Today WPP announced that it would have zero revenue growth in 2018 and had a sharp decrease in revenue in the fourth quarter of 2017. Sir Martin Sorrell, WPP Group CEO, said that technological change and strained multinational client budgets explained the tepid results. This financial announcement followed two days after the holding company announced the merger of two of its PR shops: Burson-Marsteller and Cohn & Wolfe.
Here are a few observations on these announcements:
1. Consolidation of Brands - In a zero-growth environment, it is inevitable that holding companies will look for cost savings through merging their agencies. At WPP, the marriage of media buying shops Maxus and MEC created Wavemaker. This is no longer merging to achieve scale, it is to get efficiencies.
2. Clients Changing the Game - Marc Pritchard, CMO of Procter & Gamble, on stage today with Suzanne Vranica of The Wall Street Journal, said that his company will be doing more internally on the marketing front. He mentioned media buying and planning as the first points of attack. He said that his company only buys on 300 digital sites, down from several thousand. P&G said it has reduced its number of agencies by 60 percent and has cut agency plus production costs by $750 million, rising to $1 billion by 2020.
3. The Risk of Technology Companies - Facebook and Google get 75 percent of the new marketing spend in digital. Amazon's Alexa accounts for only 1 percent of purchase at present but is to rise to 20 percent of total orders within three years according to Bain and Co. What if brands contract directly with these tech giants to promote their products? Not to mention the risk of continued advances by the consulting firms, such as Accenture, on the basis of performance marketing.
4. Harder to Do Acquisitions - The holding companies have aggregated marketing services assets, often using their own stock. But with their valuations down by 37 percent in a year to one times revenue, it is more difficult to grow through deals.
5. The Burson-Marsteller Cohn & Wolfe Merger - This is a smart combination. It gives the new firm a broad array of skills, geographic reach, scale and top clients across every industry. There will be culture issues, the usual hard decisions on who will run regions/offices, and the learning curve for CEO Donna Imperato who is more than able to manage these challenges.
6. The Proposed Solution - Sir Martin spoke about simplified structures and better coordination of work for clients across his multiple agencies. He reiterated his strategy of "horizontality," which takes the best people from each vertical and puts them to work in a client-specific bespoke structure.
No one in our industry has been immune to these kinds of pressures this past year. Though our own numbers showed a modest growth of 2.1 percent for 2017, we do not accept that as the new normal. At moments like this I am grateful that as a family-owned company we can play the long-game as this is a time for transformation. Just as we did in the Great Recession, we will continue to hire people and invest in client relationships. We will diversify our offering by adding new talent in creative, digital, planning and paid. We will offer ideas that are earned at the core and social by design. We will take pride in the strong PR heritage established by my father, Dan, but compete more broadly with ad agencies and digital firms on the basis that we offer a unique blend of Evolve, Promote and Protect for brands and corporations alike.
This article was originally published on www.edelman.com.