Authors: Ken Auletta
Everson knew another big challenge for Facebook in coming years was what she calls the “regulatory environment globally.” Beginning in the winter and spring of 2017, a chorus of critics weighed in against the digital giants, warning that governments must police companies like Facebook, Google, Apple, Microsoft, and Amazon because they threatened both competition and privacy. Data was “the oil of the digital era,”
editorialized in May 2017. “Old ways of thinking about competition, devised in the era of oil, look outdated in what has come to be called the âdata economy.'” Abundant data, they continued, alters the nature of competition, and companies with this data benefit from network effects. The data empowers Google to “see what people search for, Facebook what they share, Amazon what they buy.” They have the resources to erect “barriers” to entry by absorbing potential competitors. And their abundant data allows a peek into private lives, employing this information as a marketing tool.
Interactive Advertising Bureau, the ANA, and the 4A's. In an open letter, they accused Apple of “sabotage,” insisting that the blocking of cookies could murder the advertising business.
Governments were awakened. The European Union questioned Facebook's privacy protections. The attorney general of Missouri announced an antitrust investigation of Google, and nearly forty state attorney generals demanded to learn how Facebook guards privacy. The
, the Murdoch-owned national newspaper, revealed a twenty-three-page Facebook presentation that offered advertisers the ability to target over six million Facebook users, some as young as fourteen, who have said in their posts that they felt “worthless,” “insecure,” “defeated,” and needed a boost. (Facebook denied that it offered tools to advertisers to target emotionally vulnerable people. But
magazine exposed their misleading response when it noted that Facebook did not “explain how the research on minors ended up in a presentation to potential advertisers.”) Convinced that Google was violating its antitrust laws by favoring sites it owned in its search results, the European Union wanted to inspect Google's crown jewel, its search algorithm, which Google claimed was an attempt to protect European business competitors. By the summer of 2017, the EU announced it would impose a huge $2.7 billion fine on Google. In May 2018, the twenty-eight countries of the EU imposed a General Data Protection Regulation, requiring companies to limit what personal information they could collectâor face severe fines. Mark Zuckerberg was summoned to testify before Congress in April 2018. Concerned with maintaining their political control, China and authoritarian governments on various continents had already sealed their borders to Facebook and Google.
Aryeh Bourkoff had unearthed a surprise buyer and was close to completing the sale of MediaLink. His pitch, he says, was simple: “Michael Kassan sits at the epicenter of all that is going on in
the advertising landscape. In an information- and events-driven business, you want to drive more connectivity and brand awareness. Michael is a rare figure whose relationship acumen can really help to blow up awareness and help businesses and brands everywhere.”
“It's a big day for us. It's a big day for everybody,” Kassan said on February 7 while standing in the open workspace at MediaLink, his staff arrayed in front of him, with the CEO of the company he would now report to, Duncan Painter of Ascential, standing to his side. Ascential is a public company in the UK that owns the Cannes Lions Festival, operates out of offices in sixteen countries, and offers nineteen different services and subscription products to businesses, including festivals and exhibitions and publications. With his booming voice amplified by a handheld wireless microphone, Kassan strode across the space in front of the windows overlooking the Avenue of the Americas. Casually attired in a blue zippered sweater over an open-necked pale-blue dress shirt and grey slacks, he came back to the center of the room to perch on a marble stool. Painter stood to his side in a charcoal-grey suit, white shirt, and plain grey tie. This was an 8:30
staff announcement; the media would be served a press release and invited to speak to Kassan and Painter by phone afterward.
“We want to help you expand globally,” Painter affably said, speaking in a reassuring way. He was amazed, he said, to learn of “the high regard clients had for you. We see ourselves as enablers, and we're proud to make you our twentieth brand.” MediaLink served about two-hundred-plus companies around the world, Painter said in the press release. “We serve 24,000, so we want to get MediaLink in with their business model through all the applicable businesses and clients that we work with.”
