WPP’s Sorrell spells out print vs online advertising imbalance and data technology challenges

Too many advertising budgets are still weighted towards printed newspapers and magazines, while mobile and online platforms should be getting a bigger slice of the marketing pie, according to Sir Martin Sorrell Loading... people martin-sorrell , CEO of WPP.

Meanwhile, success in media in 2013 means developing your own technology to manage and monetise audience data instead of relying on the likes of Google Loading... companies google , says Sorrell.

Presenting the company’s preliminary 2012 results on Friday – a good if “ugly” set of results, the key details of which are below – Sir Martin spelled out the progress the company is making in becoming more digital and even more international: one third of revenue is digital and emerging markets make up 29.4 percent. The target for both is between 35 and 40 percent.

So be in no doubt what this means for legacy publishing in developed economies: WPP is reacting to market needs – advertising clients want more business in exciting economies such as China and more digital placements.

“The two big discontinuities are in print, where clearly clients and agencies are spending too much, and internet and mobile, where they are investing too little,” he says. Echoing Mary Meeker’s now infamous slide from last year, Sorrell points out that print has 25 percent of advertising spend but only accounts for seven percent of consumers’ media time. Conversely, mobile devices account of 10 percent of media time but get just one percent of ad spend.

“That opportunity in internet and mobile in the US market alone amounts to about $20 billion, if we brought the weights equal in terms of spend and usage… That’s where we see the prospects for newspapers and magazines, which remain in our view pretty gloomy – the prospects for internet and mobile, particularly with the proliferation of smartphones remain pretty strong.”

Alongside that, Sorrell says there will be very little slowdown in the global growth of digital advertising, which according to Group M will rise from $114 billion this year to $194 in 2017, a compound annual growth rate of 14 percent.

Proprietary technology challenge

But with the growth of real-time data-driven advertising, that’s all easier said than done. It’s now one of WPP’s core strategic aims to build and develop its own adtech platforms, rather than simple relying on other people’s. Hence the hefty investment in Xaxis, the audience-buying network that’s designed to utilise all the online user data flowing through Group M’s agencies. Xaxis now has billings of £270 million a year; it has 200 staff, 50 integrated partners and is growing at 30 percent a year.

“Peers’ reliance on Google technology enables Google to implement their disintermediation strategy – all (other advertising companies’) data and technology has to pass through their competitor’s platform. This gives us a significant competitive advantage,” says Sorrell.

“Our experience is that marketing is becoming much more data-driven. Clients want simplified use of the data, and they want it to be brought together in one place. Most digital campaigns are driven by these data and people want dashboards with real-time data – this is critical.”

It is well worth noting Sorrell’s language on real-time bidding and programmatic and Mark Read, the CEO of WPP Digital, who spoke at our DMS13 event last month: they hardly say “RTB” at all. Data-driven technology is being woven into the fabric of all WPP’s digital advertising. Like algorithmic and behaviour-led search before it, programmatic is maturing to being simple another way to effectively spend ad budgets.

WPP’s ugly year

“Winning ugly” is more an expression from a football manager’s post-match interview than a media business presentation – but that’s how WPP describes the last 12 months, as it reports improved profits and margins thanks to continued investments in digital media and emerging markets.

Sir Martin Sorrell’s globe-spanning group reported improved profits of £1.1 billion, on revenues up 3.5 percent to £10.4 billion. “We reached our target, but we got there ugly,” he says.

As ever, emerging markets are the main growth area for WPP – with BRICS (Brazil, Russia, India, China) now being joined by MISTs (Mexico, Indonesia, South Korea, Turkey) and CIVETS, yes, that’s CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa) – together contributing £3.11 billion, 8.3 percent more than last year. But even old Blighty can’t spoil the party: UK revenue increased 7.7 percent to £1.27 billion, four percent higher than 2011. WPP has bought 122 companies since 2007 bringing in more than £2 billion in new revenue. WPP completed 65 acquisitions in 2012 – 20 of which were “new media” companies.

So what’s the problem? Here are the economic headwinds slowing down growth for WPP:

WPP’s clients were in strong shape, the company says, certainly compared to the post-Lehman Brothers crash of 2008-2010 when advertising budgets were challenged. But despite that they lacked confidence – the “grey swans, or known unknowns” as Sorrell puts it, are getting in the way (a black swan is something we really don’t know about, an “unknown unknown” – this stuff matters in advertising where confidence is everything). So those grey swans are:

– The fragility of the Eurozone. This has improved over the last year thanks to the Italian elections.

– The on-going crises in Syria, Iran and Israel and across the Middle East

– Slowdown or “soft landing” for the Chinese economy and other fast-growing new economies.

– The US fallout from the US deficit and a record level of $16 trillion of debt. This is the “the elephant in the room, as the United States is still twice
the size of the Chinese economy,” Sorrell warns.

– Lastly, the decision to launch a referendum for Britain’s European Union Loading... companies european-union membership, whilst no "doubt being an astute political move, adds further uncertainty".