Advertising Confronts AI-xistential Crisis

Marketing maverick Sir Martin Sorrell, who previously led WPP, started his media company S4 Capital as a “new-age” answer to the mega-agency model he helped usher in. But with a newer AI age arriving fast, S4 is struggling to adapt just like the old guard.

S4 has lost 97% of its market value since its 2021 peak, and as clients continue to slash their ad budgets, the company cut its forecast for the year. Last week, S4 said it was in talks to acquire UK marketing group MSQ, but MSQ didn’t get the memo. MSQ said it was surprised by the announcement and wasn’t pursuing the deal.

AI-Generated ‘Vogue’ Ads Are Just the Start

Mergers are just one of the strategies ad firms are employing to combat a growing threat from Big Tech, which already took over much of the distribution side of advertising. Nearly half of US ad spend last year went to Google and Meta, and tech giants armed with AI are now going after the rest. 

Snap, Pinterest and Google are rolling out AI tools for editing ads and tweaking campaigns. Meta plans to release AI tools next year that’ll take the trend a step further, letting users create ads without any help from the world’s Don Drapers. 

Ad agencies, meanwhile, are rushing to get a step ahead of the tech companies trying to replace them: 

• WPP, whose profits plummeted 71% in the first half of this fiscal year, plans to invest $400 million in building its own AI tools to sell to clients. The agency also partnered with Stability AI to boost its AI offerings. 
• Rival agency Publicis, whose revenue has fared better after winning clients like Coca-Cola and Mars from WPP, has also set hundreds of millions of dollars aside for its AI platform and related investments.

Uncertain Footing: Agencies’ AI moves could put them a step ahead of tech competitors … or cause them to trip over their own feet. WPP cut 7,000 jobs this spring, and outgoing CEO Mark Reed said he expects fewer people to be involved in advertising as AI grows. At the same time, clients aren’t just cutting budgets but also expecting discounts because of AI efficiencies, The Guardian reports. Creating the tools to let clients DIY more of the ad process, rather than rely on human teams, could overhaul agencies’ core offerings from services to products and narrow the scope of jobs in advertising to AI liaison.