Martin Sorrell was an ad industry giant, but the business model he pioneered is outdated

Key Points
  • WPP's Martin Sorrell's acquisition of advertising and public firms created the powerhouse advertising holding company WPP and model for the top advertising firms today.
  • But as more companies bring their advertising buying decisions in-house or use automated ways to buy ads, advertising and media agencies may be losing their relevancy.
Sir Martin Sorrell
Cameron Costa | CNBC

Sir Marin Sorrell made a career out of acquiring advertising and public relations firms, creating the world's largest advertising company, WPP.

But as the 73-year-old Sorrell leaves the firm he created amid an investigation into "personal misconduct," some experts are questioning whether if the sun is also setting on the advertising holding company. It could also mean WPP would be one of the last of its kind.

Advertising agencies are becoming less relevant as companies decide to purchase and place their own ads (known as media buying) or hire agencies for single projects rather than choosing one agency to handle all their business, said Brian Sheehan, professor of advertising at Syracuse University. And companies that are made up of tons of advertising agencies like WPP could be standing on shaky ground.

"Holding companies have a place, but their future isn't as bright," Sheehan said. "If I were Sir Martin Sorrell, I would want to get out right now."

'Wide respect for his business acumen'

Sorrell, who became known in the agency world through his company acquisitions as group finance director for Saatchi & Saatchi, bought a controlling stake in WPP in 1985.

The company primarily functioned as a manufacturer of wire shopping baskets — the acronym stands for Wire and Plastic Products — but Sorrell quickly changed its direction with an acquisition of marketing communications J. Walter Thompson a couple years later.

WPP bought other agencies, including Ogilvy, Young & Rubicam and Grey Global Group, bringing all forms of advertising campaign creation, media buying and public relations in-house.

Along the way, Sorrell gained respect for his ability to explain how advertising trends affect the greater business world, said Michael Kassan, CEO of media advisory firm MediaLink.

"Without question, Martin's earned wide respect for his business acumen," Kassan said. "He's unique in the advertising industry in that he not only has the ear of the CMO, but of the entire C-suite. He's actually been able to transcend the advertising industry and has become a force in the larger business community, sought after by many for his insights into general market trends."

Agency model under fire

At the same time, WPP did have some weaknesses.

It focused on growing its media buying business at GroupM, which may have distracted it from focusing on digital-focused agencies, said Ken Robinson, partner at advertising agency consulting firm Ark Advisors.

Kassan argued that WPP's investment in GroupM and hiring top digital media buyers showed it was thinking toward a digital future, but he noted it did lag behind competitor Publicis at acquiring top digital agencies.

In addition, media agencies have drawn scrutiny in recent years, especially after a 2016 report from advertising trade group ANA showing many groups were receiving kickbacks for spending more money at certain places or taking advantage of rebates without telling clients.

"[Sorrell] is a genius," said Sandy Greenberg, CEO of creative agency Terri & Sandy. "He's an innovator. He's an agent of change. He brought brilliance. Sadly, he's also representative of all the excesses of the humongous holding company model."

Greenberg added, "People are not trusting the agency model because of bloated excess and lack of transparency."

Many brands are moving media buying in-house instead of using agencies.

The world's largest advertiser, P&G, said during its earnings call in January it would take over more of its own advertising purchasing to cut agency costs, according to Ad Age.

Another ANA report from December showed 35 percent of companies moved their programmatic ad buying away from media agencies, according to Adweek. Programmatic refers to an automated method of buying ads on digital properties, such as websites and social media platforms.

"[Sorrell] was representative of the old guard mechanism of advertising, being the agency of record, the methodical way of an agency working with big brands," said Ari Lightman, professor of digital media and marketing at Carnegie Mellon University. "That mode of being the agency of record is kind of gone."

In addition, social media profile data is allowing companies insights into their own customers. Platforms like Facebook and Google allow brands to buy directly from the company, leaving less room for a middleman.

"More [companies] can do the mechanisms of advertising segmentation, engagement, reaching out, activation and analytics," said Lightman. "A lot of [advertising buying] has gone towards programmatic buying. A lot of it is going towards these digital sources to do it on your own. A lot of the power has been stripped away or devolved away from some of these large agencies."

Lightman added, "The notion of a large agency that does everything for a brand around advertising and marketing is going to go away to more niche, more nimble folks who are more digitally oriented, folks that understand the medium and understand how to acquire data."

To be fair, everyone agreed that advertising and media agencies will always have a place. But as platforms like Facebook and Google give companies unprecedented access to consumer behavior, they may be less important than they were before.

"There are still good reasons for their existence, including their talent and capabilities," Kassan said. "The onus will be on the holding companies to reinvent their legacy structures and become the modern, agile and responsive partners that marketers and consumers demand."

Related: WPP's Sorrell says media consolidation is "inevitable" (March 2018)

WPP's Martin Sorrell: Consolidation is 'inevitable' amid pressure from Amazon, Netflix
WPP's Martin Sorrell: Consolidation is 'inevitable' amid pressure from Amazon, Netflix