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Sir Martin Sorrell: Google’s disproportionate share in the search marketing space is worrying

Sir Sorrell talks about the recession, the new media, how awards are important and of course, the growth path in India. Excerpts from the interview.

Like every year, Sir Martin Sorrell, chief executive officer, WPP Group was in Cannes to moderate the Great Cannes Debate. He took some time out for afaqs! on the eve of the debate to talk about the current recession, the new media, how awards are important and of course, the growth path in India. Excerpts from the interview:

Q. How has this recession been different from the ones before?

You can argue that this recession has been more severe and shocking. I am not talking about the post-subprime scenario, but particularly the post-Lehman crisis period or the following weekend, which was really frightening. Noted economist Warren Buffet termed this recession as an economic Pearl Harbour.

We also hear that the British government was planning a bank holiday by statutory instrument if it couldn't agree with the bank. Though I am not as old as to go back to the 1920s or 30s, but I must say that it is a pretty tough time.

Q. What about the clients in the advertising business. Have they been tougher this time?

Yes, they have been tougher. As I said, the situation was so severe that people were looking at it more as a biss.

We were already facing a tough time since August 2007. However, I must say that the client was more aggressive, particularly on the procurement or financial side. In the time of recession, there are two words that get used a lot – these are effectiveness and efficiency. Effectiveness means quality and efficiency means cost. I think that in the current situation, efficiency is winning over effectiveness.

In the advertising business, the marketing function has also lost primacy or even parity.

Q. Which of the two advertising functions have been affected the most – the creative or the media buying?

I think price cutting is more common with the media agencies. However, there are certain incidents which make the situation even more disturbing. I know of two media agencies in particular which have guaranteed media pricing not only against their fees but beyond their fees.

Let me explain: Let's say the client has a budget of $100 million and the fee for the media agency is $2 million. These agencies guaranteed their respective clients a price reduction of $5 million and in case the agency fails, it will not only do away with its fee of $2 million, it will also pay another $3 million to the client. Earlier, what they used to do is guarantee the client a price reduction of $5 million, and in case of failure, they would do away with the $2 million fee, but now it's beyond that. I know of an instance where a client is suing a media agency because it failed to deliver that guarantee as promised.

Q. When and how do you think the recovery of the economy will shape up?

The year 2009 looks like a difficult year but I think it will be relatively better in the second half. However, we will have to wait till 2010 to see a recovery. It will not be anaemic but a recovery of sorts in the shape of italic 'L'. The recovery will depend on what we all have been talking about – long term returns and not short term ones.

For instance, will the government cut spending, increase tax or increase unemployment - highly unlikely, if the government wants to get re-elected. Therefore, we will probably see a rise in inflation and long term interest rates.

This is what we saw with the recovery of the stock market. When the stock market starts recovering, people start getting worried about inflation, commodity pricing and long term interest rates.

Q. Do you think the recovery will start with emerging markets such as India and China, where the stock markets have been on a rise recently, or will it be America first?

The conventional wisdom is that the recovery will start with America but I am not sure that's right. The rise in the Indian stock market has been quite interesting. There has been a sort of decoupling of stock markets in emerging economies, though in reality, there is no decoupling as such as we are all dependent on one another. However, India is less dependent on exports and imports.

Even in China, there was a flip up in the stock market in April this year, but that couldn't continue in May. We thought that it was a good sign, but we found out later that it was because of destocking in the post-Lehman scenario.

This actually reflected a belief which I would like to share - that recovery will be first in the emerging markets, China in particular.

Besides, India is in a relatively better condition than the other markets, although it did slow down around the elections.

Q. So does that mean that you are putting more pressure on the Indian WPP agencies to substitute for the rest?

No, it's difficult to do so. Rather, the pressure is in the other way – they may say that when our business is growing, why should we be confronted for what's happening elsewhere.

By and large, we continue to grow in India. Even if it is flat, it's better than falling by 5 or 6 per cent, as in other markets.

I think one of the dangers in India is that people are so used to a significant growth and that's because India is an under-branded and under-advertised market. However, the most dangerous thing is that in India, they think that the growth will never stop. Everything is cyclical. I think they have to modify their approach, which can't be as violent as Western Europe.

