Helsinki National eMedia Conference Keynote

Slide 1: Can a weaving spider collaborate? Or, A circular story about the evolving client- agency relationship Mark Linder Contact WPP Global Client Leader mlinder@wpp.com +44 774 00 7927 National eMedia Conference 2008 IIR Finland Helsinki 21 November 2007 1

Slide 2: Advisors 2

Slide 3: “JR” 3

Slide 4: Topics we will talk about Overall theory is that the seed of tomorrow’s client-agency relationship are way back in history. We need to look back to look forward 3. Marketing and mass communication starting from the advent of television – the nature of the business partnership and media commission… USP and the “compliance school”, and how we “slowed” ourselves 4. What changed the dynamic of the relationship – separation of media, selling out, re-ingineering, etc 5. The Internet / web 2.0 – why participation and new media is SO HARD to understand, just as hard as TV was. What the “utility” concept of marketing is about 6. The new media landscape, and how to why we all need to become involved, not just the media agencies 7. The client of the future, agency of the future 8. Implications for Finland 4

Slide 5: “Marketing” was invented in an unusual time Mass production Mass communication Mass consumption In the 1960’s and 70’s, we were GLUED to our TVs 5

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Slide 7: A “destination” model of communication Besides, it’s easy to blow your own horn The Mass Audience Cheap TV Many receivers Each de-coding Interpreting Brand marketer Encoding Interpreter Decoder Each connected with a group Based on Shannon & Weaver’s 1947 process model where message “Reach and re-interpreted Frequency” Repetition Inputs from social Increasing sales sources Indirect feedback (research, sales, etc) 7

Slide 8: Commission business model rewarded mass Offers to client at a profit Performs value- Agency takes risk adding services Buys blocks of media space 8

Slide 9: Remember the long-running campaign? One benefit of a trust-based relationship 9

Slide 10: Client Clients and agencies co-owned the profit business problem The word “brief” did not exist Client-agency partnership was in Client spend shared risk/ reward (Agency revenue) Agency investment 10

Slide 11: 30 years ago, agencies managed programs • Research and insights • New product development Investment in solutions • Branding and packaging Insight into the • Channel management/ retail socialization of the new technology • Communications • Media investment A “blockbuster” business • Tracking and ROI 11

Slide 12: However when “marketing” = Advertising Advertising = commissions Commissions = exploitation 12

Slide 13: It is hard to overstate the culture of impressions-based “marketing” Global size of the industry, in $billions Advertising Research PR Direct Sponsorship Total marketing Worldwide 394 24 7 241 34 700 13

Slide 14: A sidebar why the “USP” hinders true marketing 14

Slide 15: The USP 1. Each advertisement must make a proposition to the customer: "buy this product, and you will get this specific benefit." 2. The proposition itself must be unique - something that competitors do not, or will not, offer. 3. The proposition must be strong enough to pull new customers to the product. 15

Slide 16: The USP helped create the Compliance School of communications “The tension lies in the fact that traditionally, marketing is done TO people, not FOR or WITH them. Messages are developed and broadcast to ostensibly passive and receptive audiences. If they don’t respond, then there are “compliance issues” or “problems of communications uptake.” --Jill Caldwell, a social researcher 16

Slide 17: Agencies became USP “concept factories” and forgot about socialization of media itself Concept Percept an abstract idea or a mental an external event that symbol causes the activation of a certain category in the mind Concepts are the basic elements of propositions, much the same way a word "Nobody reads ads. is the basic element of a People read what sentence interests them, and sometimes it's an ad.“ --Howard Gossage 17

Slide 18: Osgood-Schramm (1954) Communication is a two-way process Did we hear? Message Encoder Decoder Interpreter Interpreter Decoder Decoder Message 18

Slide 19: And there were a few other developments… 19

Slide 20: Events of the 80’s and 90’s • Re-engineering and Activity-based Costing Procurement moving into services • Private agencies selling to public companies, monetizing the relationship • High p/e source markets aggravating this • Separation of media function Result: damage to the trust between advertiser and agency 20

Slide 21: And at the same time, the emergence of new technologies 21

Slide 22: Acceleration… The Internet Singularity Loos ely defined: the idea tha t a deeper a nd tig hter coupling between the online a nd offline worlds will a ccelera te s cience, bus ines s , s ociety, a nd s elf-a ctua liza tion 1.Democra tiza tion a nd “ ma cro-iza tion” 2.P ower la w dis tributions a nd “ long ta ils ” 3.Internet ecos ys tems a nd network effects 4.The Innova tors ’ Dilemma Gary William Flake 22 Microsoft / MSN

