NDA is collecting the views of some of our industry’s leading figures for their predictions on 2022 and beyond. Next up is Sir Martin Sorrell, Founder and Executive Chairman of S4 Capital.
Why did you launch S4S Ventures?
We talk about going to market faster, better, cheaper. And the ‘better’ piece of that is understanding the digital ecosystem, all the platforms, the big software companies like Adobe or Oracle or Salesforce, and the hardware companies like LG or Samsung.
We have 7500 digital specialists now in 33 countries and rising. I saw what we did with Epic Games, what we’ve done with Facebook and Nvidia and others around the metaverse and it strikes me that we’ve got a lot of knowledge and understanding of the way technology is going.
We’ve always thought that we could advise a venture capital fund on the better investments in the adtech and martech space. S4S Ventures provides us with a useful way to channel our knowledge about adtech and martech technology into a venture capital firm.
Do you think the metaverse is overhyped at the moment?
Maybe it is overhyped, but when you see Microsoft make its move (with its $70bn offer to buy Activision Blizzard) it’s indicative of the potential of the metaverse. It’s not just relevant to gaming, it’s about entertainment more widely, including sports. It’s also easy to see how the metaverse can be utilised within education or the medical arena. It’s an extraordinary development.
I’ve seen applications already in the training and manufacturing areas that are extremely significant. We’ve been appointed in a number of cases already as an agency of record for innovation, helping clients explore opportunities around the metaverse, crypto, Blockchain, and so on.
The ecommerce applications of the metaverse are very exciting, with brands like Nike and Adidas already making early moves. There is a danger that people get over excited about it, but don’t underestimate the opportunities.
What channels provide the most exciting opportunities for digital advertising this year?
You need to think about the platforms overall. Google will probably close out the year at about $215bn of ad revenue, Facebook at about $115bn, despite all the pressures, and Amazon will go from $25bn to $35bn as best as we can figure out from its numbers. TikTok was at $32bn in 2020.
Obviously, platforms like Twitter, and Snap are really important. Pinterest is important too, but look at the relative numbers. Snap’s revenues were about $5.5bn last year, same for Twitter. YouTube probably was going at about $7.5bn a quarter or $30bn a year, which is around the same level as Netflix.
Therefore you have a product without advertising, which generates $30billion in subscriptions, and you have an advertising-funded product that generates $30 billion in revenues. Maybe there’s a lesson there for Netflix to come out with a Spotify-type of model, where you have an advertising-subsidised channel and a non-advertising one. Perhaps there’s a lesson there for the BBC too.
What’s really important to understand at the moment, rather than looking at any specific channels, is that as we progress through 2022, the GDP growth engine will start to wane and the digital transformation engine will take over in terms of driving growth.
In an inflationary world, whether you believe it’s transitory or not, you’re really going to see digital become increasingly important. As a result, the delivery demands on performance are going to get greater because clients will be looking hard at the pricing of goods. Performance marketing will come into even sharper focus as a result.
How are the distinctions between branding and performance evolving?
Performance is here to stay, particularly in a digital world. For S4, the number one principle is we’re purely digital. Number two is we’re data driven. This is anathema to a lot of the establishment in the advertising industry who think that data and data insights are destroying creativity.
That’s complete nonsense. Even David Ogilvy recommended using data. David talked about the direct mail industry in an iterative way, looking at the results, and then tailoring the creative. In 2022 and beyond, that sort of data-driven, analytics-driven approach is going to become even more important.
The decisions made by Apple on IDFA and by Google on third-party cookies mean that first-party data is becoming critically important. Clients’ first-party data is the new oil in the machine, and it’s first-party data that has fuelled the growth of the major ‘walled gardens’. Microsoft’s acquisition of Xandr is a really interesting move in terms of leveraging the walled garden approach and curated marketplaces in collaboration with a wider range of publishers on the open web. Retail Media is also increasing in importance from a digital advertising perspective, based on the sizable first-party data assets of many large retailers.