Advertisement

June 22, 2018

Editor's Choice: Frenemies: The Epic Disruption of the Ad Business (and Everything Else)

By: Dylan Schleicher @ 4:00 PM – Filed under: Big Ideas & New Perspectives, Current Events & Public Affairs

Frenemies

Frenemies: The Epic Disruption of the Ad Business (and Everything Else) by Ken Auletta, Penguin Press, 368 pages, Hardcover, June 2018, ISBN 9780735220867

The entertainment and news businesses have been underwritten by advertisers for well over 100 years. And ad agencies, the middle man between the two, which began springing up soon after the Civil War in America, were well placed to grow in influence and importance with the advent of two revolutionary communications technologies that arrived on the scene in the decades following the turn of the century: radio and television. To say they did, in fact, grow in influence and importance would course be an understatement. As Ken Auletta write in his recently released book, Frenemies:

 

Trying to understand the media without understanding advertising and marketing, its fuel supply, is like trying to understand the auto industry without regard to fuel costs.

 

It is a case that can easily be argued even further: that the advertising industry has in large part helped fuel all industries—that the marketing muscle for advertising products provided by ad agencies has helped fuel American capitalism and corporate America as a whole for the past century. There is a great Doug Pray documentary, Art & Copy, that changed my understanding of how the world works—especially in this regard. It documents the changes that occurred during the creative revolution in advertising when the art and copywriting departments were brought together, and looks at some of the most iconic work done since then. It is great, and inspiring, and ends with a simple scroll of mind-boggling statistics on the economic importance of advertising. But that was the world as it existed in 2009, when the film was made, and it has changed dramatically since then. If he were to update the film today, less than a decade later, it would be a much more complicated picture (I’m afraid a little more dystopian), and Ken Auletta’s Frenemies: The Epic Disruption of the Ad Business (and Everything Else) would be indispensable source material.

It is largely a survey of the current advertising landscape, but to paint it, Auletta traces agency history back to the days the industry formed, the 15 percent commission model that defined the business for so long and the fee system that replaced it, and the slow and uneven, but steady, wave of consolidation over the decades that has resulted in the holding companies that dominate the world of advertising today—as well as those that have come in to disrupt them. In the wake of the creative revolution, new creative agencies sprang up across the country and the world, expanding the footprint of the industry beyond the “Mad Men” of Madison Avenue.

 

But as agencies grew, they were swallowed and became part of today’s dominant advertising holding companies—U.K.-based WPP, U.S.-based Omnicon Group and the Interpublic Group (IPG), France-based Publicis and Havas, and Japan-based Dentsu. Two thirds of global ad expenditures flow through these six companies and through privately held Horizon Media.

 

Auletta opens his book with a 2015 speech by a former CEO of media agency powerhouse MediaCom, addressing the Association of National Advertisers (ANA) and accusing these ad agencies of demanding “kickbacks” from those in media in exchange for their ad dollars. And this quickly brings brings the story to Michael Kassan. His company, MediaLink, sits at the center of the advertising universe these days. Launched in 2003, the company has around 120 employees, and conducts agency reviews for other companies, helping negotiate agency contracts in the end. The speech Mandel gave was an inflection point in the industry, which drove some of the world’s largest companies to Kassan for fresh reviews of the agencies accused—which, as none were actually named in the speech, was basically all of them.

MediaLink serves as much more than an agency reviewer, however. They are also an advisor to the most powerful media clients in the world, including Hearst, The New York Times and Wall Street Journal, Comcast, and NBCUniversal, as well as digital companies like Facebook, Google, and Twitter. They also help companies develop strategy, as they did with GE when it decided to “reorganize its global branding and marketing division.” It also led the search for people to staff that reorganization, as another service it provides is executive search, acting as headhunter for those same corporate clients, which accounts for almost fifteen percent of their business. Kassan himself admits, “It gives us an unfair advantage because often we’re placing someone who becomes our client.”

To understand MediaLink, one must understand Kassan. Facebook’s Carolyn Everson says of him, “He’s kind of like the Godfather of this industry.” Rishad Tobaccowala of Publicis describes him as “a synapse of the industry.” Jack Myers, chairman of MyersBizNet, calls him the “most powerful of the power brokers” in the business, and says that “No one comes close.” Les Moonves, chairman and CEO of CBS, says he “represents everybody.” Former Digitas CEO, (now CMO of Dunkin' Donuts North America) Tony Weisman says he “built a giant dating service between circles that don’t know how to talk to one another.” Off the record, executives sometimes have harsher words. One stated that “MediaLink is like the Mafia. You pay them for protection.” Another describes Kassan as “a guy who is all legerdemain and hucksterism,” yet another as “a bullshit artist.” Replying to concerns of a conflict of interest in representing all sides, Kassan says:

 

We’re so conflicted that we’re not conflicted anymore. There’s an old joke about the lawyer who used to say, “Two clients in a category is a conflict, three is a specialty.”