Slide 23: Democratization D ocratizationof C em ontent – Computing Documents : Office, La TeX, HTML • – Content Images : dig ita l ca mera s , P hotos hop, iP hoto • Movies : ca mcorders , DVDs , iMovie, Xbox • – Commerce Audio: MP 3, Ga ra g eB a nd, podca s ting • Publis hing: blog s , R S S • – Community Software: open s ource, VB , F la s h • Res earch: s ea rch eng ines , wikipedia • Meta Data: ta g s , pla y lis ts , recommenda tions • D ocratization of C m em om unity D ocratization of C m em om erce • Communication: IM, ema il, VOIP Hos ting: Y! S tores , Office Live, Ama zon • • Dis tribution: R S S , B itTorrent, P 2P P2P Sales : eBa y • • Social: F riends ter, blog s , Y/G/M g roups , Trans actions : P a yP a l • Meetup Marketing: Overture, Adwords , AdCenter • • Romance: Ma tch.com, eHa rmony Syndication: Ads ens e, R S S • • Virtual Economies : E verques t, WoW Development: Web AP Is • • Reputation: eB a y, P a g eR a nk Trivial W ork: Mecha nica l Turk, E S P g a me • • Preference: colla bora tive filtering Bus ines s Intelligence: Web a na lytics • • Affinity: implicit rela tions hips via s imila rity 23

Slide 24: Over 30% of South Koreans are on high-speed braodband – 32MBit download 24

Slide 25: 1966 25

Slide 26: The new media landscape Not how do we reach us, but how is it affecting us? Ad Targeting 108 Million Homes Custom Publishing DVR 3.5 Million Homes Interactive/Plac ed Based Out DVD Player of Home – 50 Million Homes 400M BB’s Video On Satellite Radio & Demand 16 Internet Radio Million Homes 1.5 Million Subscribers / 70% Penetration Virtual Channels Portable 2 Million Homes Audio 15 Million Units Interactive Program Guide 20 Million Homes 65.2% cell phone U.S. penetration Internet / Broadband Gaming 150 Million Users 80 Million Homes / Dual Sync 40 26 57 Million BB Million Homes Users

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Slide 28: The socialization of this technology is the real change 28

Slide 29: “We are connected, but not connecting” Rob Alexander, JWT Fragmentation creates the need for re-integration 29

Slide 30: We are worked over by the media 30

Slide 31: What about “non-media” Advent of actual UTILITY in marketing!! Why promise to be something, when you can actually DELIVER that thing! 31

Slide 32: "I believe the next stage of brand advertising is going to be in the realm of 'branded utility,"' says Palmer (with Johnny Vulcan) Welcome to the brave new world of Branded Utility, where brands look to provide a useful service or a helpful application; to give people something they actually need – without demanding an immediate return. “ Simon Andrews – Chief Strategy Officer, Mindshare Interaction 32

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Slide 34: What role does an agency have? 34

Slide 35: Android Plus $10M in prize money for developers! Operators Semiconductors Software Handset Commercialization 35

Slide 36: OHA launch video 36

Slide 37: Google Open Social • MySpace • Bebo • iLike • Salesforce.com • LinkedIn • Hi5 • Friendster • Oracle • Flixster • RockYou • Slide • and more 37

Slide 38: Is it any wonder who is on top? Most Impactful in my life Most Valuable V al C hange ue 2007 vs. ’06 1. 1. -3% 2. 2. +3% 3. 3. +2% 4. +5% 4. 5. +12% 5. 6. +15% 6. 7. -4% 7. 8. +7% 8. 9. +5% 9. 10. +8% 10. S ource : I erbrand C orp , B usi ness W eek A ug 2007, B rand C hannelR eaders C hoi 2006 ’ nt ce 38

Slide 39: Examples • Nike Run London • Innocent’s Fruitstock • Nokia’s Royal Artist’s Club • Charmin’s bathrooms • Flickr’s “Interestingness” 39

Slide 40: Crowd-sourcing Gardening Me Squared Interestingness -- Flamingo, for Nokia 40