“What this means for everybody,” Kassan said, “is that we'll expand our global footprint. We will open London and Hong Kong
offices this year.” Otherwise, “things will stay the same.” He said that he had signed a four-year contract and that Wenda Millard had also signed a long-term contract. “The name on the door will still be MediaLink. There will just be more doors.” He stressed their shared approach: “Neutrality is a key focus of both businesses.”
Kassan and Painter later shared with the press for the first time that MediaLink's revenues reached $56 million in 2016, generating a profit of $14 million. The purchase price entailed a cash payment of $69 millionâless than half the $150 million Kassan had guessed in June, but the purchase price would climb to $207 million over three years if MediaLink hit its targets. In truth, MediaLink was a relatively small company, as was Ascential, its revenues just topping $300 million.
Although Kassan told his staff MediaLink would “still be an arms-length partner with Cannes Lions,” he expected we “will expand what we do in Cannes.” Just as they started an Entertainment vertical in Cannes in 2016, inviting entertainment figures to speak, which was highlighted by an interview Kassan conducted with Les Moonves. Perhaps a sports vertical was next, he said. What Kassan didn't say that morning was that each of the 120 MediaLink employees would receive sizable bonuses, which he said came out of his own pocket from what was now his approximately 75 percent ownership of MediaLink. He also didn't announce this day that Wenda Millard would step aside as president, become vice chair, and move to London to open their office there and begin MediaLink's global expansion.
The night before the announcement, Kassan took care to phone and alert five holding company CEOs: Maurice Levy of Publicis, John Wren of Omnicom, Michael Roth of IPG, Yannick BollorÃ© of Havas, and Martin Sorrell of WPP. He told friends that four of the five “were effusive in their congratulations and kudos. Martin just said, âThank you for the call.'”
ï¿¼With Kassan and Sorrell
seemingly secure in their roles, there promised to be lots of opportunities for these frenemies to interact over the next several years. Seventy-two and still robust, Sorrell was unlikely to voluntarily step down anytime soon. Lazard vice chairman Jeffrey Rosen, who was WPP's lead independent director and served on the board for almost eleven years until June 2015 and is an ardent admirer of Sorrell's, says the board's independent directors “always thought about and discussed succession. Martin always hated discussing it because it was like discussing his own mortality. The board became much more systematic about it in 2010, and Martin started talking with us about succession formally once a year and informally more often.” For many years the board was not happy that Sorrell resisted appointing a COO or #2, which meant most of WPP's numerous CEOs reported directly to him. The chair of the WPP board, Roberto Quarta, addressed the succession question in April 2016: “Whether, in Sir Martin's case, that happens tomorrow, in one, two, three, four, or five years, or even over a longer period, we have already begun to identify internal and external candidates who should be considered.”
Could she imagine, Cristiana Falcone was asked, her husband retired?
“No!” she exclaimed, laughing hysterically. “Can you imagine him in my kitchen putting knives and forks in order? I would have to outsource to a call center in India to call him all the time!”
Sorrell offered another version of his wife's response when asked in 2017 about his future at WPP: “I will stay here until they shoot me!”
It is not inconceivable that WPP would be sold, in pieces or whole. Several years ago Sorrell did negotiate to sell WPP to Warren Buffett, but they did not see eye to eye on the price and the discussions amicably collapsed. It is not inconceivable that consulting or software companies who are rumbling into the marketing space could seek to acquire all or part of WPP. “I'm making this up. I have no knowledge,” Michael
Kassan says. “But if I'm Accenture or Adobe or Oracle, and I'm moving into that business and I have the market cap, why not buy it?”
