Sunday, January 20, 2008

DLD Conference - Day 1. Little Hope for Western Europe


I really enjoyed Martin Sorrell's contribution to the first session of DLD in Munich today, an invitation only event organised by Burda Media. They are a large publisher of fashion, economic and lifestyle magazines - but increasingly branching into electronic media and social networks.

Martin was by far the most business-like and concise in this panel session which kicked off the conference. What he has to say starts around 24 minutes in on the video-player above. It is worth a few moments of your time to hear what a major advertising/communication groups (WPP) thinks about the future of advertising and the media and how geography, technology and the coming recession.

WPP is watching the huge cyclical powershift where the balance of power is shifting back to China and India. Some predictions say that this area of the world will account for half of the world's GNP by the year 2025. That's bad news for most of Western Europe - but WPP is betting its future of the company on Asia, Latin America and on Central and Eastern Europe. The G7 may only have one European member shortly, (the UK). Europe is operating at two treacle in the West, much, much faster in Eastern and Central Europe. Western Europe has heritage, music and culture - but on the innovation front it cannot compete with the wave of PHD students coming out of Beijing and Bangalore.

I would say that the the reality is that they are already beating the hell out of those in France, Germany and the Netherlands in terms of teaching and academic standards. I find it incredible that there are so few people at Universities in Europe studying what is happening in China and South Asia. And it is interesting that many who are, turn out to be second generation Indians and Chinese who's parents came to Europe in the 1960's. But back to DLD.

Sorrell then went on to examine his "Frenemy" or "Froe", Google, which has grown at an astounding rate in less than a decade. The top 4 companies in the communications-advertising business have a combined global revenue of around 33 billion dollars. They have a combined market cap of around 40-45 billion. Google has revenues of between 17 and 22 billion dollars (depending on who you believe) and a market cap of around 200 billion dollars (even taking into account the market dip of the first few weeks of 2008). So they already have 5 times the market cap and 2/3rds of the revenues of the traditional firms. No wonder they have got traditional companies worried. They understand contextual advertising which the traditional media have so far ignored.

WPP revenues are around 12 billion dollars of which 3 billion are now digital and that is the only sector that is growing. They know that WPP clients in 2008 will spend about 10% of their budgets on digital activities. This can only grow as people under 30 are spending 20% of their time online. Sweden will shortly be the first country where Internet ad-spending exceeds TV, with the UK following later in 2008.

WPP is not worried about the technology being developed in Europe...far more about the ideas coming out of garages in Bangalore and Beijing. The recession will not happen in 2008 for the advertisers - the Beijing Olympics and the US presidential elections being important, as well as the European football championships. But the real issue is what happens in 2009 - the 10% growth cannot continue indefinitely in China and India. The new president in the USA will have to tackle the thorny issue of the economy and traditionally this is done in the first year of a presidency.

Members of the panel also point out that the success of Silicon Valley is due to the second generation immingrants - especially Isrealis, Indians and Northern Europeans working in the 40 km radius around Palo Alto. But now, the sons of immigrants no longer need to travel to the USA from their home countries to be successful. WPP is keeping its eye on the so-called Next 11 Countries, which includes Turkey and Indonesia, as well as the so called BRIC countries.

Finally, Sorrell warns us not to underestimate the ability for the US to change. There lies entrepreneurship. We thought it might also be in Japan in the 1970's and 80's, but in fact we were wrong..

Here's the list

Bangladesh: (Developing country)
Egypt: (Newly industrialized country, ENP, COMESA, G-20 developing nations member)
Indonesia: (Newly industrialized country, G-20 industrial nations member)
Iran: (Developing country)
Mexico: (Newly industrialized country, NAFTA, G8+5, G-20 industrial nations member, OECD member (1994))
Nigeria: (Developing country, G-20 developing nations member)
Pakistan: (Developing country, G-20 developing nations member)
Philippines: (Newly industrialized country, G-20 developing nations member)
South Korea: (Developed country, Advanced economy (CIA and IMF), G-20 industrial nations member, OECD member (1996))
Turkey: (Newly industrialized country, Developed country (CIA), EU Customs Union, G-20 industrial nations member, OECD member (1961))
Vietnam: (Developing country)

Sir Martin Sorrell is chief executive and architect of WPP, one of the world’s largest communications services groups. Collectively, WPP employs 102,000 people (including associates) in more than 2,000 offices in 106 countries. Unlike many communications agencies I have dealt with in the past, these guys know exactly where it is going - towards dynamic advertising.

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