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WPP today lowered its expectations for full-year organic net sales and profit margins in the advertising industry, saying it now expects like-for-like sales to come in flat, compared to a previous forecast range of 0 to 1 percent.
Facebook and Google have disrupted the industry, an online statement from the British advertising and public relations firm said, while management consultancies attempting to take a slice of the ad agency pie have resulted in a focus on reducing costs.
The advertising conglomerate added that low interest rates and "zero-based" budgeting from clients have also contributed.
WPP Chief Executive Martin Sorrell has spoken of Facebook and Google's impact on his business many times before. Although WPP spends around $5 billion a year with Google on behalf of clients, and a further $2 billion on Facebook, he has often referred to them as "frenemies" — and more recently "flexible friends."
In 2014, WPP invested $25 million in ad exchange AppNexus, a competitor to Google's DoubleClick. Both are types of technology that let publishers display advertising on their websites, and allow advertisers and agencies to control where and when their ads are shown, as well as gather data on how much they are clicked on, and who by.
WPP also suggested that the rise of management consultancies such as Accenture and Deloitte Digital buying ad agencies may have had an impact, though it questioned whether they could compete creatively.
"Where the consultancies may have made some inroads is their focus not so much on the digital area, but more importantly on client concerns about cost. Very few CEOs will resist the suggestion that they may be overspending and the promise of an audit or review that will only cost a proportion of any cost savings," the statement said.
WPP said its clients were also contending with disruption by companies like Airbnb in hospitality and Alibaba or Amazon in distribution, in addition to dealing with "zero-based budgeting," an accounting tactic where business expenses have to be justified for each new financial period. This is a method used by consumer packaged goods (CPG) companies such as Reckitt Benckiser or Coty, with the CPG sector making up about 30 percent of WPP's revenue.
"I think it is in this low growth world, or relatively low growth world, where there is very little inflation, where there is very little pricing power and there is a great focus on cost," Sorrell explained to CNBC's Squawk Box Europe this morning.