Sir Martin Sorrell on AI and Agency Reinvention

0:00You mentioned some of the creative leaders you work with, this brilliant long-term brand building.

0:04Sir Martin Sorrell:Well, they've got to have the strategic chops. They've got to have the creative chops. They've got to have deep, I think, cultural sensitivities or knowledge. And the reason I say that's still important is you get a deep understanding and the world is changing.

0:24It is said that those who cannot remember the past are condemned to repeat it. In a marketing world obsessed with the next big thing, we often suffer from collective amnesia. To understand where the frontier is moving, you have to talk to the person who, as much as anyone, has drawn the map of the last 50 years. So Martin Sorrell didn't just witness the globalization of the 80s or the digital revolution of the 2000s. He built the structures that defined them. And now he's doing it again in the age of AI. I'm Josh Vanya, VP of AI and Marketing Strategy at Google. and this is Frontier CMO. Today, Sir Martin shares why the CFO is finally driving AI adoption and why creativity is entering a new golden age.

1:08One note, Sir Martin's agency, Monks, works with Google Marketing. Here is my conversation with Sir Martin Sorrell.

1:19One thing I wanted to ask you about this, and this is kind of fun. It is related to the IPG Omnicom merger. We don't need to talk about the actual merger. But I was reading an article and you said of the merger, it's like two drunks leaning against the lamppost, propping each other up. Now, your reputation is as a financial architect, a business leader and architect, that is an incredibly evocative turn of phrase. And what I'm wondering is, did you make that up on the fly or did you have that in your back pocket and you just whipped it out ready?

1:55Sir Martin Sorrell:I was talking to a journalist. Now, actually, what I said was when the chill winds blow, people huddle together. Right. And I said, or you could say it's two drunks leaning up against the lamplest. So it was those two things, actually. They did print the first one, but they thought it was the second one was more evocative. That's the right word for it. I like it. Now, do you have others? Because is there any way I can get something equally brilliant out of you today? because I think that would be a fun thing to find. Oh, well, we'll see. Let's see how we go. I was just doing my research for this conversation and I was trying to work out when we first met and it turns out it was 1978.

2:39Sir Martin Sorrell:Really? I have known you my whole life. Yeah, so that's just a funny, I don't know if I have a longer relationship with anyone in advertising than you. So one of the things I was thinking about, and look, like it or not, You are a living legend. When the book on history is written, you are in it. A living legend in my own mind or my mother's mind? To the industry. There's a reason why we've invited you. That's why we want your opinion and people want to hear it. It's fascinating to think about the personalities and you shuttling around London and the world, engaging with all these luminaries of the industry today.

3:20But what can CMOs learn from David Ogilvie, from the Saatchi brothers, from Trevor Beatty and all these characters and brilliant marketers that you've worked with over the decades?

3:33Sir Martin Sorrell:This is a fundamental question. And the easy answer to your question is the power of marketing, the power of branding, the value it adds, the value creation around it. which I, at one level, I fear it's being lost. And at another level, to be blunt with you, I wonder whether times have changed. I mean, I really do, in my own mind, question whether the geographic changes that we're seeing at the moment, the fragmentation, and the technological changes that we've been going through probably since the new millennium with the internet, but it will precede that as well, I guess, but smartphones, AI, and then the gargantuan quantum computing changes that are coming down the pike.

4:38Sir Martin Sorrell:You know, I was at Google Zeitgeist, and you let us into, or Google took us around one of their quantum labs in Santa Barbara, And it's staggering to think about what's going to happen when quantum is finally implemented. Some people say it will take 10 years, but in the near future. So maybe all those lessons that you referred to, whether it's David Ogilvie, John Hegarty, the Saatchi brothers, whoever, all those lessons around the power of marketing the power of branding the importance of long-term brand building with consumers but not just with consumers with your employees with all the constituencies that you engage with in a business to business sense or in a government sense political sense social sense all that has become possibly less important I continuously come across people who are rootless in a digital distributed world that can operate virtually from anywhere and everywhere, who are not rooted to the spot as my generation was and my parents' generation was.

6:02Sir Martin Sorrell:and where value is created by coming up with ideas, building them, and then selling them. Because my dad said to me, find an industry that you enjoy. Find a company in that industry that you enjoy. And if your working life would be from 20 to 60, in his mind at that time, Obviously, it's different nowadays. But if at the age of 40, halfway through, once you've built a reputation, not a reputation where Josh Spani invites you to a podcast, but a reputation where people think you know what you're doing, maybe mistakenly, but think you know what I'm doing, then if you want to do something on your own, go off on your own.