Slide 41: Jennierose, crowd-sourcing 41

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Slide 45: As technologies socialize, virtual becomes real 24 Niche social networking the fastest route to face- to-face networking Niche The more you have in common The closer your connection is The more likely you will meet up face-to-face EVENTS GIGS DATING The content (or vertical interest groups) is the momentum to move social networking into the face-to-face world 45

Slide 46: Business models are evolving Blyk Advertiser- supported MVNO Opt in Dialogue Profile Relationship Knowledge Relevance Interaction Effectiveness 46

Slide 47: To recap… 1. Marketing was “accidentally” defined through TV advertising – the new technology that caused social change 2. Agencies explained the socialization of the new media and showed clients how to take advantage of this. They used to be trusted business partners, when they ran programs and shared a risk/reward business model with clients. The erosion of trust has been over 25 years 4. “Web 2.0” is having a similar impact on social change as television. How are agencies interpreting this? 47

Slide 48: What is the role of agencies in this context? What is the role of media owners? 48

Slide 49: Landscape is changing, and everyone seems interesting! Online/ Mobile Advertising Landscape Indirect Traffic and Inventory Control Direct Strategic Interactive Agencies ...But Content and Traffic Drives the Strategic Advertiser Relationships Economics Are Important Competitive Advantage... Tier 2 Sites with Traffic / Content Being Consolidated Lead Generation (e.g. Price Comp, Verticals) Vertical Portals Price Comparison Strategic Advertiser Relationships / Vertical Expertise Key for Lead Gen Direct Response Affiliate Marketing Strength of Advertiser Relationships Advertising / Optimization Ad Networks Evolving Networks E-Mail Marketing Upstream into Direct Yellowpages eBay, MSN and AOL will Response / P4P Need to Expand Advertising Services and Monetization Ad Management Direct Navigation Niche Players Expanding Niche Search into Lead Generation Behavioral Targeting SafetyNet Tactical 49

Slide 50: New media owners provide marketing services Ad Ad Mobile In-Game Networks Exchange Marketing Advertising Ad Serving AOL Microsoft Google Yahoo WPP 50

Slide 51: Aimed at long tail marketers only? Who has become Google’s largest customer? 20% that = 80% Sales or popularity of volume Flow of effect The long tail Number of producers that realize those numbers 51

Slide 52: Google led the way 52

Slide 53: Microsoft has a rich offer 53

Slide 54: Microsoft takes an educator role 54

Slide 55: Who are all these guys? WPP entries Interactive Digital Media & Search Data & Analytics ID Consultores Boole Mobile Viral Century Harmony 55

Slide 56: New models 56

Slide 57: Open agency model 57

Slide 58: “Six smart people around a table can solve any problem” -- Shelly Lazarus, CEO Ogilvy We have separated into sectarian disciplines • Research into its own industry • Strategy and planning into consulting • Media into its own agencies, separated from creative agencies • Media agencies from quantitative analytics (some exceptions) • PR was separate, is still separate • Marketers change jobs more frequently • The traditional agency is no longer the hub • The media owner provides marketing solutions • Integration is a bigger challenge 58

Slide 59: “Group” consolidation vs single-point accountability By STUART ELLIOTT Bank of America plans to end five years of having a single advertising holding company in charge of its marketing communications. For the last two years, Bank of America, which spends an estimated $2.5 billion each year on worldwide advertising and marketing, worked almost exclusively with agencies owned by the Omnicom Group. For three years before that, the company worked predominantly with agencies owned by the Interpublic Group of Companies. But Anne Finucane, chief marketing officer since March 2006, said today that she had decided that the holding-company model “hasn’t quite worked out the way it might have.” “What works better is for us to choose the agencies,” Ms. Finucane said in a telephone interview. Otherwise, she said, it “limits our ability to align the best agencies and the resources for particular businesses.” Marketers that consolidate their accounts at a single holding company are typically seeking more effective campaigns as well as the cost savings that can come from placing eggs in a single basket. For instance, Ford Motor works almost exclusively with agencies owned by the WPP Group. Other marketers, however, prefer to seek ideas from multiple agencies with different parents, on the theory that limiting interaction to a sole corporate source may prevent the best ideas from emerging. For example, General Motors, which had long worked mostly with Interpublic agencies, has also hired agencies owned by the Publicis Groupe along with independent agencies. ….Ms. Finucane said she will ask BBDO Worldwide in New York, the Omnicom agency that is creating the current “Bank of Opportunity” consumer campaign, to take a role as the company’s lead creative agency and then coordinate the assignments for other kinds of work rather than have the integration done by Omnicom. Under that plan, Ms. Finucane said, BBDO could continue to work with sibling Omnicom agencies — like Rapp Collins, for direct marketing; Organic, for online marketing; and TPN, for promotions — or with agencies that are not part of Omnicom. 59

