“I don’t read a book any more, not in its physical sense; I read it through my Kindle application on this iPad,” says WPP Group chief executive Sir Martin Sorrell, the world’s most powerful advertising executive. He was trying to demonstrate just how traditional media has come under pressure everywhere you look. Sorrell, who built WPP into the international colossus, says that the recent recession has “sealed in the clients’ consciousness that even big businesses can fail, that they might not have access to the credit markets”. And it is this change that will continue to drive agency-client relationships for some time to come, he tells Alokananda Chakraborty and Richa Prakash during the course of a recent interview. Excerpts.
Q. How did the latest financial crisis affect WPP, especially in India?
It’s very interesting. When 2008, hit we said to our colleagues in India, “Watch out, it’s coming,” and they said, “No no, it’s never going to come to India...” And it did come. Not severely, but it did come. The recession did affect India in 2009 and a little bit in 2010, but it’s picked up quite strongly since. If I look at the business as a whole, it really didn’t miss a beat even in 2009. We are now up to 9,000 people here, almost $450 million in revenue this year. With luck we will be $500 million next year. If the economy is growing at 7-8 per cent, the industry should grow at about double that rate. We may be at 15 per cent.
Q. You seem to be quite optimistic about India…
Yes. I’m relatively optimistic about the prospects here and the other thing that India has — well, it has a number of things — but one of those things is that it is not dependent on exports; it’s more about domestic consumption. And we are beginning to see Indian companies becoming more fixated on expanding abroad, be it in the US or Western Europe. So I would say things are set pretty fair.
Q. Having said that, have you noticed any great change in consumer and client thinking and actions?
Yeah, there has been a significant change. It has been sealed in the clients’ consciousness that even big businesses can fail, that they might not have access to the credit markets. And no matter how healthy they were, if they didn’t have any liquidity, they were gone. I think that made people extremely cautious. Most of our clients work on the calendar year basis. In the last quarter of that year (October-December 2008), we were flat.
We got hit in 2009. We budgeted for a -2 per cent top line growth; we actually did -8. In 2010, people realised that the world didn’t come to an end. But they were still very cautious. To say consumers will never be the same again will be an exaggeration, but they have been affected.
Q. You have said this year is going to be the year of the digital. To my mind we have come a little ahead of that shiny new thing syndrome, but we still don’t know how best to monetise it. Please comment.
The new media wave started off in the West with the PC. And then we gravitated towards the mobile, and then search, display advertising online, and social networking and video content. That’s the sort of progression we’ve seen. In a market like India, mobile has become powerful much quicker. Social networking, if we are talking about Facebook and Twitter in particular, is quite a difficult phenomenon. Because it’s called social networking, and social network means it’s my way of communicating with you, the question for advertisers is, “Can you or should you interrupt a social communication with a commercial message?”
So should you try and monetise it at all? And the answer probably is, you do it at your own peril because if you invade somebody’s social space with commercial messages, you might have negative consequences and there have been lots of examples. So what you’ve got to do on social networks is you’ve got to influence people — to think kindly or well about you, your product, your corporation, its services.
I think three things have to happen. First is, you’ve to get people to pay for content. Second, it means you’re going to have to have more consolidation because inherently, the old model is no longer the profitable model. Third, to maintain the old media whose business model is not as efficient as it used to be, you’ll have to change the way these things are funded.
Q. You have criticised newspapers for giving away content for free on the internet, because there isn’t enough advertising to pay for it. Do you think if consumers pay, advertisers will follow? What's the missing link in getting brands to seriously spend on the Web, especially in India?
It is still early days. In the US, 16 per cent of the population is Afro-American, 16 per cent Hispanic. So in theory, 32 per cent of your media plan should be diverted to those two groups. I would not be able to find any advertiser that does so. And I could argue that because they are growing faster in terms of wealth, it should be more than 32 per cent. I can’t find it. Why is that? Because it takes people time to adjust. And by the way, we know from research that you and I spend 25 per cent of our time online. We know that our clients around the world are spending 14 per cent on an average online. So they haven’t caught up yet. It takes time.
