Everyone is waiting for Omnicom, Interpublic, WPP, and Publicis to fade away. But these lumbering advertising behemoths have advantages over smaller, cutting-edge firms
John Seifert, the chairman of Ogilvy & Mather North America, shakes his head. It drives him crazy, he explains, when people portray contemporary New York admen as sushi-munching, Scotch-slurping dinosaurs, far removed from the concerns of digitally connected consumers and out of touch with a changing industry. It happens a lot.
It's the second day of Advertising Week, the industry's bender of panels, parties, and awards shows, held every fall in Manhattan. Seifert is sitting on a short stage, in a dim room with low ceilings at TimesCenter's The Hall, not far from Times Square. Rows of conventioneers in foldout chairs are watching the event, entitled "Inside a Big Dumb Agency."
Joining Seifert on stage are two colleagues from Ogilvy & Mather—a full-service global agency that is owned by the WPP Group (WPPGY), the behemoth holding company, which has some 100,000 employees in a constellation of agencies around the world. The Ogilvy executives are taking turns calmly responding to belittling inquiries from critics—"How many Twitter followers do each of you have?" one asks pointedly—questioning the relevance of a large, traditional agency in an age when low-to-the-ground, hand-to-hand grappling with consumers, tweet by tweet, is all the rage.
Isn't it amusing, one critic asks, that Big Dumb Agency managers, while enjoying "working dinners" at the swank Japanese restaurant Nobu, brainstorm how to sell cornflakes to single moms in Mississippi?
"I don't know how many of us are sitting at Nobu anymore drinking really expensive wine and talking to clients about things that we know nothing about," says Seifert.
At Seifert's feet rests a copy of Confessions of an Advertising Man, the seminal 1963 book by David Ogilvy, the firm's charismatic founder and one of the giants of Madison Avenue's heyday. Ogilvy drove a Rolls Royce. He wore a cape. He entertained clients at his château in France. He did not follow mouse clicks. By comparison, today's New York admen look more henpecked than cocksure.
From the stage, Lars Bastholm, Ogilvy's chief creative officer for New York, says that growing up in Copenhagen, he always dreamed of someday partaking in the Madison Avenue decadence. "This is wildly disappointing," he says. "I was looking forward to those dinners at Nobu."
"If any dumb agency is sitting here thinking life is wonderful," says Seifert, a few minutes later, "I'd be shocked."
The global recession roiled ad agencies of all sizes, but the current climate seems particularly fraught—emotionally and psychically—for the Madison Avenue giants. New York ad executives find themselves navigating a lean world where the flat 15 percent commission (and all the indulgences that came with it) has long since disappeared. Penny-pinching procurement officers now tightly monitor client expenditures, driving down fees; tiny startup interactive agencies moonwalk through award shows, egged on by an adoring press; and California-based search engines and social media newcomers are gobbling up large chunks of market share, selling ads one by one.
Again and again, the executives on stage assure the members of the audience that they get it. The Internet is important. Digital matters. And so they are carefully, painfully reconfiguring their workforces to take advantage of the changing landscape.
The crowd seems skeptical. A young man stands up and reports that he recently saw a list of top agencies around the world, including Ogilvy, that don't have their websites available on mobile devices, including the iPad and the iPhone. "So with the growing importance of those devices," he asks, "why aren't you guys practicing what you preach?"
Bastholm says that he too saw the gotcha list. But the problem highlighted therein, he says, turned out to pertain to a tiny slice of Ogilvy's website. It was easily fixed. "That list was done with a little bit of malice," says Bastholm. "Those lists are always done with a little bit of making a point in mind, rather than actually being entirely true."
Nearby rests a discarded copy of a glossy trade publication, featuring a front-page image of Don Draper, the protagonist of AMC's scripted drama Mad Men, which is set in the world of Madison Avenue in the 1960s. "Advertising Week," reads the pull quote, "the second-best recruitment tool for the industry behind Don Draper."
In Mad Men, Draper is a lusty, brilliant, troubled creative director conquering Madison Avenue thanks to his emotional insights into the subconscious motivations of consumers. Along the way, the archetypal Ideas Man seduces everything in his path: department-store heiresses. Bra manufacturers. Kodak (EK) executives. Secretaries. He is an unapologetic hustler. When a belittling beatnik asks him how he sleeps at night, Draper responds: "On a bed made of money."
Mad Men landed in American living rooms at a time of rising anxiety for creative types in New York advertising, with the balance of power in the industry feeling like it might be forever shifting to Silicon Valley. In 2007, the year of the series' debut, Google (GOOG) generated more than $16.5 billion in revenue, largely from advertising created entirely without creative directors. It brought in $23.6 billion in 2009. The Mad Men fantasy offered a counterpoint to a connected world where analytics and mathematical marketing promised at long last to erase the mystery from advertising, and a lot of the profits.
