Volume 153: Techno-Optimist Piffle.

1. The Techno-Optimist Manifesto. What A Pile of Old Bollocks.

tl;dr: Marc Andreessen has his Marie Antoinette moment. 

I love it when experts in a field share their inner thoughts because it gives us a unique insight into how they think about what they do and, unintentionally, where their blindspots are. And God help me, but I’ve just realized that if you read this newsletter even remotely often, you probably know mine, too. Now I feel naked, which is a terrible mental picture for us all.

Anyway, I used to inhale Fred Wilson’s “A VC” blog. And while he’s undoubtedly a very smart man, it quickly became apparent that he couldn’t tell the difference between marketing and advertising and was pretty clueless about both. When the new Slack identity was created, Michael Bierut shared the thinking behind the work and concepts that hit the cutting room floor. This was amazing because while it was long on craft, there was a clear blindspot of conceptual creativity and strategic thinking, which is why, in my opinion, Pentagram is great at modernizing existing identities and godawful at creating new ones.

Then, this week, Marc Andreessen placed the cherry on the blindspot cake with a thinly veiled libertarian screed that’s wildly lacking in self-reflection entitled “The Techno-Optimist Manifesto.” Now, for anyone who doesn’t want to wade through a 5,200-word ode to Ayn Rand, the basic gist is that the tech-innovator class should be free to do whatever it wants, without regulation or limits, and everyone else should just suck it up because it’s progress and it’s good for them. Maybe this view shouldn’t be all that surprising considering the prevalence of libertarianism among tech billionaires, but there were two big surprises. First, among other things, he names “sustainability,” “stakeholder capitalism,” “ESG,” “tech ethics,” “trust and safety,” and “risk management” as ideas that are the enemies of progress. (I can’t help but think about the Titan submarine that catastrophically imploded when I read that). Second, he lists the “patron saints of techno-optimism,” which includes a number of out-and-out fascists. And when I say that, I don’t mean the people who get called fascist by others on Twitter, but rather those who embrace fascism as their own self-identity.

Wowzers.

Truly, the most surprising thing about this manifesto isn’t the way the press has tried to spin it as “reclaiming the moral high ground for tech,” but that it was published at all, especially on the website of such a high-profile corporation. 

I’m far from a Luddite or a socialist. I’m a capitalistic small business owner, and most of my clients are tech corporations, yet I find this manifesto deeply uncomfortable. Twenty years ago, there was a clear tech dividend for Silicon Valley corporations. In a phenomenon Scott Galloway refers to as the “idolatry of innovators,” we wanted to believe. We lauded them; we loved what they were up to and couldn’t wait to see what they’d do next. 

Twenty years later, while there’s been tremendous wealth created by Silicon Valley, it’s ironic that it’s society’s reaction to the behavior and actions of people like Mr. Andreesson that made him feel the need to write this manifesto in the first place. Techno-skepticism replaced the tech dividend because tech broke whatever social compact it had. It surveils us, taxes us like a feudal landowner, says we don’t own the products we bought, gets to rifle through our posts to train AI systems it hopes will replace us, gets to change the rules on a whim, enables bad actors to drive disinformation wedges through society, encourages our children to harm themselves and commit suicide, and if we don’t like it, tough. We have no other choice. 

So, with the sure knowledge that I’m vastly less wealthy, less of an innovator, less visionary, less influential, less egotistical (barely), and a whole helluva lot less fascistic, here’s an alternative perspective:

Technology and the innovation that drives it is core to human progress. Throughout history, the people driving technological development have pushed societies, economies, and our species forward. However, technology does not exist independently of people or society’s rules. It exists to serve them. The gains of technological progress should be felt broadly rather than being the sole purview of the few and the rich. It cannot be left to operate in a vacuum; it should be appropriately regulated and taxed, and we should recognize that harm often accompanies progress, so we should be ready to act proactively and reactively to mitigate the effects of said harm when and where it occurs, 

It’s not that hard. But if Mr. Andreesson’s views truly reflect the Silicon Valley condition, then huge challenges will be ahead. Because what he’s saying is that what’s good for the very few at the top is good for everyone else. And history suggests that’s rarely, if ever, true. 

2. Bigger Than AI.

tl;dr: Weight loss drugs. A truly disruptive technology. 

Sticking with technology for the moment, what’s fascinating is the sheer volume of tech innovation that’s both really interesting and super impactful and isn’t coming out of Silicon Valley but the pharmaceutical industry. 

The COVID pandemic supercharged the previously sleepy world of vaccination development, introducing a novel new approach that uses mRNA rather than more traditional methods. This is a technology with game-changing potential. Already, there are human trials for an RNA-based malaria vaccine. (Fun fact: while the claim that malaria killed half of all humans who ever lived is likely untrue, it remains one of the most common causes of death globally, and climate change is making it more prevalent in more places.) And very soon, we’re likely to see RNA-based cancer vaccines and other, more tailored therapeutics focused on genetic conditions. 