One reason not to buy it was delivered in a July 2017 report by Brian Wieser of Pivotal. He was one of several analysts to downgrade the stocks of the advertising holding companies from “Buy” to “Hold.” He wrote, “It's a difficult time for the agency holding companies.” He cited “slowing underlying business growth for core clients, zero-based budgeting at many of them, more aggressive” procurement officers, client mistrust, new competitive threats, increasing reliance on automated machines, and evidence that the engines of their economic growth, the media agencies, were sputtering. In a fall 2017 analysis of the agency business, Wieser concluded, “Negative narratives toward agencies in general and WPP in particular are likely to continue for some time.”
Sorrell and his holding company compatriots were anxious. Worried about costs and unconvinced that advertising dollars equaled growth, clients, particularly consumer goods clients who accounted for one third of WPP's revenues, hacked away at their agency spending. Spurred by the ANA-sponsored investigation, mistrustful clients reopened agency contracts searching for loopholes. With rising political and economic volatility, most companies, including agencies, grew cautious. The holding companies altered their future public financial projections, from 2 percent or slightly higher overall growth to flat or barely above that in 2017 and maybe 2018. WPP's stock price, like that of the other holding companies, plunged. It's a mistake to curb advertising spending because it assures growth, Sorrell warned. “Our industry may be in danger of losing the plot.”
Whether slowed growth is temporary or not, agencies are destined to change. There is no way to know today if AT&T and McDonald's insistence on having a single large agency provide one-stop shopping will be the future model. Or if David Droga is correct that a small agency like Droga5 is less afraid of losing business and will thrive
because he offers clients fearless independence: “Our starting point is that clients pay us for our opinion, not to take dictation.”
But what if Bob Greenberg is right and the agency model is really a dinosaur? During WPP's earnings call with analysts in August 2017, when Sorrell was asked about a drop-off in business, he said his company's “first critical priority” was to get its employees to work “horizontally,” offering integrated teams to better serve clients. Ben Thompson, who writes the acute
business blog, dismissed Sorrell's response as “feeble” because it assumed the main competitive threat was from rival agencies. But as advertising and marketing shifts to a plethora of digital platforms, Thompson wrote, the idea of agencies as the essential middleman, “a one-stop shop for advertisers,” fades into history. The Internet ends the limited ad space of old media as online stores like Amazon offer unlimited shelf space. Distribution and transaction costs become “zero,” and “the critical competency is discovery”âwhere to find and target desired customers. At the same time, discovery on digital is monopolized by two companies, Facebook and Google. (He overlooked emerging rival Amazon.) Assuming that all media, old or new, will in the future be delivered digitally, the problem agencies haven't confronted, he concluded, is that “their business model is obsolete.” Since “there are only two places an advertiser might want to buy ads, the fees paid to agenciesÂ .Â .Â . become a lot harder to justify.” Clients, he believes, will turn to Google and Facebook to serve as their media agency.
Whether this analysis is correct or not, few question that the infrastructures of giant holding companies will have to be slimmed, Kassan says. “I do not think it is deck chairs on the
for the holding companies. But they have to end up with a smaller ship.” Martin Sorrell, who is never passive, has begun to aggressively combine some of his agencies together, wringing costs out via consolidation.
Further consolidation among the six holding companies is an expectation expressed by more than a few senior marketing executives. They expect there will be at least one marriage among the six, as there almost was when Omnicom and Publicis announced they would marry but broke up before the wedding. Speculation today usually centers on Dentsu, a company that lacks creative agencies, making a bid for, say, IPG.
Unquestionably, the importance of data to target consumers assures that media agencies will become more vital and that clients will insist that creative and media work more closely. And as media agencies become more central, as he nears seventy the advertising career of the Yoda of the media agency business, Kassan's closest friend, Irwin Gotlieb, is coming to a close. He has a daughter and grandchildren in California, and he's not happy with the poisonous mistrust enveloping the business. While relaxed in his Seventh Avenue office sipping an espresso in the summer of 2017, he said, “I was brought up in a business where you put your clients' interests first, your company's interests second, and your own personal interests third. Today's environment makes that kind of thinking naÃ¯ve.” Told he sounded like he had one foot out the door, he declined to confirm or deny this.