It was the best of times, it was the worst of times… OK, so the French revolution probably goes down as one of the tougher transformations, however Dicken’s most famous opening line in A Tale of Two Cities is apt for the advertising sector in 2020.
Viewed through the incumbent advertising aristocracy lens you see what appears to be decline and loss of influence. The Advertising Association/Warc October update was bleak. The holding companies seemed relieved that Q3 revenue declines were only between 5% and 15%.
The “revolutionary” lens shows a different story. S4 Capital saw a 13% increase in like-for-like Q3 revenue, there has been a surge of new start-ups in the UK, venture capital investors are active, private agency groups continue to hire and acquire.
Globally adtech is coming back into favour, The Trade Desk’s market cap of $39bn (£29bn) makes it more valuable than the three biggest holding companies put together, and there is a new surge of IPOs bursting forth in America, such as Pubmatic, Double Verify and AppLovin.
Why do we have our own tale of two cities? How can two views of one industry through two lenses look and feel so different?
The facile explanation of “digital first” does not provide the answer – plenty of digital first businesses have floundered.
The explanation is however in plain sight.
Advertising is in fact growing in revenue and influence. There is a simple reason. As brand owners find themselves having to ensure their brands are more connected than ever to consumers to be successful, they need to communicate and engage more.
Advertising growth is a structural function of growing client demand, itself driven by technology, customer trends and new corporate strategies.
Campaign’s Gideon Spanier recently wrote: “A fundamental belief in the importance of advertising is why all of us should be optimistic at this critical moment – despite the pandemic’s continued toll on health and wealth and the ad industry’s own flaws and periodic bouts of self-doubt.”
This may be a belief, but it is also backed by fact.
Reported advertising expenditure data is increasingly failing to capture the real structural growth in advertising, whereas the astonishing revenue growth figures of the listed platforms clearly show what is happening, led by Amazon with Q3 advertising revenue estimated at being up over 50%.
Jeremy Bullmore’s definition of advertising – any communication, usually paid-for, specifically intended to inform and/or influence one or more people – rightly captures the whole sector from branding, to ecommerce to CRM.
But today’s published figures often fail to capture this. For example, in an addressable world, media is data, but data and analytics spend is not picked up as advertising, despite its key and growing importance to advertisers. In old money, data is working media.
There are plenty of other examples in areas such as ecommerce, social, video and agile content that are growing rapidly and are not accurately reflected in the spend figures.
This is structural and therefore sustainable change. With a pandemic-driven downturn, we must be careful not to confuse structural changes with those that are cyclical.
Cycles happen and when they do you need to manage them. However, a company’s response to structural development should be at the very heart of company strategy.
For advertising leaders, the fact is that if the emergent industry growth areas don’t represent a dominant share of your company revenue you will see a steady decline and loss of market share.
If you then enter a down cycle with a structural problem, you get into deep problems very quickly.
We see this today with those agencies lacking relative scale in ecommerce, video, data and so forth.
Of course, the corollary also applies. If you enter a cyclical downturn while structurally matched to the new growth areas you see smaller (if any) declines and as the cycle turns positive, you fly.
So, 2021, and specifically Q2 onwards in 2021, will be pivotal, as the cycle swings positive.
However, 2021 will not prove a decisive year because of tech, or legislation of platforms, or disappearing cookies – but because of talent.
The Trade Desk’s success is not just down to technology – there are plenty of good DSP technologies around. They are becoming a scaled success because they can attract the best data scientists and software engineers in the market, who buy into their culture, vision and future.
Previously faced with structural imbalance, the holding companies tended to respond by acquiring companies to fill the gap. This worked when their market ratings were ahead of the companies being acquired. Today this is typically not the case, with PE and VC firms, consultants and new marketing companies now outbidding them.
The holding companies will have to rely more on the organic development of new services, a strategy wholly dependent on their ability to attract and retain the right talent.
This may prove a challenge for some holding companies as their talent has been through such a squeeze of de-layering, brand merging, leadership seat changes and so forth, that come an upturn there may be flight.
In this new world, holding companies need to quickly shift from being centrally controlled and lacking agility to becoming known as organisations that liberate talent and creativity to really compete with the newer upstarts.
Share of talent, not share of advertising expenditure will be the success defining measure in 2021.
Iain Jacob is chair of Cinema First and UKOM. He is a former EMEA chief executive of Publicis Media