May 3, 2015

Silicon Valley robber barons tuck into Mad Men’s lunch

I recently attended a party at a hot new ad agency in Fitzrovia

It was all bearded copywriters, groovy furniture, cool music and fashionable cocktails. The atmosphere was fun — almost nostalgic. Yet the whole affair felt rather small-time compared with my days as a trainee account exec at Boase Massimi Pollitt in the early 1980s, at the tail end of the heyday for agencies. Norma Desmond’s line in the movie Sunset Boulevard came to mind, when Joe Gillis tells her that she used to be big, and the faded star replied bitterly: “I am big, it’s the pictures that got small.”

A few years ago Management Today wrote: “Arrogant, powerful, lavish and stunningly creative — no wonder the years 1973 to 1985 were regarded by many as a golden age, during which advertising seemed to be one of the sexiest professions on earth.” The irresistible impact of prime-time TV spots and the fixed commission system made it a lucrative calling.

Today advertising is based less on leaps of creative faith, and more on research and analytics. To an outsider there appear to be fewer of the characters like David Ogilvy, Alan Parker, Tony and Ridley Scott, John Webster, Hugh Hudson and Charles and Maurice Saatchi. I suspect that the industry’s challenges have led to endless consolidations, and squeezed out most of the distinctive personalities and corporate cultures. What is left lacks the elan that makes Mad Men and Don Draper so irresistible.

Like so many sectors, marketing has become disintermediated. Clients and media owners have gradually taken more of the pie. Many services that agencies provide are now regarded as commodities. New digital advertising players such as Facebook are almost entirely automated: the technologists of Silicon Valley have been eating the lunches of the admen of Madison Avenue and Soho. Tech companies can handle a highly fragmented media market efficiently using computing power — but agencies are built to service mass media using expensive human capital. In an era when clients are investing more and more in online, social media and experiential marketing, the traditional agency model feels increasingly redundant.

This will be a seminal year for the ad industry: for the first time digital spend is likely to account for half of all UK advertising budgets. Britain is the first big economy to experience such an overwhelming shift. Meanwhile, TV spending is now less than half of that on digital media. Giant parasites such as Google, which invest nothing in content and contribute negligible amounts towards Britain’s creative industries, have disembowelled the traditional ad/media profession. Last week Google offered a £107m bribe over three years called the Digital News Initiative to help fend off criticism that it scrapes content for a living. This would represent about 1% of its European profits and is a deeply cynical gesture.

I have always been astonished at how big media owners in Britain have stood by and watched while the Silicon Valley pirates looted their franchises. The technologists are vicious about protecting their patents, but have to be brought kicking and screaming to respect artistic copyrights. It seems the only intellectual property they believe in is their own. At least the EU has recently justified its existence by filing charges against Google for anti-competitive behaviour. Here’s hoping those claims are upheld, and Google is forced to disgorge some of its protection racket-style profits and reform its monopolistic practices.

I have invested successfully twice in the marketing services sector over the past 15 years. Agencies are classic people businesses, so leadership and talent recruitment and retention are everything. Buying and selling them is not easy — they are fragile constructs, and a firm can swiftly unravel if the important executives are not suitably incentivised. But there remain profitable niche opportunities in what is a large market: the Advertising Association expects the total UK spending on advertising to grow by 5.7% this year to about £16bn.

Overall, thanks to digital agency expansion, employment and stock prices are up, despite the challenges of the traditional media industry. But these days the powerful figures in the firms are more likely to be tech nerds than eccentric copywriters who dream up catchy slogans or jingles.

According to research by DB5, the advertising industry in America has been remarkably consistent as a percentage of total GDP over the past 80 years, at about 1%. It is a high-profile sector, so it appears to be much bigger than that. But, actually, ordinary people don’t care about its output much.

Part of the reason I left advertising is that I saw a list of 50 things and how much they mattered to people. Items such as family, friends and home ranked top: advertising came bottom. Despite that, it is an important element of the creative industries, which matter both culturally and economically. I hope the mad men and women continue to reinvent themselves.