New kids on the block— Facebook, Amazon and Google—are busy upending the old structure.
Consider this; according to the IAB Internet Advertising Revenue Report, the global digital advertising market (Sh8.8 trillion) grew by 21 per cent last year.
Ninety per cent of this growth was driven by Facebook and Google.
Remember the TV series “Mad Men”? Flawed characters, secrets, sharp dressing. Just a few of its standout elements that turned the show into a modern-day classic. Yet, despite its success depicting the advertising world of the 1960’s, the series was a ratings flop for its ad-supported cable network. Such a twisted irony.
But in a larger real-life twist, traditional advertising agencies have actually been underperforming. Lots of existential threats face the industry.
New kids on the block— Facebook, Amazon and Google—are busy upending the old structure. Consider this; according to the IAB Internet Advertising Revenue Report, the global digital advertising market (Sh8.8 trillion) grew by 21 per cent last year. Ninety per cent of this growth was driven by Facebook and Google.
This begs the question; is the old model out-dated? Is it the end of agencies as we know them? Will the industry survive the digital disruption? A million and one questions.
After seeing one of the industry’s titans, Sir Martin Sorell, bow out of the stage recently –– well, kind of -he’s plotting a comeback- I begun to believe that these were the signs of the times.
Few would admit it but the industry is sailing in uncharted waters. WPP Group, the Sh2.6 trillion behemoth, has lost 12 per cent of its value 2014 to date. Its local subsidiary (WPP ScanGroup) has lost 70 per cent of its value at the Nairobi Securities Exchange in the same period.
This is not pretty. The “growth-through-acquisition” model that relies on a huge network of independent businesses is facing its toughest test.
Technology is changing advertising (brands are creating their own in–house content) and this is forcing cost savings on the part of agencies.
The old playbook is not working this time. In 2017, WPP Group reported a 0.9 per cent drop in underlying net sales while WPP ScanGroup suffered 14.7 per cent decline in revenues with overall profits before tax declining by 4.1 per cent. In fact, the Kenyan unit was forced to close down its South Africa and Gabon operations.
Nonetheless, all is not lost. Though overall marketing spends in the country are still dominated by TV and radio, investments into digital marketing capabilities by WPP Scangroup is a wise strategic move.
Global digital trends are soon becoming mainstream. A step further into social media advertising would be an added advantage.
Research by IAB shows that social media advertising now accounts for Sh100 of every Sh400 spent on digital advertising. Ads on social media have grown 36 per cent to Sh2.2 trillion year over year, far outpacing the overall growth rate in digital in 2017.
Further, WPP Scangroup may need to decelerate its acquisition spree. Past mergers and acquisitions – funded mostly by shares, which have increased two-fold since 2006 - are yet to tilt the performance scale.
Kenya still accounts for over 60 per cent of its revenues despite the company holding over 20 non-Kenyan subsidiaries spread across five countries.
That said, here’s a quote from “Mad Men” for Mad Men: ”That’s life. One minute you’re on top of the world, the next minute some secretary’s running you over with a lawn mower.”
Mwanyasi is MD, Canaan Capital
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