Slide 60: Single-point accountability is an answer, if the skills and incentives are right “P&G says it's testing ways to change its agency model to improve collaboration and marketing plans while reducing the number of transactions for its brands and marketers. “ 60

Slide 61: Agency of the future needs different skills THE AGENCY of the future will be confident in its ability to answer two absolutely basic questions for its clients. First, how much "money should they spend on marketing? “Second, through which mix of channels can it most rewardingly be spent? -- Martin Sorrell 61

Slide 62: Today’s agencies and networks Challenge: specialist skills Advertising-centric skills replicated in every office Best people start “owned Original business was a and operated” hot shops talent business The middle Production goes to specialists “Networks” consist of large numbers of offices with the same skills 62

Slide 63: De-coupling of the value-adding parts Strategic ideas, Glue provided by strong programme management work-flow and content from smaller units, some management systems parent-controlled, some operator-controlled Lose the middle Technology-enabled Many specialist skills implementation shared by serving clients anywhere many originating units Better career paths for all 63

Slide 64: Mobile Collaborative networkers Media/ Workflow/ CMS Media/ Buying OOH Search Analytics Planning Insights Research Performance One-to-many Measurement Comms Shopper/ design Channels Holistic production Client Ident Team Econometric Design modeling Branded Experience Shopper/ utilities Design eCommerce Concept/ Program Leader Events One-to-one Social Relationship Networking Lifetime Value Ethno Quant SNS Content 64

Slide 65: Mobile A larger spider Workflow/ CMS Media/ OOH Search Analytics Planning Insights Research Performance Measurement Shopper/ Channels Ident Econometric Design modeling Branded Experience Shopper/ utilities Design eCommerce Events One-to-one Relationship Lifetime Value Ethno Quant SNS Content 65

Slide 66: To recap… 1. “New media” companies see themselves as solving business problems, not just selling space 3. It takes time and effort invested to understand the dynamics of this fragmented marketplace 4. Meanwhile, marketers face the challenge of “pulling it together” 5. Single-point accountability migh be a more valuable concept than consolidation. Agencies who want that must develop programme management capabilities 6. Clients, agencies and media must become collaborative networkers 66

Slide 67: In summary… 67

Slide 68: Client of the future • Strives for collaborative marketing management • Does not tolerate sectarian planning • Picks a primary partner as integrator and programme manager • Moves to shared risk/ reward agency (and media) compensation • Encourages trust. Does not allow procurement to take over business management • Is not just about the blockbuster…takes risk, looks for everyday innovations 68

Slide 69: Agency of the future is a programme manager • Invests in understanding the sociological effects of the new media • Re-builds strategic and conceptual skills, and invests in ideas and solutions • Invests in leadership skills (this is different from “management”) to better collaborate with partners • Embraces accountablity and is willing to be compensated accordingly • Builds business and contracting skills Insight into the socialization of all technologies Bringing its own investments (sound familiar?) 69

Slide 70: What does this mean in Finland? 70

Slide 71: Finland is an originating country • The Nordics launch many born-global brands – not all B2B • Education orients youngsters to the world • Stable social democracy • Know how to trade • Confident yet liked in a leadership setting 71

Slide 72: Polar access to the world 72

Slide 73: My offer • Help you – anyone – who wants to learn more about the other cultures • Help work out a framework for market entry – how to identify and solve all the problems – Partners and distribution – Local marketing services • Help you understand the new technologies and their impact on marketing • Help you build back trust in the agency relationship 73

Slide 74: To recap 1. Originally, clients and agencies were business partners, agency a programme manager 2. Cheap media and USP-thinking turned us into concept factories distributing impressions rather than advisers on new media 3. Trust declined during the 80’s 4. Technology democratised, consumer participates. New media much more complex and interactive. Agencies have to help understand 5. Client of the future must concentrate accountability to allow holistic skills – and trust -- to develop. Agency of the future must become a programme manager. Harder work for both – but better options 6. Finnish clients and agencies have “originator” mindset 7. WPP is here to serve your future requirements 74

Slide 75: Thank you Mark Linder mlinder@wpp.com +44 774 00 7927 75