6:52Sir Martin Sorrell:And when you're 40, go and do that. But my dad basically was talking about the value of long-term brand building, in this case, career brand building. The world is not long-term anymore. Average life of a CEO in a listed company where there's a separation between ownership and control, average life of a CEO might be four or five years. What I'm saying, Josh, is all the advice that those people would give us would be about the value of long-term brand building. And maybe the dynamics now are against that. And maybe the speed of technological change primarily, but also the fragmentation that we're seeing geographically, results in a totally different way of thinking about brand building.

7:42So who's doing that thinking as you see it? CMOs doing it? Are consultancies doing it? if there is a new paradigm, who's building it?

7:52Sir Martin Sorrell:It's a really interesting question. It's something that I've been wrestling with for the last year or so. Look at what's going on. I look at the S &P 500. I listen to a call, a Goldman trading call every week. They record it on a Friday, and they pull in all their people from all over the world, from China, from America, from Europe, and they talk about the economy. Now, one of the guys follows the S &P 500 earnings results. Q3, EPS was up 12%, helped by a weak dollar to some extent. But even if you exclude the hyperscalers, including Alphabet, EPS was up 9%. percent. Margins, all-time high. Capital is a proportion of GDP in the US, probably an all-time high.

8:47Sir Martin Sorrell:Labor is a proportion of GDP, all-time low. So you've got companies doing very well. And I look at agencies, and they're not doing very well. Why is it that the agencies are not doing as well as I think they should be? Because the tightest correlation that I've ever seen in my 40, 50 years of trying to do something in the agency space is the correlation between corporate profitability and agency revenues. If profits are strong, agencies by and large do well. Well, that's not the case at the moment. So what the hell is happening? I have a working theory. Can I run it by you? Go ahead. So I meet with a lot of chief marketing officers, a lot of marketers in my role, as do you.

9:30And And what's clear to me is that on the client side, we are expecting transformation. We are expecting a new business model. We are expecting AI upending the way we do business. And most of the agencies are still built upon legacy ways of working and legacy models and have not yet fully embraced, or if they are trying to, don't know how to even charge for these services. and the role of who does the work in this new landscape is very unclear. And I feel like customers, CMOs are looking to the future and agencies are built on quicksand at this point. So what do you think about all this?

10:13Sir Martin Sorrell:Yeah, I'm not with you on that. So let me tell you why not with that for a couple of observations. Firstly, I think the reason that agencies are going backwards is that the advertising revenues last year, The total industry was a trillion dollars. 700 billion of that was digital, of which Google is the largest, Alphabet's the largest part at 250, Meta 150, Amazon 60, TikTok 40. So that's growing at 10, 15, 20%. The other 300 billion, of which Warner Brothers Discovery is a part and a particularly important part because it doesn't have as much life support as the other ones. So it's going backwards.

10:56Sir Martin Sorrell:That 300 billion is going backwards by 5 % to 15%, depending on whether they own life sport or not. The problem for the agencies is they are rooted in that 300 billion. Even publicists publicly says 25 % of its revenues comes from traditional creative, which is under attack. So that's one observation I would make. So I think the fundamental reason is because the agencies, our agency holding companies, are still rooted in traditional, call it free-to-air network media. And that's why they're going backwards. Because if publicist is 25%, WPP is probably 40%. The other thing in relation to what you just said is, I would agree with you, but clients aren't implementing AI at scale.

11:49Sir Martin Sorrell:And I'm a member of a data digital design initiative at Harvard Business School, which is their AI sort of vertical run by Professor Karim Lakhani. And we've just been, there's a committee, a number of us have been on a committee for a couple of years as they established the institute and the AI practice, if you like, at Harvard Business School. And they were saying that what they see from their research, and they're doing deep research in AI, what they're seeing is enterprise not adopt AI, but you and I and consumers adopt AI significantly. And I think the fundamental problem, and we'll get more into this, is that clients, you're right, they do want a transformational model, but they're not like Google.

12:42Sir Martin Sorrell:They're not in the center of the AI universe, and they're wrestling with the implications. And the only places that I've seen wholesale adoption of AI at scale, I'm not talking about tests and audits and workshops, but at scale, are two verticals. Automobiles, where we've seen GM and BMW alter their model, BMW particularly in Europe, but GM globally, alter their model to adopt AI at scale. And you see the same thing in financial services. And in financial services, because of companies like Nubank, who we work for in Brazil, who are attacking the branch banking, traditional financial services business, that's an economic pressure that is forcing CMOs to look at their create costs and reduce their create costs as a proportion of media costs significantly as a result.

