• by Joe Mandese  @mp_joemandese, December 6, 2007

Shifts in media technology - and the way advertisers and agencies apply it - a reordering in the dominance of global markets, and the volatility of the economy, are all chief issues for the advertising industry, but the No. 1 problem facing Madison Avenue and its clients is "internal communications," Martin Sorrell, chairman-CEO of WPP Group, the largest buyer of media worldwide said Wednesday during a presentation at the UBS media conference in New York.

Sorrell, who reiterated his ongoing mantra about the roles of the Internet, digital media at large, and fast-growing markets like China, Russia, and various third world economies, singled out client/agency communications as WPP's chief concern and cited the WPP's win of Dell's global advertising account as an example of how the ad agency holding company is addressing it, and offered it as a model for the industry at large.

Sorrell said that for all the challenges facing the ad business, it is the simply the ability to communicate effectively that is stymieing most agency/client relationships, and their ability to tackle the broader issues that confront them. "The biggest problem that ourselves and our clients experience is the waste of time," he asserted, citing the organizational structure of WPP's Dell assignment as a model for the future.

Instead of winning the business based on integrating existing services and teams within WPP's vast array of marketing services shops, Sorrell said, WPP agreed to create a new, custom-designed agency for Dell, much the way the computer manufacturer might for someone ordering a PC online.

Describing it as a "new ethos" in the advertising world, Sorrell said, "The Dell thing is a new approach. It's really taking a radically different point-of-view. It's really building an agency from scratch, which Dell and ourselves will prove to be a model for other clients to use."

Sorrell did not provide details on the actual structure of the new agency model, but he did talk about some of the other pressures confronting WPP and its clients, and the "application of technology" was chief among them. He reemphasized his concerns that by applying technology faster, more efficiently and more innovatively than Madison Avenue traditionally has, companies like Google, eBay and Yahoo represent real potential for "disintermediating" traditional advertising agencies.

"I think it's unrealistic for people in our business to think these are not threats. They are threats," he said, once again singling out the success Google has had applying superior technology to the advertising business.

Noting that Google's market capitalization of more than $200 billion currently is more than four times greater than Madison Avenue's Big 4 agency holding companies - Omnicom, WPP, Publicis and Interpublic - Sorrell pointed out that its estimated $20 billion in revenues is still only two-thirds of the $33 billion generated by the Big 4 holding companies annually.

Noting that financial markets guru Warren Buffett recently predicted that Google's capitalization would reach $400 billion in four years, Sorrell said he was most concerned by Google's bid for wireless spectrum and its plans to dominate mobile search.

"They are very difficult to deal with," he noted, and should its acquisition of DoubleClick be approved by regulators, as Sorrell believes it will, Google would become an even more formidable adversary and a "long term enemy," Sorrell predicted.

But Sorrell also offered hope that Madison Avenue could get out in front of this disintermediation by doing what it has always excelled at - coming up with the "big ideas" that help differentiate clients and brands - and by figuring out superior ways of using technology to apply them.

"It's not about building server farms or hiring 100 PhDs a week as Google is doing," Sorrell asserted. "It's about the application of technology to our business."

He cited WPP's acquisition of new media and technology firms such a Schematic and its investments in companies like Spot Runner and Visible World, as examples of its diversification, but he also noted that "legacy" WPP brands like Ogilvy and Wunderman have successfully made the transition from the old world of direct marketing to the new world of digital, interactive marketing - a story that has largely gone unsung by Wall Street or the trade press.

Meanwhile, he said WPP would continue to expand its role in digital media both organically and through selective acquisitions and investments, and would also continue to diversify geographically into fast-growing markets, and into other forms of marketing services and research that are generally more recession-proof than traditional advertising.