Nick Law, the chief creative officer in North America for the interactive ad agency R/GA, is standing on stage at another Advertising Week event, delivering a lecture entitled "Designing an Agency for the Digital Age." Law, dressed in a snug, black V-neck T-shirt, clicks a button and an image appears on the screen behind him. He tells the audience that the hieroglyphics in the picture represent the old model of advertising: A chess piece + a lightbulb x a TV-shaped box = an exclamation point. Law translates the simple equation: "Strategy + creativity x mass media = ambiguous results," he says.
The dig at the traditional agency model scores a chuckle from the crowd. Law clicks the button again. A new formula appears on the screen. This one, he says, represents the new model of advertising in the Digital Age. It has a bunch more variables and looks like the precocious love child of the quadratic equation and the Rosetta Stone.
"It's basically something like: Collaboration + data + strategy plus creativity x media neutrality times efficient production = measurable results," says Law. "Of course it's purposely complicated because we want to pretend like it's a lot more difficult than it actually is," he says. In one clever illustration, he has managed both to send up the bewildering pretension of the forward-looking digital agencies and to embody them perfectly.
Law goes on to explain that the old model of advertising is no longer working. The modern digital world has seen a multiplication of contexts, he says, from e-mail to search engines to blogs to social media networks and on and on. Companies can no longer simply wait for a potential consumer to sit down in front of the TV and then interrupt them with a message. The upshot for clients, he says, is that mass marketing no longer reliably delivers increased sales. That means that old-style agencies have little to offer.
Furthermore, if mass marketing no longer works, then micromarketing to niche behaviors and interests must be the answer. That is what has led to the proliferation in recent years of little ad shops, instantly recognizable by their professed disdain for traditional—and profitable—mass marketing, and their penchant for wacky names: LeapFrog (LF), GeniusRocket, Big Spaceship, glue isobar, Blue Barracuda.
The key, according to the new paradigm, is to create interactive brand experiences that recognize and enhance consumers' online behavior. If hard-core joggers are using the Internet to log the mileage of their daily runs with their iPods, agencies should build a sponsored home for them online where they can track their data, visualize their progress, and plunk down serious coin for premium running shoes. That was the basic idea behind R/GA's interactive campaign on behalf of Nike (NKE) +.
All of this will be undertaken by "digital natives" with the Web in their DNA. Only the small, nimble shops will be able to navigate this fractal universe of endlessly proliferating media. The big guys with their lumbering overseers at the holding companies are not only dumb, they are also as good as dead.
It all sounds great, at least to the technorati. The only problem is, it's not remotely true.
"All these little companies with fun names," says David Lubars, "we've kicked their butts." Lubars is chairman and chief creative officer of Omnicom's (OMC) BBDO North America, an 82-year-old Madison Avenue agency with more than 17,000 employees. On a recent Friday afternoon, Lubars was sitting in his Midtown Manhattan office. He gestured at BBDO's 2010 Webby award for best ad agency of the year, which was resting a few feet away from his electric guitar, tuned to imitate Keith Richards' ringing sound.
"Americans like a story of the big guys getting taken down," says Lubars. "But that doesn't mean that's what is actually happening."
After a couple of years of slumping fortunes, the Big Four advertising agency holding companies—Omnicom, the WPP Group, Interpublic (IPG), and Publicis—are bouncing back. In October they reported their quarterly earnings. Across the board, revenues were up. Omnicom brought in $2.9 billion, an increase of 5.5 percent over 2009, including a jump of 8.4 percent in North America. Revenues are once again approaching the lofty levels of 2007. Looking at trends over, say, a decade-long period reveals little evidence of secular decline. The layoffs of the past two years are over. All of the Big Four are hiring, prompting columnist Jim Edwards to write a recent post on BNET with the headline: "Help Wanted: Madison Avenue Is Hiring Like Crazy and Bonuses Are on the Rise."
Last year, according to a study by PricewaterhouseCoopers, Internet advertising revenues amounted to $22.7 billion, of which 35 percent was spent on display advertising. In the third quarter of 2010, according to the Interactive Advertising Bureau, online ads reached a record $6.4 billion, up 17 percent from a year earlier. The market is expected to continue to grow.
That's a lot, but it's still a long way from the amount spent on traditional advertising. Based on the revenue opportunities available, agencies would be negligent to devote all of their time to digital platforms. To wit: During 2009, the Big Four combined brought in $16.71 billion in revenue in the U.S., according to Advertising Age, more than double the $8 billion spent on digital display advertising in U.S. in the same year, across all companies.
Lubars, dressed in jeans and a black long-sleeve shirt, pops a highlight reel into his office DVD player. For the next 15 minutes he shows off some of the agency's recent work: an AT&T (T) banner ad in which World Cup fans could use their Web cameras to play a soccer game on screen; a 30-second Snickers TV spot starring Betty White and Abe Vigoda; and a multimedia campaign for HBO that included the strategic installation of outdoor multiscreen storytelling cubes in New York and Philadelphia.
