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Death of the Advertising Industrial Complex | Scott Galloway | Digital Leadership Academy

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In his talk at L2’s Digital Leadership Academy, Scott Galloway argues that advertising is becoming less essential to brand building as consumers are discovering products with tools like Google, Amazon, and TripAdvisor. The brand is no longer on the tip of the tongue, it’s what Google says it is.

Furthermore, wealthy shoppers are paying to avoid advertising altogether.

However, it is not all bad news for brands even though it might be for traditional ad men (appearing less and less often on the cover of BusinessWeek). Winners in this new age are not always the biggest spenders on ads, but innovators in product, supply chain, and influencers.

L2inc: https://www.linkedin.com/company/l2-inc-

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Death of the Advertising Industrial Complex | Scott Galloway | Digital Leadership Academy

  1. 1. DEATH OF THE ADVERTISING INDUSTRIAL COMPLEX SCOTT GALLOWAY | DIGITAL LEADERSHIP ACADEMY | JULY 13, 2016 @PROFGALLOWAY
  2. 2. 2 December 4, 2014–May 4, 2016 Amazon Stock Appreciation “AMAZON WILL DECLINE IN VALUE” Source: Google Finance JAN 20 DLD Talk
  3. 3. We get it wrong all the time.
  4. 4. THE NEW ORDER
  5. 5. 5 THEN VS. NOW: THE ROLE OF BRANDS
  6. 6. 6 80% 58% 67% 47% 61% 40% 37% 28% Fashion Brand Jewelery Brand Luxury Hotel Retailer  2007/8  2014/15 USA, Top 5% by Household Income (HHI) Percentage of Affluents Who Can Identify a “Favorite” Brand SUN HAS PASSED MID-DAY ON BRAND Source: YouGov & Time Inc., April 2015.
  7. 7. 7 October 2015 Percent of Respondents USA: Sources Used to Research Products Prior to Purchasing In-Store DUE DILIGENCE WEAPONS Source: Salesforce, “2015 Connected Shoppers Report,” conducted by The Harris Poll, November 2015. 56% 55% 46% 16% 18% Online-only Retailers (e.g., Amazon) Retailer Sites Brand Sites Social Media Don't Research Digitally Before Going to Stores
  8. 8. 8 NEW PATH TO DISCOVERY
  9. 9. 9 1998–2013 USA Cable Prices vs. Inflation RIPE FOR DISRUPTION Source: FCC, Bureau of Labor Statistics. Cost of Cable $27.88 $39.85 1998 Cost Adjusted for Inflation Cost of Cable $64.41
  10. 10. 10 ◼ Subscribe to Video Streaming Service ◼ Plan to Cut Cord ◼ Subscribe to Cable/Satellite Service n=30,000+ Online Consumers Across 63 Countries, Q3 2015 TV and Video Subscription by Age Group CORD CUTTERS ARE YOUNG… Source: Nielsen. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Generation Z 15–20 Millenials 21–34 Generation X 35–49 Baby Boomers 50–64 Silent Generation 65+
  11. 11. 11 2014–2015 Change in Viewership of Top 25 Cable Networks VIEWERSHIP IS DOWN Source: Nielsen. -25% -25% -23% -20% -19% -19% -18% -15% -15% -14% -14% -12% -12% -9% -9% -8% -7% -7% -4% -1% 2% 3% 8% 9% 15% HIST A&E MTV Comedy USA TLC FX SYFY NAN FAM TNT BRAVO Spike TBS VH1 ESPN LIFE Disney FOOD ADSM E! DISC HGTV AMC TOON
  12. 12. 12 ◼ Q2 2013 ◼ Q2 2014 ◼ Q2 2015 United States, 2009–2015 Total Subscribers, Cable Companies vs. Internet Video Providers AFFLUENTS PAY AND AVOID Source: Pacific Crest. 0 20 40 60 80 100 120 Cable Companies Netflix, Amazon, Hulu -1% CAGR 30% CAGR SUBSCRIBERS,MILLIONS
  13. 13. 13 CHANGING THE GAME
  14. 14. 14 ◼ Offers Video Advertising March 2015 Percent of Respondents Who Use On-Demand TV Services ON DEMAND REACH & GROWTH 6% 8% 9% 11% 12% 15% 16% 19% 25% 38% GoogleTV AppleTV iTunes Authenticated Service Hulu Plus Hulu (free) Netflix DVD Plan Amazon Instant Video TV shows (free sites)* Netflix Streaming Service Provider No change 60bps (150bps) 20bps 170bps (110bps) (190bps) 40bps (270bps) 470bps 2014 vs. 2015 YOY Source: Morgan Stanley Research *Note: TV shows on free sites include network sites (ABC.com, MTV.com, etc.)