13:41When I meet with customers in my role, I get three questions in very quick succession. The first question is, how are you in Google marketing transforming with AI? The second is, what lessons and learnings have you found to be successful that we can basically borrow, steal. And then the final question is, how do I get my teams to actually use AI technologies? I think there is a hunger. I think there is a desire for customers across categories to lean into the AI world. S4 was named AI Agency of the Year a couple of years ago in some fancy war deal or one, but recognition of the progress you've made.

14:26Just give me your quick pitch on, I'm a CMO, I want to get the model of the future. How are you doing this with, say, General Motors, with Norm and them?

14:39Sir Martin Sorrell:I don't think we are going to get wholesale adoption of AI at scale unless there is economic pressure to do so. We've talked to a cloud supplier about sending a questionnaire to clients about what are your create costs as a proportion of media costs. Our view being, both the cloud supplier and myself, that they should be about 10%. And we've got numerous examples without naming names of clients who are spending 15 % of media costs, 20 % of media costs on create. And when we were talking about sending a survey to clients, We debated, should we send it to the CMO? And we said, no. Should we send it to the CIO, the CTO?

15:27Sir Martin Sorrell:We said, no. Should we send it to the CFO? And we said, yes. And when I recounted that at the D3 initiative just a couple of days ago, somebody at the table who's very financially orientated said, I totally agree. This is from a very big financial services company. I totally agree that the only time you will get traction is when you get engagement from the CFO to reduce costs. But I think it may happen, I'm not saying it will, that in 2026, the economic screw will tighten, and then you will get wholesale adoption. Growth is going to be more difficult to come by. So AI transformation becomes front and center.

16:13Sir Martin Sorrell:Two things you've got to do. is you've got to vary where you operate. In other words, you've got to pick your geographies very carefully or much more carefully than you used to be. And the second thing is technological change is going to drive you to be much more agile and responsive and proactive in your approach. In that world, slower growth, more inflation, higher interest rates, Growth is going to become more difficult to come by. And what you have to do is to make sure that you're super efficient, as well as operating in the right geographic areas. I have a slightly contrarian view and a more positive one about marketers.

16:57And one of the things that I'm seeing in the conversations I have, both inside of Google and with people across the industry, is that there has been a turning of the wheel and And the fear of AI has receded and the opportunity for creative brilliance to use Nano Banana and Flow. And creatives are loving the capacity for AI to allow them to imagine the impossible. And it's kind of exciting. And one of the things that I'm seeing is every time inside of Google Marketing, when we actually launch a AI first program and do something fun and inspiring, it actually lifts the whole floor or pushes the ceiling.

17:40And I'm hopeful that our industry is actually going to see the possibilities of better creativity, of more engagement with customers and different formats and styles, short form video on YouTube shorts and social shopping. And I actually think there's going to be a flourishing of creativity and that that's going to accelerate it. So I agree with you, the stick, the efficiency drive from CFOs is important. I kind of think that marketers are going to pull their socks up as well and embrace these technologies quicker than perhaps you're saying. I've worked with a number of incredibly inspiring individuals.

18:12And I think that's one of the reasons why you're being successful in the marketplace, that ability to inspire customers with what's possible. Could you just talk about the model for General Motors? I'm speaking with Norm in this podcast, and it's pretty fascinating.

18:28Sir Martin Sorrell:You're absolutely right about the creative side, a Nano Banana, whatever. I mean, I totally agree with that. But this is not about technological change. This is about change management. I think what you have to do is wholesale change. And that's what we've seen at GM. Okay. I mean, Norm is a highly analytical guy. And his approach at GM has been to take the four brands, GMC, Buick, Chevrolet, Cadillac, and have an upper funnel strategic agency. In each case, they have two stagwell agencies, some of them, Sunny and Anomaly, and then Mother and Preacher, Preacher being a spinoff of people from Mother.

19:14Sir Martin Sorrell:And they're the upper funnel. And we are the foundational agency, amongst the foundational agency, that takes the big idea, creates, produces, and distributes the assets at scale and the personalization at scale it may be easier with gm the what the the 19th largest advertiser in the world the 11th in the us so much more sort of us focused we've seen it with bmw in europe let me just ask what does at scale mean like how many units of output of creative for buick or cadillac in any given month at this point you could talk about millions. You could talk about millions. I mean, with Netflix, I think when we did Narcos or Squid Games, we might be talking about sort of, in theory, at least a million and a half assets potentially being used, probably don't use more than 50 ,000 to 70 ,000.