 

As such, MediaLink is a good guide to the landscape for Auletta, and Frenemies is often focused on Kassan, a powerful name most have likely never heard. But it also tells the stories—weaving in even the family backstories—of other influential figures in media and advertising, including Facebook’s Everson, WPP’s Martin Sorrell, GroupM’s Irwin Gotlieb, GE’s Beth Comstock, and CBS’s Moonves, as well as relative upstarts like our old acquaintance Gary Vaynerchuk of VaynerMedia and Bob Greenberg of R/GA. (Like MediaLink, R/GA also diversifies its efforts, getting about 5 percent of its revenues from developing working environments and office spaces.) Their stories, like that of most the ad agencies profiled and really, advertising itself, is usually not a straight line, which makes for fascinating reading if you’re interested in individuals.  

But the real story is the digital disruption occurring in the industry. And Google, Facebook, and Amazon are leading the way. Auletta explains how their current business models echo those of traditional media in a way that threatens those they’ve replicated:

 

Google, with 87 percent of its $79.4 billion in 2016 revenues supported by advertising, Facebook with over 95 percent ($26.9 billion out of $27.6 billion) in 2016, and Snapchat with 96 percent from advertising, would—like the TV networks and most radio—cease to be “free.” A prime reason U.S. newspaper employment plunged from from 412,000 in 2001 to 174,000 in 2016 is that advertising dollars—which account for more than half of all newspaper revenues—dropped from $63.5 billion in 2000 to $23.6 billion in 2014, the last year the Newspaper Association of America released newspaper revenues. Facebook’s advertising revenues alone exceeded the combined ad dollars of all U.S. newspapers. Worldwide, in that same span, newspaper ad revenue sunk from $80 billion to $52.6 billion.

 

Google and Facebook swallow over two-thirds of all digital ad dollars—which “are expected to surpass the $70 billion spent on the number one U.S. ad platform, television,” in 2017. This is somewhat ironic considering that “Like Google … Facebook began with an aversion to advertising.”

 

In a paper they presented at an Australian Web conference in 1998 that was unearthed by [Attention Merchants author] Tim Wu, they wrote that “advertising-funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers.

 

It is worth mentioning here that Alphabet, Google’s parent company, is the second largest company in the world, and Facebook is in the top ten. Amazon is number four. China’s mobile services giant Tencent, which is discussed less in the book but worth noting considering that Kassan believes that “the mobile future is being shaped in China, not Silicon Valley,” is number five.

But it’s consumers, many believe, who are becoming the real king in the process:

 

Information for the consumer will be screened and presented by your smartphone’s digital assistant, which will be more sophisticated versions of Amazon’s Alexa, Apple’s Siri (now HomePod), Google Home, and Microsoft’s Cortana. … The digital assistant becomes your agent, potentially supplanting the agency middle man.

 

Of course, as the onus for discovering products is removed from consumers, it’s also worth questioning if some of their own agency is as well. “For example, if you ask Alexa … to choose a battery, it will choose an Amazon battery, the reason Amazon batteries dominate battery sales on Amazon.” And it is worth pausing to consider the great promise to consumers when:

 

A 2015 study by Distil Networks concluded that one of every three digital ad dollars is wasted by ad fraud. … The CMOs’ official spokesman, Bob Liodice of the ANA, said in late 2015, “Roughly at least twelve percent of digital ads are going to nonhumans, and twenty-three percent of digital ads are going to criminals.” He pegged the cost to his advertiser constituents at $6.5 billion … The Distil study totaled the loss to clients in 2015 at a much higher $18.5 billion.

 

He also relates how, on the eve of Advertising Age in 2016, “it was revealed that the Math Men at Facebook overestimated the average time viewers spent watching video by up to 80 percent.” The three second threshold they were meant to be measuring was being met by inadvertently totalling all video watch time, including those that were viewed for less than the three second threshold. Two months later, it was revealed that they were miscounting time spent on their Instant Articles program and three other Facebook products. Google has admitted egregious errors of its own, including placing advertising on racist, extremist, and pornographic sites. Tech company algorithms are also, in general and across the board, often criticized for perpetuating discrimination, bias, and promoting extremism.  

