WPP To Investors: Ad World Is Flat, Horizontal Too

Briefing securities analysts during its “Investors Day” this week, WPP gave little insight about the ad industry outlook, although it implied things would be relatively flat, expanding at about the rate of overall GDP. The real focus was on WPP’s view that the new marketing world order is actually “horizontal.”

“The day was devoted to how WPP was developing its concept of “horizontality” and what it meant for the business, and then a focus on individual units,” the analysts at London-based securities firm Liberum wrote in a note summing the event up to investors on Thursday.

“What the day did suggest,” they continued, “is that WPP is probably the most forward-thinking of the agencies when it comes to thinking on future industry trends.”

Liberum used the occasion to reaffirm its “hold” rating on WPP shares and its belief that WPP is the “best of the bunch” among the major agency holding companies for investors.

WPP’s stumping around the concept of “horizontality” makes sense for a number of reasons, including the fact that it is not just the world’s biggest marketing services holding company, but also the most diversified -- maybe too diversified in the opinion of some observers, given how much of a position it now has as a principal owner -- and reseller -- of media.

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It also makes sense because the core of some of WPP’s most prized assets -- agencies like Y&R, which originally coined the concept of the “whole egg” -- were premised on fully integrated marketing services. And as the world has become increasingly complex and fragmented, WPP has diversified and expanded along with it to offer a much more fully integrated portfolio of marketing and media services -- everything from classic advertising and media to research and data services to proprietary technology and now, platforms. Just this week, WPP’s GroupM unveiled its platform roll-up play, dubbed [m]Platform, to re-leverage all its data and media assets in a way that offsets and differentiates it vs. the gigantic “walled garden” platforms (Google, Facebook, etc.) that increasingly dominate the marketplace.

“The underlying theme of the day was how the various agencies and components of WPP could work together to provide an integrated service to clients that transcends individual agencies, as in the work that WPP does with Ford and P&G,” the Liberum analysts wrote, distilling the essence of this week’s investor pitch, and leaving them to opine: “This would represent a shift in traditional thinking where the focus (and incentive schemes) has generally been on the work of individual agencies.”

Noting that the concept may still be more “theoretical” than practical in its application, the analysts shared a couple of examples of how it is actually working:

“1 - The general point is that the more services an agency group and the more integrated a specific team (e.g. Team Ford) is with their client (and involved in more higher level strategic work), then we think there is less risk of an Agency group losing that particular piece of business. A simplified analogy would be with pay-tv providers and consumers: the more services a consumer takes, the more locked in they are to the provider and the higher the barrier to change. We see a similar thing here – a long-standing Agency-client relationship that provides multiple services probably is a more difficult relationship to unwind.

“2 - The WPP-specific point is that we think WPP is probably ahead of its agency competitors in formulating this strategy and in how long it has been thinking about the problem. This is important as changing the Agency mindset to focus on cooperation across Agencies and groups requires a cultural mindset change, so it actually requires a considerable length of time to get right. One of the concerns we have on Publicis is that its new corporate structure may exacerbate tensions within the organization.”

In terms of the relatively flat near-term outlooks for that ad industry, WPP’s will be among the ad industry forecasters releasing their detailed year-end forecasts for ad spending at next week’s UBS media conference in New York, but during this week’s investors day, CEO Martin Sorrell did tease WPP’s view that advertising should grow at “roughly GDP” and that other recent forecasts for 2017 industry growth rates of “3.5% to 4.0%” were probably “too bullish.”
1 comment about "WPP To Investors: Ad World Is Flat, Horizontal Too".
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  1. Seth Ulinski from TBR, December 2, 2016 at 11:03 a.m.

    WPP is hands down making the most interesting moves when it comes to investment in technology- the challenge/opportunity becomes whether or not they are acting as an agency or principal. Clients have a difficult time as is with the moving pieces around ad tech which are infused into digital advertising campaigns. The role of platforms is huge- WPP is taking a page from IBM's playbook as an IT solutions firm and enterprise technolgy vendor...however in WPP's case the lines between the two camps are still fuzzy. 

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