Beyond Advertisers' Anger and Tech Companies' Zeal to Sell Ads, What's Left Is Mostly Confusion Among Ad People | Advertising Week New York

On site, you could feel it firsthand: tech companies are competing harder as advertising media, and traditional ad agencies are struggling to change.

"Is the problem the advertising industry faces right now a temporary, cyclical one, or a structural one?"

On September 25, local time, the first day of Advertising Week New York, Ken Auletta — a writer for The New Yorker and a best-selling author — put that question to Sir Martin Sorrell, CEO of WPP, the world's largest advertising group. Sorrell didn't answer it directly. He described instead the competition and the pressure the industry lives under today.

Thousands of ad people carrying the same question came to Times Square for the 14th Advertising Week New York. Billed as the largest advertising conference in the US — and arguably in the world — it ran 240 talks and 52 workshops over four days on the questions marketers care about most: artificial intelligence, agency transformation, the future of media, and data.

This year's speakers included Allan Thygesen, president of Google Americas; Keith Weed, CMO of Unilever; Carolyn Everson, VP of global marketing solutions at Facebook; Barry Wacksman, chief strategy officer at the digital ad agency R/GA; Raja Rajamannar, CMO of Mastercard; Tim Cadogan, CEO of the programmatic ad-buying platform OpenX; Marne Levine, COO of Instagram; and Zheng Xianglin, vice president of Tencent, among others.

On site, you could feel it firsthand: tech companies are competing harder as advertising media, and traditional ad agencies are struggling to change.

Zheng Xianglin has already made the jump from a traditional 4A agency to a tech giant. On the industry's larger problems, he told QDaily at the conference: "Take transparency in media buying. If it hasn't been solved in five years, it will keep coming up for five years."

"I'd say it has changed a little. This year everyone came to share their solutions, their reinventions, new business models…" Heidi Waldusky, deputy editor of Ad Age, told QDaily. This year, she felt, everyone seemed to be pressing everyone else for an answer. "Hopefully there'll be one next year."

Why Are Advertisers All Confused and Angry?

On the afternoon of September 26, Unilever CMO Keith Weed gave a talk called "Driving Economic Growth in a Digital World." He put up a slide with his own private report card on the problems now piling up in advertising:

Viewability and verification: B+ (good progress). Ad fraud: C (publishers need to keep working at it). Brand safety: B- (needs the industry's attention). Cross-platform measurement: F (needs attention now!).

It was a rap on the knuckles for the ad people in the room. Unilever is the world's second-largest advertiser.

And Marc Pritchard, chief brand officer of the world's largest advertiser, Procter & Gamble, has spent the past year attacking the industry from one public stage after another, demanding that it reform itself.

A report published this month by the CMO Council and Dow Jones, based on interviews with 300 marketing executives — Brand Protection in a Digital World: Screening Ad Channels to Defend Brand Reputation — found that 72% of CMOs are under pressure from their bosses to fix the trust problem among brands, agencies and media; 50% are writing guidelines to make sure their ads actually reach an audience; and 34% want their media agency to deal with brand safety, the side effect of programmatic buying.

Today a CMO's confusion and anger might look like this. She spends a few million dollars on advertising, half of it or more on digital. Then she finds out that another 10% of the money was taken by her media agency as a kickback from the media; that half the traffic on her digital ads came from a string of code and was never seen by a real person; and that of the countless digital ads she bought programmatically, some ran beside content that damages the brand and some ran on websites that don't exist — pages that hold one ad slot and nothing else.

"Transparency" and "trust" were already the focus of last year's Advertising Week; the organizers even made "The Year of Transparency" the theme. Shortly before that conference, the Association of National Advertisers had released a transparency report aimed squarely at the industry's habit of taking kickbacks.

In the year since, the problems coming to light have only multiplied.

Facebook publicly admitted 10 separate times this year that it had gotten its ad-performance numbers wrong. In March, McDonald's, Marks & Spencer and other companies pulled their ads from YouTube after those ads turned up beside questionable content. In May, a report on digital ad fraud found that $7.2 billion worth of digital advertising had been wasted the year before.

Advertisers have responded by cutting what they spend (though that may also have to do with the pressure companies are under to cut costs generally). Just last month, P&G announced proudly on an earnings call that the $100 million of digital ad budget it had cut earlier had done no damage to its results.

In August, the world's biggest advertising groups — WPP, Omnicom, IPG, Publicis and Havas — reported average global revenue growth of 0.7% for the second quarter, the industry's worst showing since 2009.

Sorrell put part of the blame on "cheap capital investing wildly, and big capital applying the pressure of zero-based budgeting" — a method that forces every expense to be justified again in each new period. "Competition in advertising right now is too fierce."