On the other side of the coin, traditional corporate clients are beginning to open in-house agencies to create and distribute their own content. In a world where publishing’s future looks uncertain, they are themselves becoming a publisher.

As a content creator, GE formed a partnership with National Geographic Channel “to bring to life great stories” for a six-part series called Breakthrough. It was directed by Ron Howard and shaped by Howard and his Imagine Entertainment partner, Brian Grazer. (WPP owns ten percent of Imagine.) Each one-hour segment covered scientific topics like robotics, the brain, and energy. GE did not suffocate the drama with advertising. Instead, each hour opened by saying it was codeveloped by GE. The shows featured elements connected to GE—their scientists, technology, and customers— “but in an organic way” according to GE CMO Linda Boff. They also produced a popular series of podcasts:

 

GE’s Podcast Theater produced ten- to fifteen-minute science fiction stories that over eight weeks, according to Andy Goldberg, Boff’s deputy and chief creative officer, were the most downloaded “podcast on iTunes seventeen straight days, generating four million downloads.” The only advertisement was “Brought to you by GE” at the start of the podcast.

 

These are all brilliant ideas. But National Geographic, Ron Howard, and science fiction on podcast (essentially, radio) are all things I associate more with the 1960s than with the digital age. But perhaps everything old is new again. As Michael Kassan noted, “The largest digital ad agency in the country today is IBM.” (Auletta has a healthy detour on IBM in Chapter 12, mentioning a host of other technology companies like Abobe, Oracle, and Salesforce who are getting into the game.) A question at the heart of it all is whether the “big idea” executed by a “good creative” is giving way to “big data” parsed by a “good engineer.” Irwin Gotlieb’s GroupM, a part of WPP, clearly thinks it is, as it has spent $2.5 billion building their own “tech stack” of data.

 

In all, of America’s 200 million adult population, Gotlieb says GroupM has anonymized data on almost all of them, the exceptions being those who don’t have a bank account or e-mail address.

 

One of the main tools in its arsenal is WPP’s acquisition of KBM (KnowledgeBase Marketing), “a company that had relationships with three thousand retailers and stored a cornucopia of what is known as personally identified information (PII), including the people’s names and their behavioral traits.” It uses that technology to track consumer purchases, aim its marketing messages, know whether they have been viewed, and then determine whether they resulted in another purchases. That is somewhat unique within an agency, but Auletta notes that “Bank of America has comprehensive information on its 50 million customers,” as do all banks, investment firms, and credit card companies. And that is not all:

 

Telephone and cable broadband providers retain data about what TV you watch, what banks you use, what Web sites and apps you visit, what newspapers and magazines you subscribe to, what you purchase online, what stores and restaurants you favor.

 

“As for Amazon,” Auletta writes, “since it is the world’s largest store and knows what individuals have actually purchased, its data is unrivaled.

 

With Amazon’s Alexa in the home, the company can gather more: Alexa is an agent that not only knows what you purchased but when you wake up, what you actually watch, read, listen to, ask for, eat.

 

It is an accumulation of data that has been labeled “surveillance capitalism” by Shoshana Zuboff, of the Harvard Business School. If given a choice, I will take the GE sponsored science fiction on a podcast over the darker, seemingly science fiction scenario of, let’s say, a global Amazon company town with floating warehouses in the sky and Alexa spying on me in my home and delivering by drone the products it has determined I want or need.

Frenemies is an in-depth examination of the advertising industry, a brief biography of its most influential and powerful figures today, and an exploration of the nature of advertising itself—its effects on us as individuals and as a society, and a battle for its economic and creative soul. It documents the changing business models over the years, and the changing profile of the men who lead the industry, from Mad Men to Media Men to Math Men (it also contains accounts of the industry’s history of sexism and misogyny), and where it is heading. Considering that the industry has been at the center of American capitalism for so long, it may just be the best account we can get of where the entire economy and nature of business itself is headed.


 

About Dylan Schleicher


Dylan Schleicher has been a part of the 800-CEO-READ claque since 2003. Even though he's stayed on at the company, he has not stayed put. After beginning in shipping & receiving, he joined customer service and accounting before moving into his current, highly elliptical orbit of duties overseeing the ChangeThis and In the Books websites, the company's annual review of books, and in-house design. He lives with his wife and two children in the Washington Heights neighborhood on Milwaukee's West Side.