A Blog by Jonathan Low

 

Jan 22, 2018

How the Digital Revolution is Disrupting the Advertising Industry

The creatives and client types are battling the data and content jocks. They will either learn to work together or others will take their business. JL


Nick Kostov and David Gauthier-Villars report in the Wall Street Journal:

Clients are pressuring ad firms to embrace technological change. Big advertisers such as Bridgestone Corp. and Procter & Gamble Co. are seeking more transparency on whether ad campaigns are effective.(But) digital talent has questioned the attachment of traditional agencies to TV, while creatives have complained about engineers interfering with carefully honed client pitches. Programmers design(ed) an algorithm to identify talent from different in-house agencies to work together
One of the world’s biggest ad agencies, Publicis Groupe SA, PUBGY 1.14% fully felt the disruptive power of advertising’s digital revolution when McDonald’s Corp. , a huge client, put its account into play.
The fast-food chain wanted a marketing plan covering everything from social-network posts to food-tray liners, according to people involved with the account. McDonald’s thought Publicis’s Leo Burnett unit, its main advertising agency at the time, wasn’t adept enough at using data to quickly produce online ads and target minute slices of its customer base, these people say.
Publicis had an army of copywriters, art directors and computer engineers, but when senior executives gathered in 2016 to come up with a pitch for McDonald’s, debates erupted over the meaning of such basic terms as “data” and “content,” recalls Britt Nolan, chief creative officer of Leo Burnett USA.
Publicis lost the McDonald’s contract to Omnicom Group Inc., which had worked with Facebook Inc. and Alphabet Inc.’s Google to assemble a team of creative talent and data experts.
That blow convinced current Publicis Chief Executive Arthur Sadoun of the need to more quickly shatter the boundaries between the sprawling company’s many fiefs, which includes such agencies as Saatchi & Saatchi and Razorfish.
“There is a big debate: Where is our industry going?” he said in a recent interview. “You have very different people that need to work together.”
The ad industry is in upheaval as it grapples with the rise of big data and analytics. Ad giants such as WPP PLC, Omnicom and Publicis have gone on acquisition sprees, bringing legions of information-technology experts into their ranks.
The influx has opened a cultural divide on Madison Avenue between the new arrivals and an old guard of “creatives”—the pitchmen, copywriters and artists that have shaped advertising since the end of World War II. The digital talent has questioned the attachment of traditional agencies to TV ad campaigns, while creatives have complained about engineers interfering with carefully honed client pitches.
Since he was picked last January to become chief executive, Mr. Sadoun has been trying to force the tribes to work together. He worked with a tech entrepreneur to overhaul Leo Burnett’s U.S. business, and has assembled a team of programmers to design an algorithm to identify talent from different in-house agencies to work together on single projects.
“We have to find the right alchemy between creativity and technology, and that’s both difficult and tiresome,” Mr. Sadoun says.
Clients are pressuring ad firms to embrace technological change. Big advertisers such as Bridgestone Corp. and Procter & Gamble Co. are seeking more transparency on whether ad campaigns are effective. They also expect guidance on how to survive the digital disruption.
That is blurring the lines between traditional ad firms and consulting firms. Publicis, for example, spent $3.7 billion to buy information-technology consultancy Sapient in 2015. In late 2016, Accenture PLC acquired Karmarama, a U.K. advertising agency known for its creative edge. Last April, WPP acquired Deeplocal Inc., a small Pittsburgh-based lab with skills ranging from robotics to software development to industrial design.
When Mr. Sadoun began his career at Omnicom in the late 1990s, creative directors called the shots, building story lines that defined brands. He was a fixture at glitzy events such as the industry’s annual award ceremony held in Cannes, where, as head of Omnicom’s French agency, he collected several Agency of The Year awards.
At that time, Maurice Lévy was running Publicis, which he had joined decades earlier as head of its budding IT department. He worked to shed his tech background and blend in with creative staffers who wore jeans and sneakers to work. “The creatives called us the suits,” Mr. Lévy recalls.
Mr. Sadoun said he was drawn to Publicis by the opportunity to work with Mr. Lévy. When he arrived in 2006, Publicis’s creative directors still wielded considerable power at their respective agencies. Leo Burnett was known for its storytelling, having created such iconic campaigns as the Marlboro Man. Saatchi & Saatchi was known for its edge. Mr. Sadoun was tapped to run Publicis Conseil, the company’s French agency.
The internet and smartphones presented a challenge to ad agencies. Brands wanted to know all about consumers’ online spending habits and target them as they searched for directions, chatted with friends and planned vacations. No single agency had the resources to track such activity on its own, Publicis executives say.
Publicis tried to bridge the technology gap by acquiring digital-marketing specialists, including Digitas Inc. in 2007 and Razorfish from Microsoft Corp. in 2009. Yet creative staffers at the traditional agencies were reluctant to work on digital projects, Publicis executives say. Many creatives, they say, considered online banner ads inferior assignments.
The digital talent, meanwhile, chafed over TV campaigns they considered retrograde and a waste of time. “What am I doing filming cars driving through the desert when brands are being built on Instagram?” says Jeffrey Dachis, a Razorfish co-founder who left the company and started other tech firms.
Management responded by moving entire accounts to Digitas, telling creative staffers that anyone who refused to work on digital projects would miss out on bigger annual bonuses, according to the Publicis executives.
Still, Mr. Lévy recalls worrying that forcing digital operations and traditional agencies to work together would create “a kind of Quasimodo-Frankenstein animal that wouldn’t function.”
In 2013, Procter & Gamble Co. was concerned about its online ads, including some that Leo Burnett made for Always feminine-care products. The company wanted to make sure people wouldn’t scroll right past them, according to Krister Karjalainen, a former P&G executive who tested some of the ads.