In India, the power of the traditional media has not eroded yet. Newspapers still thrive; print advertising is growing. So it’s kind of a ripple, a wave. It starts in America, moves into Europe, and then filters around the world. But now the pace of that is going to be faster.
If you’re in traditional media in India, my advice is, “Don’t be complacent”. Part of it has got to do with broadband penetration, it has got to do with infrastructure, in terms of software, with smartphones now taking off. My view is that in the long term, even in countries like India, China, Brazil and Russia, the traditional media, particularly newspapers, will come under pressure.
It’s very interesting. If you go back and look at the statistics, newspapers have been on the decline for many years, even before Google was born. These new technologies have only accelerated the decline to a significant degree.
Q. As an advertising agency, how do you ensure consumer engagement in a scenario where media is fragmented and consumers are easily bored?
I don’t think consumers are bored. They are multi-tasking. That means there is a premium on creativity. That for us is a good thing because first of all the whole thing has become much more complex. You walk into a room, you and I will be looking at the television, using the iPad, and may be making phone calls at the same time. So I’ll be wrong to say consumers are bored, but certainly their attention spans are less.
So what you have to do is catch people’s attention in a more engaging way. At the heart of what we do, at the heart of our $16 billion of revenue, at the heart of what the 145,000 people do at WPP, is find engaging ways to connect with the consumers. And those could be through the new markets, through the new media, through consumer insights, understanding how they are changing, their consumption habits, through the application of technology and through data analytics.
It’s getting more difficult as consumers are engaged in a multiplicity of ways. To catch their attention, you have to be very innovative. Which is great for us. If you want to build a company for the long term, you’re not going to do anything that offends government, people, environment, society. That way I think it’s quite simple.
Q. You talked briefly about mobile phones. In India the number of subscribers has risen dramatically — in urban India the penetration is 100 per cent. So what is your network doing specifically in that space?
We are very aggressive in building our mobile capability; but the mobile advertising capability is not as developed as we would like it to be. In fact, to try and get the operators to work together to develop standards for mobile advertising has been exceptionally difficult. Growth is slow in the West, so people are more sensitive to these things. The impetus there came from Google and Android, and now it’s been accelerated due to Google bidding for Motorola Mobility. Because Google becomes a ‘frenemy’ to Nokia, what does Microsoft do? And what does Samsung do? Samsung now has to decide whether to continue to use the Android operating system or not. So it’s a very complex world.
We have 40 per cent in iconmobile GmbH in Germany, which has its own mobile advertising platform. That’s a very expensive thing to develop. We derive a lot of revenues from iconmobile — advertising revenues, application revenues. But the company is not yet profitable because the costs of building up the network are high and you have to have a considerable scale. So we are trying very hard but we haven’t gone as far as we would like to. We have done mobile search, mobile email, mobile display advertising... a lot of things. It hasn’t got the momentum yet, but it will. Smartphones make it easier.
Q. You have also briefly spoken about China. How would you compare the two markets — China and India — as purely advertising markets for WPP?
China is bigger, we have a 15 per cent share of the advertising business there, which is about a billion dollars. We have a much bigger share than that in India and half of that in terms of revenue. We have about 9,000 people here and 12,000 in China.
I would say both are important. If you’re building a worldwide business like we are trying to, you can’t ignore either. To me, China is the state-directed capitalism, India is the fastest growing democracy. That to me is the heart of the difference.
Q. Is India among your top 10 markets yet?
Yes, it would be now. Our biggest market would be the US which would be about $5 billion; the UK is $2 billion; Germany is $1.3 billion; China 1.1 billion; after that would be France at about $850 million; Brazil at $700million; India $450; and Italy about $350 million.
India is very important for us because of the quality of the people. And also because in India we have all our businesses — advertising, media, research, branding, healthcare, design... all of it.
