It's just July, and there are all indications that the advertising industry could be in AI winter cusp.
An unexpected profit warning from WPP dropped advertising agency shares by up to 18% on Wednesday. Shares in rival ad groups, including Omnicom, Publicis, IPG and Havas, were also down.
WPP said client losses amidst economic uncertainty, slowing down new business pitches and attention from marketers with pressure meant that performance from the start of the year was worse than expected. We expect annual revenue to decline between 3% and 5% for 2025.
While some of WPP's suffering is unique to the company, analysts and other industry insiders told Business Insider that the ad groups face challenges that apply to the advertising agency market.
Madison Avenue is working on the advent of AI. This technology not only helps clients understand how to apply it to their business, but also offers opportunities for institutions as it could streamline many of the services they offer, such as creating and placing advertisements. These productivity gains also threaten to overturn traditional agency business models that charge hourly rates.
In Wednesday's trading update, WPP's leaving chief executive Mark Reid said the new business pitch so far in 2025 is one-third of the same level last year. Readers said this reflects marketers' trust level given the long-term macroeconomic uncertainty. He added that the new business opportunities there tend to be smaller than usual. Confusion did not respond to requests for comment immediately.
Independent media analyst Alex DeGroote told BI that the sharp decline in the new business pitch could be a sign of corporate clients replacing several agency services with AI solutions that can be used internally.
Related Stories
Business Insider tells the innovative stories you want to know
Business Insider tells the innovative stories you want to know
“The impact of AI on new businesses on the internet is difficult to quantify, but it is a clear negative risk in our view,” DeGroote said.
Last month, Barclays analysts downgraded shares in WPP, IPG and Omnicom, citing immediate risks to the agency business brought about by artificial intelligence.
WPP CEO leaves and his successor inherits many challenges
Advertising agencies are not letting the AI wash them without fighting. The largest groups of institutions, such as Publicis and Omnicom, have pledged to invest in hundreds of millions of AI over the next few years to adapt their businesses to utilize technology.
“Advertisers and AdTech companies thrive on complexity and fragmentation. If advertising is considered difficult to do well, they can charge a premium, whether directly or burned into their own products.”
AI is a “Just Work” interface, which is a problem for advertising companies, O'Kelley added. He added that the rise of AI search is reducing traffic to publishers and brands' websites and presenting challenges for brands seeking to communicate their messages through online advertising.
UK headquarters WPP said it plans to invest around £300 million a year in AI and other technologies. Recently, we announced our investment in Stability AI, a developer of stable diffusion for AI image generators. And it prioritizes WPP openly AI-equipped platform This helps employees do market research, spin up media plans and create campaign assets Use Generation AI.
“WPP has a cutting edge strategy for every holding company, but clients and investors aren't waiting for the transformation to end,” O'Kelley said.
WPP has lost major clients during the recent recession, such as Pfizer and Coca-Cola's North American accounts. The company has created a wave of restructuring to make it more competitive, like the recent fusion of media agency brands to become WPP media, but the changes and the resulting layoffs “come with distractions to the business,” he said Wednesday.
It goes without saying that it distracts Read itself, who announced in June its exit from WPP with the company for over 30 years. The successor has not been named yet.
Meanwhile, Publicis Groupe is flying high, surpassing the new business league of advertising agencies. Analysts at Barclays, who recently downgraded other agency groups, maintained their ratings on Publicis, citing their strong performances recently.
Elsewhere, rivals Omnicom and IPG will merge to create the world's largest ad group. This is the movements of the two seismic industries that have dropped by the WPP.
“It is clear that more needs to be done to turn the future of WPP around, and while the hunt for new CEOs continues, it is unlikely that WPP will regain its crown as the world's largest advertising agency.”