Through a partnership with tech company Sticky, now a unit of Sweden’s Tobii AB, P&G had tracked the eye movements of millions of consumers using their webcams. That allowed P&G to measure how the people, who were paid to participate in the research, were responding to the placement of its logos.
P&G requested changes to the size and location of the logos, Mr. Karjalainen says, but Leo Burnett’s creative team balked, saying it would make the ads look bad.
He says he shut down the conversation by citing the eye-tracking data. “You know what? The logo should be here,” he recalls telling the creatives. “They didn’t appreciate the conversation because it was like we were stepping into their world.”
Former Leo Burnett executive Tony Wallace, who has made videos for the P&G account, said eye-tracking technology and other forms of market research made “creatives a lot of times just roll their eyes. You have people sitting behind the glass window eating their baloney sandwiches telling you to make the logo bigger.”
In late 2015, Mr. Sadoun and hundreds of other Publicis executives gathered at a retreat in Silicon Valley to discuss how to get its disparate units to work together more closely. The company had recently purchased Sapient, bringing thousands of engineers and India-based computer coders into the company, and needed to find a way to dissolve internal barriers, the Publicis executives say.
The group decided to appoint a chief talent officer, meeting participants say. They also rallied around a novel concept: Using algorithms to assign employees to projects, regardless of their agency affiliation.
After the meeting, Mr. Lévy said he wanted to unify the company before stepping down as CEO, slated for June 2017. He appointed Mr. Sadoun to oversee all of the creative agencies and Alan Herrick, the chief executive of Sapient, to run all digital and technology operations.
In spring 2016, Messrs. Sadoun and Herrick corralled senior executives from Digitas, Razorfish, Sapient and others at Leo Burnett’s Chicago headquarters for a series of meetings to try to save the McDonald’s account. Leo Burnett had a big chunk of McDonald’s nearly $1 billion of annual ad spending in the U.S., all of which was up for grabs.
To retain the account, Publicis needed its different agencies to work together seamlessly. Instead, the executives gathered in Chicago stepped on each other’s toes, according to people at the meeting. Mr. Nolan, Leo Burnett’s chief creative officer, recalls cutting into one discussion and asking in frustration: “Now what exactly are we looking for here?”
McDonald’s spokeswoman Terri Hickey says Omnicom won the account with an approach that was “fast, fluid and flexible.”
With Mr. Lévy preparing to step down as CEO, Mr. Sadoun started to champion digital change. Months before taking over, Mr. Sadoun assembled a secret team of computer engineers, including Sapient staffers, to develop the algorithm dreamed up at the Silicon Valley meeting.
The idea was to develop a computer system to comb a database containing résumés and other data on nearly 80,000 Publicis employees—including account managers, coders, graphic designers and copywriters—then pick a team from around the world for a project or client pitch. The algorithm would use a set of criteria to score employees and determine how well they match with a given campaign.
“We keep saying our clients need to transform digitally,” Mr. Sadoun explains. “It was time we did it ourselves.”
Mr. Sadoun went on a hunt for tech talent and began to integrate more technology into the traditional agencies he oversaw.
He flew to New York to woo Andrew Swinand, a former Publicis executive and the founder of a startup incubator. Over $50 steaks, Mr. Sadoun told him Publicis would buy some of the incubator’s businesses if Mr. Swinland joined Publicis as head of Leo Burnett’s North American business.
In January 2017, Publicis hired Mr. Swinand to shake up Leo Burnett and announced Mr. Sadoun would succeed Mr. Lévy as CEO.
Mr. Swinand’s recruits from the tech world began colonizing Leo Burnett’s offices. He poured resources into Greenhouse, the agency’s video unit for social media, building a 630-person outfit to crank out videos at a fraction of the time and cost it takes to produce a traditional TV ad.
Leo Burnett shot more than two dozen different ads for a new online campaign for Bridgestone Corp.’s Firestone tire brand. Through a partnership with Facebook, Google and other data platforms, the agency combed the feeds of social-network users and determined what kind of cars they drove. The result: SUV owners saw ads showcasing Firestone tires on SUVs blazing through dirt while sports-car owners saw ads of high-performance cars ripping around a track.
The agency then used Google’s geo-localization tool to determine whether people who had seen their videos visited a Firestone dealer in the next 30 days.
“We’re now all about targeting and retargeting,” said one creative director at Leo Burnett who is skeptical of the digital overhaul. “Who’s thinking about what people are going to be dreaming about?”
In June, Mr. Sadoun arrived at the Cannes award ceremony to make his debut as chief executive. He made a surprise announcement: In 2018, the company’s creative teams wouldn’t come to Cannes and other award ceremonies. The budget, he said, was being redirected to help fund the algorithm project, which was code-named Marcel and expected to cost tens of millions of dollars.
Thousands of miles away, in the Chicago skyscraper that houses Leo Burnett’s headquarters, employees were shocked, according to several of them. If the algorithm assembled teams from across the entire Publicis workforce, they feared, Leo Burnett’s ranks would shrink and its brand would fade.
At the foot of the building, someone covered the agency’s granite sign with a flimsy sheet of paper bearing the letters “MARCEL.” The stunt was a thinly veiled reference to a retirement speech by the agency’s founder. In 1967, Leo Burnett had told his successors to rename the company if they ever strayed from his philosophy of placing creativity at the heart of their business.
A few weeks later, Mr. Sadoun flew to Chicago. “Who put up that sign?” he asked a room of about 200 executives gathered on the 21st floor. As unease spread across the room, the CEO explained he was proud to see creative spirit was alive at the agency.
“I don’t want to fire them,” he said. “I want to congratulate them.”

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