As for the question at the top of this piece — cyclical or structural — Sorrell's answer was: both.

"The speed of digital disruption is beyond imagination," he said. That, he added, is the single biggest reason results are under threat.

Google, Facebook and the Other Tech Companies Already Set the Terms of the Ad Market

Brian Gleason, global CEO of GroupM, the media agency group inside WPP, was asked during a panel called "The Automated Marketplace": "What do brands need most when they come to you?" His answer: "Access to data."

Which brings us back to the same point: the tech companies are the ones holding the data.

In the US, Google and Facebook together take 63% of all digital ad revenue. Worldwide, BAT — Baidu, Alibaba and Tencent — come in right behind them.

Sorrell began warning 10 years ago that advertising should be wary of this duopoly, and the trend has only grown. If the two once challenged the rules of the industry, they now write them.

Sorrell once described the relationship between traditional 4A agencies and the tech giants as "both rivals and friends." This year he talked more about the competition among the tech companies themselves.

Google and Facebook, he said, are now "flexible friends."

That was a Mastercard slogan from years ago, meant to suggest convenience and speed. In a way, the risk a credit card carries also fits the power tech companies now hold over advertising.

While the traditional agencies were busy debating what the agency of the future should look like, these flexible friends were busy selling their new ad products.

Carolyn Everson, Facebook's VP of global marketing solutions, walked through the company's video ad products in detail in her Monday talk. She opened with a prediction: in three years, 75% of mobile traffic will come from video. Across Facebook and Instagram, she said, users spend five times as long on video as on text.

On a single axis running from short to long, she laid out the video formats Facebook and Instagram now offer, from GIFs and two-second clips at one end to live video at the other. The idea is to pull users in step by step, using short, punchy videos to lead them toward deeper brand content. Not long ago Facebook also set up a division called Watch, a plan to turn the platform's social-media users into video viewers and compete with YouTube and Netflix. "We use video formats in a lot of different ways," Everson said.

Google rolled out new video ad products of its own; for the details, see the story we published three days ago.

Allan Thygesen made mainly one point in his conversation: this is the Age of Assistance, and the ads brands place in media have to help users or they will be resented. "From what we see in our search data, people are planning things on shorter and shorter notice." Since 2015, Google has seen searches for "open now" triple and searches for "ships today" rise by more than 120%.

These shifts come from younger consumers. In two talks on two consecutive days, Keith Weed played promotional videos for #AllHairThings, the YouTube hair-tutorial channel run by one of Unilever's hair-care brands, as proof that Unilever still understands young people and what they want.

Instagram, now one of Facebook's star products, released new user numbers at Advertising Week New York: 800 million monthly active users, 100 million of them added in the past five months alone — the same stretch in which Instagram grew fast after copying Snapchat's Stories, the feature that lets users post a story of photos and short videos that vanishes after 24 hours.

On the last day of Advertising Week, Snapchat unveiled its own new lineup of ad products, the highlight an augmented-reality filter called World Lens.

"Scale Should Come With Responsibility"

After Facebook's talk, plenty of people in the room made it clear they would rather have heard where Facebook stands on its recently confirmed use as a tool in political campaigns. On September 20, Facebook chief security officer Alex Stamos told reporters that Russia had "likely" used 470 fake accounts to buy $100,000 worth of political ads during last year's US presidential election. It was the first time Facebook admitted it had influenced the vote.

One attendee said afterward that while many of the conference's talks were about ad products, media automation was what everyone actually cared about. Nearly all of Facebook's bad news over the past year traces back to the shadow programmatic buying casts over everything.

Russian hackers, of course, haven't gone after Facebook alone. In December 2016, findings from the security firm White Ops shook the industry: a group of Russian hackers was making $3 million to $5 million a day from digital ad fraud. They had built more than 6,000 domains and 250,267 web addresses that looked like they belonged to big publishers — the Financial Times, Vogue, ESPN — while almost every page held nothing but a single video ad slot.

The Financial Times recently found that $1.3 million worth of ad space a month was being traded in its name. The space didn't exist: 10 digital ad exchanges were selling fake "Financial Times display ads" and 15 were selling fake "Financial Times video ads," even though the paper doesn't sell that kind of space programmatically at all. In the end, roughly a month's worth of its digital ad inventory changed hands in a single day, and the Financial Times got nothing.

The paper said it had notified its clients and asked those exchanges to take the fraudulent inventory down.

But with Facebook and Google, which operate on a far larger scale, many people think the response has been too slow.

"It's all profit in there." Sorrell argues that Facebook and Google are two media companies, not tech companies: their profits are far higher than WPP's and their combined market value is above $1 trillion. "Scale should come with responsibility."

