an “influencer,” casually selling products by integrating them into stories he told. They emphasized that video ads would fail if they didn't capture the attention of viewers quickly, certainly within the first three seconds because “you don't have the luxury of time on mobile.” They spoke of Facebook's Dynamic Ads, which rely on algorithms to “hypertarget” ads to people whose Facebook data predicts whether they might be receptive.

Everson closed out the day at 5:30
P.M.
by telling her audience that a mobile phone “is the most personal device people ever had. No other medium in marketing has ever been this personal.” We carry it with us
always, unlike a TV set. We store our personal information and pictures and preferred apps on it. We don't loan the phone to others. And because a mobile phone is so personal, to be effective, ads can't feel like an interruption and have to be more personal. “So my biggest point,” Everson concluded, “is that you have an opportunity to communicate to consumers in new ways that will evoke emotion and will drive business results.” The entire day was an advertisement for why clients and agencies should divert ad dollars to Facebook.

However impressed the audience was—and to a reporter individuals affirmed that they were—there are a couple of barriers Facebook won't easily scale. Unlike agencies, Anne Finucane says, “They are not neutral. That is the core of what bothers clients. Objectivity is enormously important to us. Facebook is selling its own product, so how can they be objective? The same for Google.” There are those in the ad business who foresee Facebook or Google trying to compete with Irwin Gotlieb's GroupM as a buyer of media. But would a media plan drawn up by Facebook include a substantial buy for competitors like Google or Snapchat? The other barrier impeding direct Facebook competion, Andrew Robertson cautions: “Why would they trade their forty percent profit margins for ours?”

At their peril, agencies forget that Silicon Valley companies like Facebook take pride in being disrupters, in reducing costs and better serving customers by offering less “friction” and shoving aside what they see as superfluous middlemen. Mark Zuckerberg's famous corporate mantra at Facebook used to be “Move fast and break things.” (In 2014, Facebook changed it to “Move fast with stable infra,” which doesn't have quite the same edge to it, no doubt deliberately.) Unlike most agencies, Elliot Schrage, Facebook's vice president of global communications, marketing, and public policy says, Facebook takes “the Wayne Gretzky approach to business. Most businesses go where
the puck is—where the business is today. Facebook is building a business for where the puck will be.” Facebook, he says, does not aim to unseat agencies. However, “certainly companies like ours will offer more and more tools.”

A glance at Facebook's history confirms that this is the opportunistic pattern the company has followed. Like Google and many Internet enterprises, Facebook began with an aversion to advertising. From its launch in 2004, Mark Zuckerberg had what David Kirkpatrick, whose book
The Facebook Effect
offered the first definitive account of the company, described as “ambivalence toward advertising.” He accepted ads on Facebook “only so he could pay the bills.” Zuckerberg's priorities—user growth and a better customer experience—“were more important than monetizing.” It wasn't until he recruited Sheryl Sandberg away from Google to serve as his number two in 2008 that Facebook woke up. At Google, Sandberg oversaw its primary revenue source, online advertising sales. With Zuckerberg off on a monthlong round-the-world trip, deliberately allowing Sandberg to establish her authority, she organized daylong executive meetings to figure out how to monetize Facebook's proliferating user base. With 250 million Facebook users at the time, the choice was clear. They emerged from these sessions and Sandberg told Kirkpatrick, “The revenue model is advertising.”

Like Mark Zuckerberg, Google cofounders Larry Page and Sergey Brin also formed their company with a belief that advertising was corrupting and would ill serve users. In a paper they presented at an Australian Web conference in 1998 that was unearthed by Tim Wu, they wrote that “advertising-funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers.”
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Today, like Facebook, Google competes for ad dollars and
the attention of clients. It performs services for advertisers—from targeting their dollars using its DoubleClick automated buying, to designing search ads, to pitching that its YouTube is a more effective medium than standard television, to not charging advertisers unless an ad is clicked on, to offering data that highlights the user's intent—what they want—when they do a search. By the end of 2015, Google far eclipsed Facebook in the global ad dollars it amassed—$74.5 billion to Facebook's $26.9 billion—but Facebook ad revenues were growing faster.

When Carolyn Everson joined
Facebook in 2011, the company had about half a million advertisers. By March 2016, Sheryl Sandberg told an Advertising Week audience, three million advertisers flocked to Facebook, a number that six months later zoomed to four million and soon, five million. Part of this extraordinary growth is a reflection of the expansion of the Facebook platform—the average Facebook user clicked on the site 150 times a day. And part is attributable to the company's ceaseless efforts to develop new tools for advertisers to target clients, resources unavailable to an advertiser who spent $5 million in 2016 for a thirty-second Super Bowl ad and had to guess who watched it.