At least equal, and potentially greater in its society-changing potential, is a new class of weight loss drugs known as GLP-1 Agonists, which include Ozempic and Wegovy. Initially created for the treatment of diabetes, weight loss was an unanticipated side effect that has the potential to catapult these drugs into the stratosphere of societal and cultural disruption. They’ve also been found to significantly impact the neurobiology of addictive behaviors, which means they may also be effective in treating addictive disorders, such as alcoholism. 

Let's look at the numbers to understand why the potential economic effects of this new class of drug might be greater than that of AI:

First, almost 70% of Americans are either overweight or obese, with 36% being clinically obese (having a BMI in excess of 30.) The economic costs associated with this statistic are vast. It’s estimated that obesity costs the US between $147bn-$210bn annually, not to mention the emotional and psychological costs individuals have to bear.

I once had a client in the clinical weight loss space. Listening to their patients talk was heartbreaking. They were desperate. They’d tried every diet and exercise regime known to mankind, and nothing was working; their self-confidence was shot to zero, and they had various health complications to boot. Put simply, the myth of being fat and happy was exactly that—a myth. The reality of obesity is that it’s all too often life-destroying, either physically or emotionally, or both. 

Economically, there are also second-order effects we must take into account. Because these drugs reduce appetite, 70% of people using GLP-1 drugs report significantly decreased cravings for junk food. Morgan Stanley estimates there could be a 3% decline in demand for junk food, snack products, and carbonated drinks by 2035, but this number could be greater depending on how rapidly this new class of drugs is adopted. 

Even the airlines are getting in on the act. United believes that across-the-board weight loss could save as much as $80m in fuel costs annually.

This is before we even get to the economic impact of buying new outfits and newfound confidence encouraging people to go out more, go on vacation to the beach more, and generally live differently. 

So, yeah. I know we in the marketing arena love to think about technology trends through the lens of shiny objects, apps, and whatever the cool kids in Fort Greene are up to, but we should be looking more broadly. Because GLP-1 drugs, RNA vaccines, and whatever else pharma is cooking up have the potential to be radically more disruptive than putting a $3,000 computer on your face. 

3. Very Much Losing?

tl;dr: More acts of holding company weakness. 

This week, the advertising holding companies were at it again. Consolidating and merging agencies, that is. 

In India, Omnicom placed a bunch of ad agencies under the moniker “Omnicom Advertising Services.” At the same time, WPP took its ongoing consolidation to the next level by merging the vowel-challenged VMLY&R, a product of a previous merger between VML and Y&R, with Wunderman Thompson to form…a new VML. I have no idea what VML was initially a contraction for, but make no mistake, this isn’t an act of strength; it’s an act of weakness, so VML may as well stand for Very Much Losing. 

So how did we get here, and what happens next?

Well, let’s start at the beginning.

Back in the go-go 1980s, some very smart financial brains in the advertising business, most notably Sir Martin Sorrell, recognized that a dollar of advertising revenue generated by a public company was more valuable than a dollar of advertising revenue generated by a private company. In financial terms, this phenomenon is known as arbitrage. This essentially means exploiting the difference in value between the same or similar assets to make a profit.

Arbitrage in financial markets is extremely common. For example, foreign exchange arbitrage, where you might convert Dollars to Pounds, Pounds to Euros, and then Euros back to Dollars to realize a tiny percentage return. Rinse, repeat.

With this realization in mind, public companies like WPP were explicitly created to buy privately held agencies to exploit valuation arbitrage, where the price paid for a privately held agency was less than the value it would add to the publicly held corporation. (I know it’s a bit more complex than that, but I’m oversimplifying to make a point).

To continue growing the share price, the holdco’s bought more agencies to increase revenues above whatever organic growth their portfolios were delivering, thus smoothing out the curve and delivering compellingly predictable revenue growth to Wall Street. Unfortunately, this model bears more than a passing resemblance to a Ponzi scheme. More on that in a minute.

Anyway, so far so good. What’s important to note about the historical root of today’s problems is that holdcos like WPP, Omnicom, Interpublic, etc., were never set up nor intended to be client-facing operating entities. They were formed as financial vehicles to face the stock market.

Fast forward through the ‘90s into the 2000s, and the Ponzi-like model of buying under-valued revenue in the form of privately held agencies to juice growth numbers had become a treadmill: Entrepreneur builds agency business, sells to holdco, works through the earnout, leaves, sets up new agency. Rinse, repeat. Everyone wins. Meanwhile, the holdcos became bloated, inefficient agglomerations of hundreds upon hundreds of agencies with few synergies and little or no strategic cohesion. Why? Because the purchase rationale had little to do with client need, operating excellence, leadership capability, or strategic synergy. It was about finding undervalued revenues and bringing them into the mix to feed the revenue growth necessary to drive the stock price.

Then, the internet happened. And the Ponzi scheme began to crumble.