Allan Thygesen, who runs Google's advertising business in the Americas, said in a conversation with Keith Weed that the company was working "very hard" on ad fraud.

He probably meant the announcement a week earlier that Google would work with partner ad exchanges on a refund process for fake traffic. The search giant had also just paid Apple $1 billion to stay the default search engine on Apple devices.

In the End, the Six-Second Ad Was the Only Thing Everyone Agreed On

Everyone was there to promote themselves, and while the regulation and measurement of digital advertising came up in nearly every talk, the talk rarely went below the surface.

That is understandable up to a point: profit comes first. As for the cross-platform measurement that Keith Weed says "needs attention now," Gunnard Johnson, who runs ad measurement at Pinterest, named the biggest obstacle: "They don't even know why the measurement systems built for the desktop don't hold up on mobile."

The problems underneath are very hard ones. Different ad formats, and data that isn't shared between devices and platforms, both block cross-platform measurement. Meanwhile new products like World Lens keep appearing, each of them trying to convince advertisers that it works better on the young (which may well be true).

"I've been in advertising for many years, and I lived through China having two standards for TV advertising, one from Nielsen and one from CSM. It was painful — painful for clients, painful for the agencies." Tencent's Zheng Xianglin, talking about standards for digital advertising, explained why a single standard is so hard to impose: "Once a standard is set, people still have to accept it and use it."

At Tencent's Smart Summit in Shanghai not long ago, Zheng also described a native advertising project he once worked on with The New York Times; the hardest part, he said, was the shortage of people who can do that work. Either way, the media giants all need formats better suited to digital advertising to bring in new revenue, and because each of them goes about it differently, all that effort makes a common standard harder still.

Time is short. In the digital era, advertising can change more in a year than it used to in 10.

Anyone at Advertising Week New York who skipped the 8 p.m. party on the final night, with the rapper 2 Chainz performing, could instead watch the football game streaming on Amazon Prime: the Chicago Bears against the Green Bay Packers. Pepsi, Gillette and Under Armour each paid $2.8 million for a package of 30-second spots on that broadcast.

That goes some way toward explaining why Amazon is what keeps Sorrell "up at night," and why he predicts it could become advertising's third giant: its direct line to e-commerce gives it data and economic value that are both unusual and convenient.

According to the latest figures from the research firm eMarketer, Amazon already ranks fifth in the US digital ad market and will take in $1.65 billion this year.

Advertising, of course, is still not something tech companies are good at. That is part of why Nike, which built its own e-commerce site long ago, took 18 years to start selling through Amazon: it worried that Amazon didn't know how to present the brand online.

The agencies, who are supposed to be good at exactly this, could have led that work. They may still need time to adjust to the new technology.

R/GA, the agency that designed Nike's whole NIKEiD custom-sneaker system, has arguably stayed out in front in digital advertising all along. This year it took part in several panels on "building the next agency model" and "advertising needs a rebrand." Barry Wacksman, its executive vice president and global chief strategy officer, said R/GA is rolling out a new kind of agency spanning startup incubation, consulting, products and services, intellectual property, communications, connected spaces and a creative studio — and that from here on it will concentrate on the first three. Four months ago the company joined IPG and Snap to start a marketing-technology venture studio that invests in companies capable of creating new kinds of advertising experience.

The more traditional agencies face merging and stripping down. GroupM recently combined its media agencies Maxus and MEC and plans to expand Essence, its digital ad-buying operation; Ogilvy has just announced a "One Ogilvy" strategy that folds all its subsidiaries into a single company.

In the end, ad people and tech companies agreed on one thing: the six-second ad, which everyone was talking about, and which looks like a promising answer for advertising in the mobile era.

YouTube began pushing the six-second ad hard last year, but the six may be a placeholder; it simply stands for "shorter ads." Speaking recently at another marketing forum, P&G chief brand officer Marc Pritchard suggested ad people might want to think about two-second ads instead, since one set of figures puts the average time a digital ad is watched at 1.7 seconds. "Clearly we should stop wasting money on 30-second ads."

Richard Alan Reid, executive creative director at BuzzFeed, explained what the six-second ad means this way: "Netflix has no ads, HBO has no ads, people install ad blockers on their phones and their computers — there's no room left for brands. But there has to be somewhere for them, and the six-second ad might be an answer."

"In 20 years I've shot about 500 commercials. I can read an ad script and understand the characters and their relationships instantly… 30-second ones, 60-second ones." Paul Marcarelli is an ad actor, known for fronting campaigns for several US telecom carriers. "But now there are 12-second ones…" He looked a little lost as he said it, and the others on the panel jumped in to correct him: it's six seconds now.

"I don't know how to shoot a commercial anymore," he said.

Cover image from 20 Times Square