To the unfamiliar, WPP is THE advertising titan of modern history – US$20 billion in revenues (in 2017), employing over 200,000 people across the world. Since its founding in 1971, WPP has grown into a behemoth through a string of aggressive acquisitions – most notably Ogilvy & Mather, Grey, TNS and GroupM. Interestingly, WPP also has stakes in the fledgling media powerhouse “VICE”.

VICE gained notoriety by secretly filming in North Korea. To the right (Shane Smith – founder of VICE, is today worth north of US$1 billion)

Since the departure of its founder – Sir Martin Sorrell, many pundits are predicting the possible breakup of WPP to return value to its shareholders. This is an interesting thought, and one that may not be too far-fetched as WPP is seen as undervalued currently. Let’s a take dive and see what might happen if WPP actually breaks up.

Increased competition leading to price wars

For one, WPP is made up of many ad agencies. Breaking away from WPP means they will all have to compete for the same businesses (and clients), and it goes without saying – it lowers the agencies’ bargaining power (less price fixing).

Of course, this will be to the benefit of businesses, who are already paying “an arm and a leg” when it comes to work which are becoming less and less relevant (due to the rise in importance of customer data and tracking).

Like it or not, traditional media is slowly being phased out. Google and Facebook definitely offer more information about customers compared to traditional media which relies heavily on surveys, physical coupons and focus groups. What’s more, it doesn’t require an agency to manage.

Competition for talent, and more innovation

After breaking up, the agencies will PROBABLY go crazy over poaching each other’s talent. After all, the advertising industry is nothing without its talents – creative, insightful individuals who tell brilliant stories (think Don Draper from Mad Men tv series).

Don Draper in Mad Men (portrayed by actor Jon Hamm) is the famous (fictional) advertising executive based out of Manhattan advertising firm Sterling Cooper.

Talents mean the difference when it comes to closing a deal, and securing an account. Besides, one experienced marketeer does more to ensure success for the client, than ten inexperienced ones.

Also, breaking from WPP and the corporate mould could encourage more agencies to take risks again – leading to more innovation. After all, many winning ad campaigns come from relatively unknown agencies (or outsiders). What’s true is – the importance of “branding” is taking the backstage, while customer acquisition costs take the front. The industry sorely needs to innovate, and it still has that edge as branding cannot be done by a computer (at least not yet).

Bargaining power of platforms such as Google and Facebook increases

Collectively, the WPP group allocates significant portions of their clients’ advertising spend on online channels such as Google and Facebook. This has been a double edge sword for both the online giants. Yes, they get more commitments for ad spend, but WPP surely drives a tougher bargain as well. Well, not if WPP is split into many agencies.

As such, we believe that Google and Facebook will have a better position to bargain from if WPP actually breaks up.

Conclusion

WPP is the company to watch for in this space as its break up may have widespread implications, beyond what we listed above. It could spell the beginning of the end for traditional advertising agencies or it could be the beginning. Like it or not, big boys such as Facebook and Google are eating into their market share – and that trend will only accelerate.

Digital advertising spend is expected to accelerate exponentially upwards in years to come (Source: Ironpaper)

That said, its newly appointed COO, Mark Read said it wouldn’t make sense to break up WPP, but would instead restructure the group. As it goes, restructuring a company as big as WPP is not a matter of choice, but a NEED or they’d risk losing the whole game.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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He has worn many hats in the past - selling advertising space, banking services, and even trading stocks. In 2013, longing for a change of scenery, he joined Rocket Internet’s (now Alibaba’s) Lazada as a online marketer in Bangkok, where he experienced first hand life in a startup. He never looked back since - landing lead roles at Rocket’s EasyTaxi (Singapore), Rocket’s MEIG (Dubai), and Bamilo (Tehran). After that, he launched (and ran) the Thai venture for one of Singapore’s biggest cross-border ecommerce. Last year, Chong put his expertise to work, helping an SGX-listed company relocate to and run operations in Thailand. Nowadays, he’s just chilling by the countryside.