From a corporate point of view – if you are running JWT, Oglivy, Y&R, Millward Brown or TNS, when you see the world in a whole – you have to take some cost action, especially in France, Germany and the UK, and expand elsewhere.

Q. You have a $15 billion group with more than 1,00,000 employees in more than 100 countries. What is the message that you want to convey across this sea of people?

Whether it's right or wrong, the strategy is very simple. First it's the new markets (which include the BRIC countries) and the next 11 markets – that makes 27 per cent of our business.

Next is new media, which is again 25 per cent of our business. The Consumer Insight business is $4 billion out of the $15 billion, which is another 26-27 per cent. So together with the direct half of our business, we are almost there, or rather we are there where we need to be.

Given that strategy, if I am in India, then I am feeling very good. First, India is one of BRIC countries. Second, new media is increasingly important in the Indian context, and third, consumer insight is also very important here, too. So it all fits together from the Indian perspective.

Q. How do you project the growth for new media in India, especially when the traditional media still take away the lion's share?

I think new media is in a significantly stronger position than the traditional media. In India, traditional media is slowing down, though it's still growing relatively faster than the US or the UK.

There are other markets such as Brazil, Mexico or even Italy, where television still dominates the market, but over time, their share will be eroded with the growth of the PC, mobile and video content.

Q. You have more than 100 brands in the WPP group – don't you wish you had fewer but larger brands?

Effectively, it's 12 businesses, although its looks much more complex. There are diseconomies of scale in the creative business. In fact, media buying is the only area where we get economies of scale.

Overall, I don't' think multiple brands make any great difference. Rather, I think the structure has to be flexible.

The 21st century is not for tidy minds. It's not black and white - but it's shades of grey.

Q. You were one of the first ones to foresee that marketer spends would move away from mass media advertising. Is it still the same, or has the division between the advertising and marketing services stabilised?

Yes, it's still moving away. The good news is that it's one-to-one, and the bad news is that it's one-to-one. The problem is - it's still one-to-one because it's highly fragmented.

Will Twitter, Facebook, MySpace or YouTube ever make money? The answer is that it's going to be a very volatile environment. And these brands will come and go, just like the magazines which come and go.

In fact, Jeff Zucker (president and CEO, NBC Universal) put it very well – 'We are moving from analog dollars to digital pennies'. Then he modified it to digital dimes.

That's the problem.

Steve Ballmer (CEO, Microsoft) also said – The problem is in monetising these brands. It's a fancy world for making money.

So we have to spot where the opportunities are.

Q. Doesn't Google or any other name in the online world worry you?

Google worries our clients because there is no balance in the search marketing space, which we all think should be there. Google's disproportionate share is the problem. We work closely with Facebook, My Space, YouTube and Twitter, but in terms of money making business, the giants are Yahoo, AOL, Google and Microsoft. But I must say that they will all have their own challenges, and the core issue is to find a balance in the search marketing space.

Q. How do you profile these companies?

Last year, during the debate, I asked them – Who are you? They said they are technology companies but I didn't accept that. To my mind, they are media owners.

I don't think they are engineers with spanners trying to tighten the nuts and screws while we send messages to one another.

I think they have responsibilities relating to privacy and editorial content.

Q. When you call them a media company, why can't these platforms be used for advertising?

They are used as advertising platforms, but tell me, if I am having a dialogue with you on Facebook or Twitter, do I want to be invaded with commercial messages. The answer is 'No'. Videos can be different, which is why I think there is more advertising potential in My Space and YouTube. It's much more difficult in the social media.

Q. So how will they make money, especially when they have got numbers in terms of reach?

That's the problem. Facebook has raised two slots of capital – one from Microsoft and another from a Russian entrepreneur. My big question is 'Why do they need finance?' They said it's because they wanted to monetise options for their employees. I do not know what it is but they are clearly making a lot of money.

It's a different philosophy and a different approach. Also, the venture capitalists have said "Enough is enough. We will not continue to fund them anymore, unless they make some money."

Q. Has the fragmentation of media brought on by the Internet and the decline of old media strengthened the bargaining position of WPP?