Again, oversimplifying, the Internet massively changed how and where marketing happened, meaning shareholder value shifted from media and the holdcos to Google and FB/Meta, which meant the holdcos suddenly had to answer questions about portfolio composition. And, as it turns out, it was ugly: Hundreds of under-scale agencies with weak technology capabilities, often operating in fields being disrupted by digital, and a few massively bloated advertising networks acting as anchor tenants, utterly dependent on broadcast TV, which Wall Street was now, quite rightly, questioning the future of.

To add to the panic, the shift in the media landscape meant consulting firms, which had quietly grown off the back of more integrated operating models, were now keen to take advantage of the holdco weaknesses in areas they were strong in - technology, data, operations, strategy - to drive growth from marketing departments. Only they had the distinct advantage of picking and choosing their acquisition targets, focusing on “digitally native” businesses that would enhance their overall offering. Meanwhile, the holdcos were busy fiddling while Rome burned, consolidating real-estate holdings and establishing shared services models to take cost out of the portfolios without altering the operating model meaningfully. 

Fast forward to today, and the dynamics have worsened still further. The holdcos are still staring down the barrel of confusing, inefficient portfolios loaded with underscale agencies on the one hand and bloated advertising networks on the other. The consulting companies have doubled down on integrated operating models (e.g., Accenture Song) that can handle large, multi-capability, complex challenges at higher margins. Brands, for various reasons, have built in-house agencies for themselves. Money has continued to flow away from the holdcos and into ad and martech firms. Finally, independents have increased competition further as working in holdco agencies became an increasingly grim proposition, and top talent realized technology could augment their capabilities to the point that scale wasn’t necessarily necessary. 

And now AI isn’t just on the horizon; it’s already here, and predictions are that it could cut around 7.5% off advertising agency headcount over the next ten years. 

So, what next? Well, we rarely see huge corporations like the holdco’s collapse spectacularly. Instead, it’s usually a slow slide into irrelevance and a much lower-value business. Even long after digital photography had disrupted it, Kodak was still worth $2.5bn in 2013; ten years later, it’s still around but is only worth $300m.

It’s common that once the slow collapse into irrelevance begins, it’s very hard, if not impossible, to arrest because the root cause goes back to decisions made years, sometimes decades, earlier.

In the case of the holdco’s, with the benefit of 20:20 hindsight, I’d suggest they should’ve been much more strategically aggressive, much sooner. They should’ve seen through their own rhetoric that a consulting company couldn’t run a creative business (They were accountants themselves, for goodness sake, and they managed it). They should have radically consolidated the operating model from a position of strength rather than a position of weakness, focused much more intently on serving higher-value client needs, invested heavily in cross-portfolio data-sharing, focused more on beating the consulting firms at their own outcome-driven game, and been vastly more aggressive in shuttering and selling off underperforming assets to free up resources to support innovation and businesses where there was strong growth and margin potential.

Instead, they’re now stuck in what may be a terminal downward spiral. Anemic stock performance means there’s very little leeway to acquire their way out; agencies they already own face major margin and growth challenges; they’ve systemically excised experienced (and more expensive) talent, leaving them with a gaping expertise gap relative to the consulting competition; they’re way behind the 8-ball on the integrated model front, where hope springs eternal that merging two or more underperforming businesses will somehow create gold rather than dogshit; and to add insult to injury, their clients don’t trust them very much.

So, what happens next? Well, here’s my prediction, which, if it happens at all, will likely take years to pan out:

First, look for a continued consolidation of the large, bloated, underperforming agency networks that stand for nothing in particular. Next, look for further consolidation, shuttering, and/or selling off of the smaller underscale agencies. Then, out of desperation, as stock prices continue to stagnate, I predict one or more holdco will split, forming a “good bank” and a “bad bank” model the way banks like Citi did during the financial crisis, moving their strongest assets into one portfolio and their weakest into another. Then, private equity will pick over the carcasses like vultures, looking for the choicest cuts at bargain prices. Finally, when all is said and done, the likes of WPP, Omnicom, Interpublic, and the rest will be much smaller and, hopefully, a lot better. Still, they’ll look more like Kodak and less like Accenture from a size, scale, capability, and relevance perspective.

Nostalgia is a powerful drug. And it would be easy to mourn what these agencies once were, the work they once did, and the careers they once fostered. But nostalgia is not a business strategy.

I’ve never particularly valued the management competence of the holdco execs I’ve met. With a few rare exceptions, they’ve been little more than odious, aging, narcissistic, backstabbing old salesmen and accountants who lacked leadership, strategic vision, and operating competence. 

However, it would be harsh to say this is entirely their fault. To quote Warren Buffet: 

“When management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

In other words, it’s unclear that even the most brilliant business leaders could’ve more effectively navigated the holdcos through an ongoing series of disruptive shocks that have fundamentally re-engineered how marketing happens and, thus, where the value lies.