Let that number sink in: MINUS 22.5%.Certainly it's just due to the recession, when we all know ad budgets get cut drastically and it's only for a single quarter, but actually the decline for the last THREE quarters was 22.7%! That's a heck of a blow if you think about it as though it was your take-home salary. Sure you can survive if you lost almost a quarter of your income, but the real net effect is that it eviscerates your savings contributions and leisure activity budgets. In other words,
A drop this dramatic, and sustained, takes all the cream off the top.The telling number is not the larger percentage drop figure, but the smaller, a 14.4% drop in global revenue for Q3, or 15.4% over three quarters. This overall figure was led by international operations which dropped 15.8% vs the US slide of 13.2%, despite the fact that overall ad spending in Asia Pacific was up by 11% in Q2, according to a Nielsen report on the same site. As we have all experienced, as revenue declines net profit drops exponentially faster. And these losses are despite drastic cost-cutting measures since last fall by Omnicom across the board.
Will Omnicom weather the recessionary storm and emerge wholly unscathed on the other side? Quite possibly, but WPP, Pulicis and Interpublic (click on links for latest reports) are all experiencing similar issues, so the real question is will the "dinosaur" agencies -- all still relying virtually 100% on their ancient business model -- ALL prove viable over the next few years? To do so, traditional ATL and their "push marketing" model, now being shifted online via display ads, search advertising, "push" video ads on popular sites and ad-supported "TV" sites like Hulu, will have to prove to be a natural 'fit' for them to continue with business as usual.
In my "What We'll Focus on in Marketing 3.0" seminar for Match Marketing Group (one of Canada's leading mid-sized XM players) at their annual meeting this week, the the discussion focused on how appropriate the Internet would prove to be for push marketing efforts in the future. Some people thought that Hulu's shorter ad breaks and choice of which ads you are forced to watch made it far more palatable than traditional TV, but the 'light bulb' came on when we talked about what brought about this new age of the 'empowered consumer'.
It was the Internet that allowed consumers to, clearly and loudly, tell the marketing industry that they no longer wanted push marketing (link to post) and that they no longer wanted to watch our :30 video ads more than once or twice. The Internet brought about The Death of Frequency (link to post) and the birth of hyper/micro-targeting replacing traditional 'reach' (still have to write that one...). The introduction of remote controls and DVRs already announced The Death of Frequency, but the marketing industry chose to ignore the news and redoubled efforts to insert push marketing messages into shows through product placement and to force people to watch branded messages with an ever-growing barrage of new video media in toilets, elevators and at check-out lines (etc., etc.).
So now we have a ubiquitous, difficult to manipulate web medium with unlimited channels, literally millions of programmers ready to hack any controls we try to implement to force push marketing upon consumers, and a public who have shouted (if not begged), for us to stop our endless, mindless repetition of "branding efforts." Yet, understandably, we also have related industries that include tens of thousands of people working in broadcast TV, legacy media and related dinosaur ATL agencies who are all hoping that they can shift push marketing onto the Internet. Maybe I'm way off-base, but I'd urge all these folks to look at the demise of the old music industry's business model (and Apple's corresponding iTunes revolution) and recognize that the horse left the stable some time ago.
There IS a bright future for marketing. It is called "Pull Marketing" and it will thrive not by shoving "push efforts" into social media via paid/sponsored bloggers, Facebook 'friends' and tweeters, or by building stores on SecondLife, nor by serving up static, animated or video display ads before, during, or on top of the content people want, but through still evolving technology, such as apps that provide real value through usefulness or entertainment on mobile devices like Yelp's new Monocle for the iPhone (if they can do THAT, what else can we serve up to mobile users in real time?).
Pull marketing efforts will include an endless variations of a pool of funny ads in lengths from 5 seconds to 55 minutes, repetition of branded messages in a vast mix of media and product placement and endorsements, but "pull" will be first and foremost based upon "Engagement with the Brand Experience." That's my latest invented phrase trying to encapsulate the concept that all marketing efforts need to begin with thinking first and foremost about what people get from their encounter with any given product or service.
When we start from that point, the emotional, sensual (if you will) connection users have with something new to them that is based upon surprise, discovery and satisfaction at having found something new that they find valuable, we're usually talking about starting with experiential marketing, but we do need to consider the people who, instead of encountering a Brand Ambassador, are going to read a blog post about someone else's experience with the product or service, or are going to see a video or 2-dimensional ad illustrating, via third person, the initial experience with the product or service.
The key to any really successful marketing campaign, when you think about it strategically, has in fact ALWAYS been based first upon dissecting and bringing to life that initial Brand Experience, then involved figuring out how to maximize consumer Engagement with the most seductive, but real (not over-promised) depictions of it. All that has changed radically since the dawn of modern marketing is consumer empowerment, delivered by the web, that is forcing us all to drop "push" and go back to "pull," putting the Brand Experience back into an honest, face-to-face, buyer to seller, intimate and true-to-life encounter that is powerfully engaging and is therefore relevant, impactful and memorable.
So the newer, flexible, not-tied-to-the-ancient-business-model agencies will certainly survive and thrive. As for the dinosaur oligopoly, however, until it stops waiting for the good old days to come back (I'd argue Publicis's Honeyshed mega-flop, and even Hulu, are examples of the old guard trying to re-invent the push model) and hires dynamic 'change agents' to effect radical adaptation internally to adjust to the new reality, we are going to see some majors tanking in the coming 1-2 years.
The reason the slide toward their decline will be exacerbated is that large clients will, sooner, rather than later, begin understanding that they need to fund the much more expensive, but far more effective, XM efforts to stay ahead of their competitors. The biggest piggy bank to raid for funding XM and emerging media (as we saw with P&G Canada's shift of 20% of their media budget to digital in 2009), and the one that has NEVER enjoyed an actual provable ROI link, is TV. Once the more clever marketing leaders 'get' that no more push means no more repetition and that pull means more subtle reminders and infomercials in many more media, the TV industry's entire business model will fall apart (it is doing so already, of course) as the advertisers pull their budgets in order to spread the spending around to both higher production costs and a larger media mix.
Ironically, as I pointed out the other day, the CFOs have been allowing brand groups rush into social media willy-nilly with ZERO ROI metrics of any real consequence, yet they continue to bang the drum for provable ROI metrics before allowing a shift from TV to other media. This has been true since the introduction of TV advertising -- smart, insightful Brand Managers and CMOs use their instincts to decide where to advertise because they know ROI metrics designed to track what actually motivated people to buy any given product are almost impossible to develop.