I think it brought good news for clients and not for ad networks. One of things that we have seen is that there is a lot of inventory sloshing around in the old media since the pricing has come down. For example, TV ad space in the UK is cheapest it has been in many years.

So, there is a general decline in activity, whether offline or online. Ironically, online looks cheaper, though offline looks even cheaper because there is a lot of radio, TV, magazine and newspaper inventory – all falling like flies.

Who would have thought that the New York Times would be in such a situation, when a few years ago, it was arguably one of the strongest newspaper brands in the world? Similarly, who would have thought that Rupert Murdoch will be able to buy the Wall Street Journal?

Life is changing and so are the rules. Consolidation is taking place everywhere. For instance, as per a new rule in Spain, one owner cannot control more than 25 per cent of the market in the television business.

Similarly, rules in Brazil and Australia have changed a few years ago. Even in the UK – because a lot of these newspapers and magazines are falling away – they have to change the regulation if they want to maintain a competitive environment and an environment of choice.

Yes, one likes to see a healthy media business and I think fragmentation gives our clients more opportunities.

Until a few years ago, the cost of TV ad space used to increase more than the inflation every year, and in such a scenario, you either buy less of it or look for alternatives.

Q. How important are awards for you?

It's very important and I don't think we have won enough. We want 100 per cent share in it (laughs).

It's important for our clients and our people. Without getting into the debate on which awards are more important – the creative or the effectiveness awards – I would say that it's recognition which matters.

Last night, when we won the awards, our people were excited and the clients loved it, too. The more we win, the better it is.

If there is any criticism on the awards, it's about the way of handling the awards. For instance, this year in the PR Lions, there were no PR agencies. It's a joke and it's ridiculous.

After all, it is expensive to come here and also to put in your entries. So, you, too, learn the way to grab the jury's eye and win.

Q. What about the entries which do not reach the public but win awards?

It's true that we have these terrible entries which are bogus. Then it becomes a bit of a game and that's the problem. I also think that it's up to the organisers and jury members to weed these entries out.

Unfortunately, those campaigns which have more mass appeal are unlikely to win. If you do a big packaging product for a food or alcohol manufacturer, you are more likely to lose than if you do something for more niche markets. For instance, I looked at the wine bottle design last night, with faces on them from a German design agency – it had won a gold.

David Ogilvy believed that effectiveness awards were better because they sold rather than appended people's creatives.

But at the end of the day, I would rather have them than not.

Q. How would you justify the self obsessed creatives who work to win awards? Isn't it dangerous for the company?

Yes, the clients do say that they do not want work that wins awards but want work that sells. So you put them into the Effie Awards.

Self obsessed professionals are everywhere. I am sure there are many self obsessed editors as well and when that happens, the publishers get rid of them.

I think self obsession as more dangerous for the individual than the company.

Q. After so many decades in the business, do you still enjoy it the way you did? How has life changed for you in the last 20 years?

It's more intellectually stimulating than it has ever been - the geography, the technology and the measurement issues are all quite exciting. It may not be particularly pleasant at the moment, given the present situation.

But hopefully, that's a temporary phase and it can't carry on like this for long. Life itself is cyclical.

It's when you start believing that it's not part of the cycle that the trouble starts.

To answer the second part of your question, I think that firstly, our strategy reflects it geographically. I spend more time in India and China - as I used to in Latin America.

Secondly, the business has become more of an application of technology. And thirdly, the importance of quantitative insights has increased.

We would like to work with entrepreneurs who say that they like to work from an intuitive point of view, like the Americans call it 'gut feeling'.

It's interesting at all the three levels.

Q. What will be the growth path for WPP in India?

We have a very strong share in advertising and media in India, and we need to maintain that growth. But we have more to do in areas such as PR, information and consultancy business, brand building and identity, healthcare and digital. It will first be organic growth, backed by smaller acquisitions. Unless Anil Ambani agrees to sell off Mudra - but he came from Wharton, so his price is very high (laughs).

Q. So which is your favourite child?

Steve Ballmer said it's dangerous to have favourites. I can't be like Maurice Levy with Publicis (laughs).