As the CEO of the world’s largest advertising group, WPP’s Sir Martin Sorrell has been interviewed an awful lot during his long career. And he often gets asked the same question: “What keeps you up at night?”
Speaking on WPP’s fourth-quarter earnings call, 72-year-old Sorrell — whose wife recently gave birth to a daughter — shared his response.
“The answer to the question ‘what worries you when you go to bed at night and wake up in the morning’ isn’t a three-month-old child — it’s Amazon — which is a child, but not three months,” Sorrell said.
Sorrell has good reason to be worried.
Right now, Amazon’s advertising business pales in comparison to the likes of Google and Facebook. Amazon doesn’t strip out its advertising unit specifically in its financials. Amazon’s “other” ad revenue in North America — believed to mostly consist of ad revenue — grew 60% to $US1.3 billion in 2016. EMarketer predicts Amazon will generate $US1 billion in ad revenue in the US in 2017. That compares to estimates of $US34 billion in revenue for Google and $US15 billion for Facebook.
Sorrell often refers to Facebook and Google as “frenemies”. WPP works with them as a partner when it spends its clients’ marketing budgets on search or social media ads (WPP spent just under $US5 billion of its clients’ budgets with Google last year and $US1.7 billion with Facebook) but Google and Facebook also threaten advertising agencies because they have the ability to work with clients directly — cutting out the middle man.
Amazon’s nascent ad business has the ability to do the same. Nobody in the online ad business has more data about the way we shop, how often we shop, and what items we look at and decide not to buy.
Sorrell thinks Amazon is a huge threat to Google when it comes to search. If you’re a sneaker brand, the most valuable place to advertise is when someone is actively searching to buy a pair of sneakers. On Google they might just be researching, but with Amazon it’s likely that consumer is in the market to make a purchase right away.
Sorrell described Google the “friendlier frenemy” of the three online ad giants (as he has done before). He placed Facebook in the middle, then Amazon at the unfriendly end of the scale.
“It’s early days with Amazon, you never know what’s going to happen,” Sorrell said. “We put together an agency in Seattle [the location of Amazon’s HQ] specifically to deal with Amazon and cater to Amazon.”
WPP’s share price was down 7.75% at the time of writing after the ad group warned 2017 had got off to a slow start and its projected 2% full-year 2017 organic revenue growth came in below analysts’ expectations. WPP usually forecasts annual organic growth of 3%. Sorrell attributed much of the drop-off to the loss of two big accounts — Volkswagen, which was worth $US2.8 billion in bookings and AT&T, which was worth $US1.8 billion.
As usual in the quarterly earnings call, WPP also shared its useful slide on all the macro and micro trends affecting the ad business right now:
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