Advertising is easy for Facebook's five million advertisers. Any company wanting to market a product can circumvent an agency and choose from multiple Facebook Lead Ads. Just click on the marketing message they wish to send, specify the amount they wish to spend, share their contact information for online customers, and specify the type of people they wish to reach. If they're unsure which marketing message might work best, the Facebook AI can test how well the message works. The Facebook software can also help choose the best targets. Companies can monitor the results hourly if they wish. And
Facebook analyzes and shares the results of what marketing messages work, and which don't. While Facebook shields some valuable data from advertisers, on its Web site it tells potential advertisers they can target audiences based on a variety of characteristics. In addition to age, gender, education, and job titles, their data offers personal interests like hobbies or preferred entertainment, past purchase behavior, location, so an advertiser can choose where “you want to do business,” and they can even identify “look-alike audiences” with characteristics similar to those of the advertiser's customers. With that much data on its users, Facebook can target hundreds of thousands and even millions of users—“at Facebook we call it personal marketing at scale,” Everson says. “The definition of creative advertising has changed. It's not just Don Draper creating ads.” Targeting and the technology that allows it becomes part of the creative recipe.

By way of illustration, she recounted how Lexus launched a new Lexus NX model, a crossover SUV, in a thirty-second ad for the 2015 Super Bowl, and also made this part of a larger campaign by creating unique video ads targeted to individual Facebook users. Instead of a single TV or print ad, working with Facebook Lexus produced a thousand different online advertisements. If you were a male living in Silicon Valley, or a female surfboarder living in Los Angeles, or a golfer, or you were a past Lexus owner, or planned to buy a car in the next three months, Facebook merged its anonymous user data with Lexus's, along with so-called third party data they purchased. The result was tailored Lexus stories aimed at the interest of individual consumers.

Everson reports to David Fischer, vice president of business and marketing partnerships, who has worked alongside Sandberg as her deputy at the Treasury Department in the Clinton administration, at Google, and now at Facebook. To facilitate better communication, Everson initiated a Client Council in 2011 composed mostly of major brand CMOs like P&G and Unilever, along with some top agency
executives, and a Creative Council in 2012 composed of creative agency executives. Each meets quarterly, and sometimes, as in Cannes in June 2016, they meet jointly.

At the Cannes quarterly
in 2016, Everson stood at the front of a large Majestic Hotel conference room wearing a white dress with large blue pearls circling her neck. In a strong voice that did not need a microphone, she welcomed the forty or so client and agency representatives whose chairs were arranged in a large rectangular pattern with only carpet between them. She began with a status report, first mentioning a plan for a September session to which she was planning to invite several upstart companies that aim to disrupt various industries, her hope being that those in attendance might better understand how disrupters think and this might spark ideas about how to face future threats. She thanked the assembled for the fact that both quarterly councils offered early warnings that they were missing mobile, spurring Facebook to move aggressively into mobile. With alacrity, Facebook shifted from a desktop to a mobile company, and today mobile provides over 80 percent of its ad revenue.

She offered an update on some of the councils' other past suggestions: “You told us to get serious about emerging markets. Since then we've opened sixty offices around the world.” They warned that video worked great on mobile devices with 4G, but what if users were on Facebook with a 2G mobile device or even a feature phone? So Facebook created a slide-show format that glided effortlessly across the screen. They complained that “Facebook felt like a walled garden, so we started giving you more data.”

She updated them on some Facebook numbers: Its Instagram photo-sharing site has reached 588 million users, having doubled in the past two years, and 68 percent of its users visited on a daily basis;
video on Facebook has grown 160 percent in the past six months; its Messenger IM was now used by 900 million people, up from 150 million in two years; Facebook had 158 million users in India, and it would not be long before India passed the United States' 203 million; Brazil was not far behind with 110 million users.

She invited Graham Mudd, director of monetization product marketing, to discuss what Facebook was doing to improve how it measured the effectiveness of client marketing efforts. A key thing to measure, he said, is whether the message is “engaging” to the potential consumer, not just whether it gets a click. To decipher that, Facebook was trying to gauge “the emotional connection” to the marketing message and “the attention” it gets by measuring the time spent with the message and contrasting this with the average time each individual usually spends with other ads or content. They measure whether the person presses the Like button or shares the message with friends. They have made good progress on measuring “attention,” the easier of the two. They learned, for example, that millennials and teenagers “consume content two and a half times faster than older people.” And the larger the screen the more time they spend with videos, meaning that to accurately measure attention they needed to know the device the person was using. In general, if the message kept the person's attention for at least two seconds, that was probably a good sign, though just two seconds probably skews the audience as younger. If the person spent more than three seconds, 85 percent were likely to stay for a thirty-second message. They had the data to compare whether the time spent with an ad was longer than the time the user spent with other ads. What they are also able to do “is target what type of people actually pay attention to that type of ad.” Thus: “You can stipulate to us that you want to reach ten million people and we can target the right ten million people.”