20:11Sir Martin Sorrell:But with AI-generated content, you can do it at even greater scale. So where we're seeing, the answer to your question is where we're seeing AI traction, because of that, in my view, those economic pressures at scale, it's on visualization and copywriting, compressing the time taken and the cost of producing content. And then secondly, personalization at huge scale. You are now able to personalize communications through the digital platforms to consumers individually tailored to their, using the signals from the platforms and first-party data, individually tailoring it. The third area where we're beginning to see it, but it's slower in terms of adoption, is media planning and buying.

21:03My view is very sharply that you won't need 250 ,000 people or thereabouts in the media

21:13Sir Martin Sorrell:planning and buying industry. 70 % of it already flows through your platforms and other digital platforms platforms. And that analysis can be done purely algorithmically. The media planning and buying industry is still a manual industry, at least in part, if not in whole. And that 25-year-old media planner or buyer hasn't got the mental capacity, no matter how brilliant he or she is, to devise all the alternatives. It has to be done mathematically or by computers. So that industry, from an employment point of view, is going to shrink. The outputs, however, will be even more effective. And digital is 70 % today.

22:03Sir Martin Sorrell:By 2030, probably be 80, 85%. So huge concentration of digital media planning and buying with the platforms. And with the investment that you're making and the other hyperscalers are making, which next year will be 530 billion, this year probably 470 billion, so half a trillion each year being pumped into AI capacity and data capacity and compute capacity. That position is likely, in my view, to strengthen. So let me bring this down a level. And it's so fun talking with you because you have this global perspective. If you're a CMO today, you mentioned norm being analytical. You mentioned some of the creative leaders you work with in long-term brand building.

23:00But what are the three or four skills, attributes, behaviors that a great marketing leader needs to have now or be developing to survive and thrive in the next five years?

23:14Sir Martin Sorrell:Okay, so they've got to have the strategic chops. They've got to have the creative chops that you referred to when you were talking about the Saatchi brothers or David Ogilvy or whoever it happens to be. But they've got to have a couple of other things. Well, a few other things. Firstly, they've got to have deep, I think, cultural sensitivities or knowledge. You know, I would put it, when people say, what should young people do? I would say, learn Chinese or Spanish. And the reason I say that's still important is you get a deep understanding. And the world is changing. I mean, whether America likes it or not, and probably the answer is not in general, it's a G2 world.

24:03Sir Martin Sorrell:And the economic power is shifting to the global south. So you're going to have deep cultural sensitivities. You've got to have a deep understanding of the importance and power of data, first party data and the signals from your platforms and from others. And you've got to have a deep understanding of technology. So the balance, whereas before strategic and creative were critically important, I would add to that this sort of cultural sensitivity, if that's the right way of putting it. All those things make sense. Let me just ask about you personally. You have lived through experience, led these epochs and eras of marketing and transformation, and you're leading into the next one, this current one.

24:50How do you follow technology? Is it just finding the right people to speak to? Is there, I mean, you mentioned this Goldman call, which sounds kind of fascinating. I don't know whether you need to be a CFO to understand it, but how are you staying abreast of all this unbelievable change?

25:04Sir Martin Sorrell:I think you had to absorb as much as you possibly can, Josh, from all sources. I mean, you've got to talk to people, fill your day. You know, when you get up in the morning, fill your mind with the news. The answer is continuously absorb. But the difference now is I absorb much more visually and I absorb much more verbally. So talking to as many people as you possibly can, you know, filling your day with interactions and different points of view is critically important. And looking at sources that you might even be sort of disturbed by or politically or socially, you might not have thought of doing it.

26:01Sir Martin Sorrell:So being willing to absorb it from all different angles. I mean, at the heart of what we do, what's interesting about the ad business still, despite all the challenges, what really makes it fascinating is you are at the center of all these geographical and technological changes. in the course of a day, and we're not a huge company, a billion-dollar company with 6 ,500 people in 33, 34 countries, but you see in the course of a day or a week or a month or a year or whatever, all the forces that are playing out both geographically and technologically. When I started at Sarch's, it was about Manhattan Landing and the British Airways commercials and Maggie Thatcher, you saw how advertising influenced industry and politics and primarily geography.