  15. 15. 15 June 2016 USA, n=1,200 Netflix Users Percentage of Users Who Would Cancel if Netflix Started Showing Ads WHY? Source: All Flicks, June 2016 No, Would Not Cancel 26% Yes, Would Cancel 74%
  16. 16. 16 Meerkat Periscope Embedded Video Player Removal of Tap-and-Hold to Watch 400 Hours of Video Uploaded Every Minute Maximum Video Length to 30 Seconds 360 Video Boomerang YouTube Red 2016 Live Video Embedded in Twitter Feed Video Views Counts Extended Video Length to 60 Seconds Facebook Live Ecommerce Ads Video Carousel Ads Pre-Roll Video Ads on Instant Articles Removed Pic/Video from Character Limit Video Comments on Video Pages Advertising API 2014–2016 Video Launches SOCIAL TAKES ON TV2014 Video Auto-Play Our Story Live Rail Acquisition Hyperlapse and Promoted Video Ads Video View Counts Google Preferred 2015 Native Video Upload Discover
  17. 17. 17 43% 42% 13% 6% 3% -5% -10% 0% 10% 20% 30% 40% 50% Video Social Media Search Display TV Print Print 2014–2015, in Billions YOY Change in Media Ad Spending Worldwide SHIFTING AD BUDGETS Source: eMarketer, 2015.
  18. 18. 18 2009–2015 Monthly Active Users of Major Browser Ad Blocking Extensions Global Ad Blocking Growth AD BLOCKING ON THE RISE Source: eConsultancy, 2015. 198M
  19. 19. 19 Advertising Revenue vs. Subscription Revenue, 2015 % of Total Revenues by Source SURVIVAL INDEX Source: Company Reports, L2 Analysis. Company Ad Revenue Subscription Revenue Viacom 38% 37% The New York Times 40% 54% Time Inc. 53% 34% Gannett 56% 37% Scripps 68% 37%
  20. 20. 20 $50M’15 Annual Revenue 90MUnique Monthly Visitors $0.55 per User = SPARE ME Source: “Some facts about Business Insider’s acquisition by Axel Spinger,” Mathew Ingam, Fortune, September 29, 2015.
  21. 21. 21 $198M’15 Digital Ad Revenue 75M‘15 Unique Global Monthly Visitors $2.64 per User = SPARE ME Source: Company Filings and NYTimes.com
  22. 22. 22 AD REVENUE IS LOW $3.1M’15 Avg Episode Ad Revenue 7.2M‘15 Viewers $0.43 per Viewer = Sources: Nielsen Ratings and Variety.
  23. 23. 23 PRICE OF FREEDOM The price of freedom is only $2.99
  24. 24. 24
  25. 25. 25 RESPONSE
  26. 26. WHO DOES THIS HURT?
  27. 27. 27 Advertising Industrial Complex VICTIMS
  28. 28. 28 USA Total National Ad Spend as a Percentage of GDP ADVERTISING ≠ GROWTH BUSINESS Sources: REDEF, The Economist, eMarketer. U.S. Bureau of Labor Statistics.
  29. 29. 29 ◼ Auto ◼ Beauty & CPG Top 10 Advertisers by Spend, USA SOME THINGS NEVER CHANGE Source: AdAge Datacenter. Rank 1956 1999 2010 2016 1 General Motors Co. General Motors Co. Procter & Gamble Co. Procter & Gamble Co. 2 Procter & Gamble Co. Procter & Gamble Co. AT&T AT&T 3 General Foods Corp (now Kraft Heinz Co.) Johnson & Johnson General Motors Co. General Motors Co. 4 Ford Motor Co. Philip Morris Cos. Verizon Communications Comcast Corp 5 Chrysler Co. (now Fiat Chrysler) Ford Motor Co. American Express Co. Verizon Communications 6 Colgate-Palmolive Co. Pfizer Pfizer Ford Motor Co. 7 General Electric Co. McDonald's Corp. Walmart Stores American Express Co. 8 Lever Bros. (now Unilever) Tricon Global Restaurants Time Warner Fiat Chrysler 9 National Dairy Products Corp. (now Kraft Heinz Co.) DaimlerChrysler Johnson & Johnson Amazon 10 Distillers Corp.-Seagram’s Ltd. (now Diageo and Pernod Ricard) WorldCom L'Oréal Samsung Electronics Co.