"We're doing leading-edge technological breakthrough things," says Lubars. "At the same time, we're winning the best spot for the Super Bowl."
Prior to joining BBDO, Lubars was president of Fallon Worldwide, a Minneapolis-based agency owned by Publicis. He spent the first two decades of his career working in traditional media. In 2001, while trying to figure out how to get potential BMW customers to spend more time on the company's website, Lubars came up with the idea for The Hire—a series of eight short films directed by the likes of Ang Lee and Tony Scott, starring Clive Owen. The campaign grew into a monster hit and won Lubars seemingly every major award in the industry. As a result, he has little patience for the idea that veterans of TV and print campaigns are genetically incapable of making a dent in new media.
Not that old agencies sometimes aren't a tad sclerotic. When Lubars joined BBDO five years ago he found a traditional agency curiously eyeing the changes sweeping through the business."Forget about new kinds of media," says Lubars. "They didn't do old types of media. They didn't do print. It was essentially a film production house. They made these shiny, expensive films—which was a great thing to do in that era."
In the intervening years, Lubars has overseen a high-profile transformation of the agency. "It used to be a company with a big fat middle," he says. "Now it's a skinny middle with a lot of young people and just a few managers. We're trying new things. And we're bringing in people who come from different backgrounds—technologists, designers, artists—who come together and create this new, interesting gumbo."
"The last 24 months have been unbelievably painful in our industry," says Ogilvy & Mather's Seifert. "The fact is, what you don't read about in the blogs, is that we let 391 people go. But we also hired 270 new people. We transferred another 300 people between different parts of the company. All of that was designed to meet the changing requirements of our business."
Seifert says that in addition to reconfiguring their workforce, Ogilvy is happy to learn from the small digital shops—and hire away their top talent. "We have more shared ventures going on with young startup agencies right now than we've ever had," he says.
And over time, many of those nimble startup shops end up in the same position as their supposedly ham-fisted forefathers, becoming a part of the big companies they are pretending to outfox. The global holding companies continue to tinker with the mix of services in their portfolios and aren't shy about using their resources to acquire little artist colonies to plug holes in their offerings. In November, Omnicom (OMC) bought the British design and communications agency The Core. In May, WPP purchased Brazilian interactive agencies Midia Digital and i-Cherry. The same month, Interpublic bought Cubocc, a Brazilian digital shop, its indie cred codified for posterity by a neon office sign: "Cubocc, the Monster Whatever Hotshop."
Lubars is also gobbling up talent. In addition to stockpiling search engine optimizers, social media strategists, and Web developers, he continues to add creative digital talent. Right now, the Swedes are the hottest thing in the industry. In February, Lubars hired Mathias Appelblad, a former interactive creative director at the Swedish agency Forsman & Bodenfors, to become BBDO's director of innovation.
"He has dominated the digital world in creativity," says Lubars. "Now he's here. We're not going to rest on our laurels. We're going to jack it up that much more. We're adding guys that come from some of these small background places. They come here to paint on a bigger canvas—where it's actually part of the culture, rather than some side dribble."
Lubars doesn't want to defend all the big agencies, just the good ones. He says he'd be happy to watch some of the mediocre giants someday disappear. But writing off the whole lot of them, he says, is naive—like dismissing an entire genre of music. "Oh, you don't like pop music?" he says. "What does that mean? You don't like ABBA? Or you don't like the Beatles? Some of it is great. Some of it is disposable."
The little hot shops, says Lubars, who are thumping their chests and declaring the end of mass marketing and the death of the Big Dumb Agencies, do so as a business posture, an attitude for journalists, and a sales pitch to clients. "They don't believe a word of it," he says.
What he sees instead is an evolution, firms heading to the same place from different directions. Technologically able marketers are trying to scale up into full-service agencies; and full-service agencies are mastering the new channels and a world with 6 billion individual markets. "They're racing to figure out what an idea is," says Lubars. "We're racing towards technology. It's easier to pick up the technology. That's why we got there first....They are desperate to take down the agencies that are doing it now."
At the same time, the big agencies are busy integrating their technologists into all aspects of their operations, and hungrily circling the interactive market, plotting to swallow more share in the years to come.
"A lot of the people who are working in smaller shops and kind of lobbing stones at large agencies like this miscategorize us as being people who are in love with doing the TV commercial," says Matt Donovan, managing partner of McCann Erickson, New York. "We're not. We're in love with creativity that moves that big business problem into the positive results column. More and more companies are finding that the big agencies have retooled and do understand this change. We are paid by businesses to outsmart others. That's what we're here to do."
Prior to joining McCann Erickson, Donovan worked at Euro RSCG 4D, an interacti