  30. 30. 30 ◼ GM ◼ Ford ◼ Procter & Gamble 1995–2015 USA Net Sales as a % of USA GDP PULLING LESS WEIGHT Sources: Company Filings and World Bank. Note: GM numbers are based on total North America sales. 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1995 2005 2015
  31. 31. 31 ◼ Apple ◼ Samsung Advertising Expense as Percent of Revenue APPLE VS. SAMSUNG Source: Company Filings. 1.2% 1.1% 0.9% 0.6% 0.6% 0.7% 2.0% 2.1% 1.8% 2.4% 1.8% 1.8% 2009 2010 2011 2012 2013 2014
  32. 32. 32 ◼ Apple ◼ Microsoft ◼ BlackBerry ◼ Samsung ◼ HTC ◼ LG ◼ Lenovo+Motorola ◼ Sony 2010–Q3 2015 Global Smartphone Operating Profit Share APPLE DOMINATES -20 0 20 40 60 80 100 2010 2011 2012 2013 2014 2015 Source: Canaccord Genuity, 2015.
  33. 33. 33 USD Billions Apple: Future Minimum Lease Payments Related to Retail Space REALLOCATION OF CAPITAL $1.5 $1.7 $2.4 $3.1 $3.5 $3.6 $3.6 $3.9 2009 2010 2011 2012 2013 2014 2015 2016* Source: Company Filings. *Note: 2016 reflects 10-Q reporting, as of April 2016.
  34. 34. CPG
  35. 35. 35 90% Lost share 33% 75% Trailing 12 months, June 2015 Performance of Top 100 CPG Brands in the USA TRADITIONAL ADVERTISING ≠ SUCCESS Source: Catalina Marketing. 68% Declined in Sales
  36. 36. 36 ■ Top 100 CPG Brand Growth ■ Category Growth 52 Weeks Trailing, June 30, 2015 Growth of Top 100 CPG Brands vs. Overall Category Growth FALLING GIANTS Source: Catalina Marketing. -1.6% -0.3% -5.5% 0.1% 1.5% 0.7% -5.5% 5.0% 5.9% 2.4% 9.4% 7.3% 8.1% 5.7% BABY CANDY /SNACK CEREAL COFFEE DAIRY BEAUTY PET
  37. 37. 37 Startups “Unbundling” P&G UNDER ATTACK Source: CB Insights.
  38. 38. 38 ◼ Pampers ◼ Huggies ◼ Honest Company USA Indexed Search Volume, 2004–June 2016 Google Trends: Search Popularity Over Time HONEST COMPANY > PAMPERS Source: Google Trends.
  39. 39. 39 ◼ Dollar Shave Club ◼ Gillette ◼ Harry’s January–December 2015 Monthly Search Volume for Brand Term GILLETTE ALREADY TRUMPED Source: Google. 0 100,000 200,000 300,000 400,000 500,000 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC MONTHLYSEARCHVOLUME
  40. 40. 40 EV/EBITDA Multiple RECURRING REVENUE Source: Yahoo Finance, accessed June 16, 2016. 33.1 22.9 16.1 13.3 11.8 11.5 10.7 10.4 10.2 10.1 Adobe Gartner Forrester Accenture Dish Network CEB IPG Cablevision WPP Omnicom
  41. 41. 41 "The brands that grew the most in 2014 were also very low [advertising-and- promotion] intensive like Urban Decay, like Kiehl's, etc. ... NYX has no media. Kiehl's has no media. Urban Decay has no media.” – Jean-Paul Agon, L’Oréal
  42. 42. 42 Q1 2015 vs. Q1 2016 Market Share Changes, Top 10 USA Premium Makeup WHERE’S THE GROWTH? ELC Top 15 Makeup Brands MAC ▽-1.5 Clinique ▽-1.1 Estée Lauder ▽-0.6 Bobbi Brown ▽-0.3 Smashbox △+0.1 ▽-3.4% Top 15 Makeup Indies Anastasia Cosmetics △+1.5 Tarte △+1.0 Too Faced △+1.0 △+3.5% Other Makeup Top 15 Urban Decay △+0.7 Lancôme ▽-0.6 Benefit ▽-0.2 Bare Essentials ▽-1.3 Chanel ▽-0.4 NARS 0.0 ▽-2.5%
  43. 43. 43 SKINCARE MORE OF THE SAME OF THE TOP 10 PRESTIGE SKINCARE BRANDS ONLY ONE – KIEHL’S – GAINED SHARE… THE OTHER NINE WERE DOWN -2.9%
  44. 44. 44 Q1 2015 vs. Q1 2016 USA Premium Skincare Market Share LONGTAIL SHARE GROWTH IN SKINCARE *Other Tracked = Brands with >.1% Market Share; Other–Not Tracked = Brands with <.1% Market Share Q1 CY 2016Q1 CY 2015 Estée Lauder Companies 35% L'Oréal 15% Other: Not Tracked 13% Other: Tracked 37% Estée Lauder Companies 37% L'Oréal 16% Other: Not Tracked 11% Other: Tracked 36%
  45. 45. 45 Percent Change 2014 vs. 2015 Top-10 US Beauty Industry Advertisers, by Traditional Media Ad Spend DECREASING AD SPEND Source: Kantar Media, April 2016. 2014 2015 % Change 1 L’Oréal 1,346.8 1,198.3 -11.0% 2 P&G 799.6 572.2 -28.4% 3 J&J 389.6 389.0 -.2% 4 Unilever 398.3 266.6 -10.6% 5 Estée Lauder 222.8 244.4 +9.7% 6 Genomma Lab 88.5 167.7 +89.5% 7 Coty 199.9 165.5 -17.2% 8 Revlon 164.9 153.2 -7.1% 9 LVMH 109.8 114.5 +4.3% 10 Kao 102.1 103.2 +1.1% TOTAL $4,698.9 $4,508.0 -4.1%
  46. 46. 46 Beauty: Share of Total Instagram Interactions vs. Posts SO WHAT ARE THE WINNERS DOING? Source: L2, Inc. Digital IQ Index®: Beauty, 2015. Tarte 8% Benefit Cosmetics 7% NYX 7% MAC Cosmetics 7% Too Faced Cosmetics 6% Anastasia Beverly Hills 34% Other 31% Share of Interactions n=52,722,360 Interactions Share of Posts n=3,320 Posts Anastasia Beverly Hills 8% Tarte 5% Kat Von D 5% Butter London 4% Benefit Cosmetics 3% e.l.f. Cosmetics 3% Other 72%
  47. 47. 47 Kiehl’s and ABH Reinforcing Tight Brand Codes Through Influencers WORKING WITH INFLUENCERS
  48. 48. 48 PRODUCT INNOVATION = ON TREND
  49. 49. 49  NYX  L’Oréal Paris  NYX  L’Oréal Paris Google AdWords Number of Keywords Purchased SKILL TRUMPS SPEND Source: L2 analysis of SEMRush data. 1.4% vs. 60,727129 0.3% Google Organic Visibility of Unbranded Color Cosmetics Source: L2 analysis of Advanced Web Ranker data n=239 Keywords.
  50. 50. 50 UNLIKELY WINNER HIGH END RETAIL February 2014 1991 Fall 2015
  51. 51. 51 CHARLOTTE TILBURY KIKO MILANO 3INA MAC COSMETICS THE BODY SHOP BOBBI BROWN CLINIQUE JO MALONE NARS AESOP URBAN DECAY CRABTREE & EVELYN L’OCCITANE CHANEL DIOR BEAUTY BURBERRY COVENT GARDEN 2016
  52. 52. AUTO
  53. 53. 53 USA Market Share for Auto/Light-truck Brands Top USA Auto Brand Advertisers by Measured Media Spend 2014 BIG AD SPENDERS ARE DOWN Source: AdAge Datacenter. Measured Media Spend Market Share % Change 2013 2014 1 Chevrolet $888M 12.5% 12.3% ▽-1.6% 2 Toyota $736M 12.1% 12.1% 0.0% 3 Nissan $703M 7.3% 7.7% 5.5% 4 Ford $612M 15.4% 14.4% ▽-6.5% 5 Honda $430M 8.7% 8.3% ▽-4.6%
  54. 54. 54 USA, 2004–June 2016 ◼ Tesla ◼ Toyota ◼ Chevrolet ◼ Honda ◼ Ford ◼ Autos & Vehicles Category Indexed Search Volume Compared to Changes in Interest in Autos & Vehicles Category Google Trends: Interest Over Time TESLA MAKING WAVES…. Source: Google Trends.
  55. 55. 55 2014 Measured Media Spend in USD Millions Divided by Vehicles Sold Ad Spending per Vehicle Sold WITHOUT PAID MEDIA MUSCLE Source: AdAge Datacenter. $367 $313 $258 $0 Toyota Honda Ford Tesla
  56. 56. 56 THE NEW BIG IDEA = INNOVATION
  57. 57. 57 4% 4% 5% 13% 15% 4% 5% 4% 14% 18% Toyota* Honda Ford Uber* Tesla  2014  2015 R&D Expenditures as Percent of Revenue REALLOCATION TOWARD INNOVATION Sources: Company Filings. “Leaked: Uber’s Financials Show Huge Growth, Even Bigger Losses,” Forbes, January 12, 2016.
  58. 58. 58 “To date, media coverage and word of mouth have been the primary drivers of our sales leads and have helped us achieve sales without traditional advertising and at relatively low marketing costs.” – Tesla Motors Inc., 10-K, February 2016
  59. 59. 59 43.8% 13.6% 3.9% 2.8% 1.0% 0.3% -0.6% -1.2% -2.5% -3.7% Facebook Google IAC Bertelsmann AG IPG Lagardère NYTimes Omnicom YuMe Viacom* Most Recent Fiscal Year Year-Over-Year Revenue Growth WHERE’S THE GROWTH? Source: Company Filings Average: 29% Average: 0%
  60. 60. 60 In USD Billions, June 2016 Companies by Market Capitalization NOT EVEN CLOSE Source: Yahoo Finance
  61. 61. 61 January-February 2016 Percentage of Known Referrals to News Websites Referral Sources for News Websites FACEBOOK & GOOGLE CONTROL THE NEWS 40% 41% 19% Source: Parse.ly.
  62. 62. 62 TARGETING VS. LACK THEREOF
  63. 63. 63 Share of Major Media Advertising Spend by Medium, USA SQUEEZING TRADITIONAL MEDIA Sources: REDEF, Bloomberg, eMarketer. Newspaper Magazine Radio Digital Mobile Television
  64. 64. 64 As long as you’re or
  65. 65. 65 Contribution to USA Digital Ad Growth Q1 2015 vs. Q1 2016 DRIVING 90% OF GROWTH Source: Morgan Stanley Research. 52% 38% 10%
  66. 66. 66 THE OTHER 10% Source: LUMA partners, LUMAscape.
  67. 67. 67 Source: Morgan Stanley Research Estimates.
  68. 68. 68 Source: CEASA, Morgan Stanley Research Estimates
  69. 69. 69 LONG TAIL HAS NEW LIFEShare Number of Brands/Products/SKUs Technology Consumer Categories
  70. 70. WHAT DOES THE FUTURE LOOK LIKE?
  71. 71. “Plans are worthless, but planning is everything”
  72. 72. PREDICTION The last gasp
  73. 73. 73 April 5, 2015–March 26, 2016 Broadcast, Cable, and Satellite TV and Radio Ad Spend by Candidates and PACs Presidential Campaign TV and Radio Ad Spend PLAYING OUT IN POLITICS Sources: Ad Age and Bloomberg Politics Analysis of Kantar Media CMAG data. $5,799,985 $11,535,694 $14,093,412 $18,479,967 $22,674,993 $34,800,460 $38,255,798 $54,620,657 $80,222,687 Carson Trump Kasich Christie Cruz Sanders Clinton Rubio Bush Estimated value of Trump’s free news media coverage: $3 billion
  74. 74. 74 FOLLOW THE LEADER? Source: Twitter, accessed July 7, 2016.
  75. 75. 75Source: “Eyeing 2016, G.O.P Embraces Digital Strategies, but Doubts Persist,” The New York Times, June 10, 2015. DIGITAL LEANS DEMOCRAT Political Operatives with Digital Experience 2004-2015, n=626 n=503 n=123
  76. 76. Value will transfer from broadcast media to Facebook and Google PREDICTION
  77. 77. Digital media players that aren’t Facebook and Google will suffer most PREDICTION
  78. 78. Conglomerates will split good revenue from bad revenue PREDICTION
  79. 79. Public will call for the break up of Facebook and Google – the new “big banks” PREDICTION
  80. 80. 80 Anna Brown Account Manager Bruce Johnson Account Director Jonathan Smith Account Planner
  81. 81. We get it wrong all the time.
  82. 82. @PROFGALLOWAY

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