64 Business Digital advertising
Doesn’t ad up NEW YORK
The advertising industry’s trust problem
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DVERTISING WEEK, an annual stretch of industry meetings that began on September 26th in New York, is usually defined by schmoozing and self-congratulation. This year’s event has been marred by suspicion. In the week leading up to it, Dentsu Aegis, a big agency, admitted overbilling by its digital-ad division in Japan; and Facebook, a tech giant, said it had inflated the average time people spent watching video ads. Such revelations have reinforced existing concerns among advertisers that they are having the wool pulled over their eyes when it comes to online advertisements. At an Advertising Week panel on “trust” on September 28th, Bob Liodice, the chief executive of the Association of National Advertisers (ANA), spoke of broad doubts among his members. It was not meant to be like this. Half of an advertiser’s budget is wasted, says the industry’s favourite truism, but no one knows which half. Digital ads were supposed to help. Cookies and other tags would direct the right advertisements to the right people, based on their activity online. Digital tools would track which ads inspire consumers to buy products. Indeed, on September 21st Facebook announced new methods to do just that. But as advertisers have gained greater control in some respects, they have lost it in others. One fear is practical: that they are paying for online ads that consumers don’t see, either because they are shown to robots, or tucked in obscure slots. Two underlying concerns are harder to address. The first is that Facebook and Google
They drink but you still can’t trust them
The Economist October 1st 2016 have simply become too dominant. Last year the pair accounted for more than 75% of online-ad growth in America, according to Mary Meeker of Kleiner Perkins Caufield & Byers, a venture-capital firm. “Google and Facebook have added a lot of value to our marketplace,” says Mr Liodice. “They also raise concerns.” Marketers are particularly worried by a lack of transparency. Facebook’s inflated numbers did not lead to overbilling, but may have prompted companies to advertise more on it. Google and Facebook have started to allow third parties to verify some data, but many metrics remain proprietary. The second concern is that ad agencies are not acting in their clients’ interests. In Japan, “clients are sort of at the mercy of the ad agency,” says Jason Karlin, who studies the industry at the University of Tokyo. In America an investigation backed by the ANA found that agencies were buying ad space and reselling it to clients at markups ofup to 90%. Some agencies were also collecting undisclosed rebates from media firms for buying ad space. The agencies’ trade group, the 4As, blasted the report as “one-sided”. There are glimmers of change. The ANA has devised a model contract to protect its members’ interests. The recent outcry may prompt Facebook and Google to be more open. Facebook says it will let third parties measure how long a viewer sees a display ad, though the company has yet to set a date. Some are even prepared to vote with their feet: one agency executive has two multinational clients that have already cut their spending on Facebook. Yet marketers will not abandon Facebook or Google; they are too big. Nor will firms give up on agencies. In Japan Dentsu’s grip on media and advertising is too tight; everywhere, marketers depend on agencies to navigate advertising’s complexity. So mistrust will persist. “You’re either a cynic,” says Brian Wieser of Pivotal Research Group, which analyses the industry, “or you’re not paying attention.” 7
Europe’s outposts
Not always in clusters TUAM
The allure of manufacturing out in the sticks
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RELAND’S Atlantic coast is sheep-rearing and pilgrim country. The drive to Tuam, a modest town of 9,550 residents, reveals mostly lush fields, low hills, stone walls and mist. Yet this unlikely spot has a hitech industrial side. Off Tuam’s main road a bunch of warehouses contains some 400 software engineers, researchers and artificial-intelligence experts, drawn from 35 countries. Next door is a manufacturing plant employing 650 people churning out circuit boards, cameras and sensors for driverless cars. The set-up in Tuam is operated by Valeo, a French car-parts firm with a market value of €12 billion ($13.4 billion), which brought in €500m in sales last year from producing 100m such products globally. Tuam is “our biggest R&D centre for surround cameras, with huge production capacity”, says Jacques Aschenbroich, the firm’s CEO. Tuam has also become Valeo’s global mother plant, overseeing its sensor factories in Hungary, Mexico and China. What possessed the French firm to keep such operations in a spot so far from customers such as BMW, Range Rover and Google, away from big pools of labour, and a lengthy drive from Dublin? History is one answer: in 2007 Valeo bought Connaught, a successful local firm making cameras for cars, and preferred to expand there rather than move. Fergus Moyles, who runs things in Tuam (and managed the old firm), says that attracting talent is not hard. Nearby Galway University offers useful ties. Property prices are low, which appeals to foreign engineers, for example from India, who intend to save while in Ireland. Land prices help when building new facilities. Setting up shop in a remote location like Tuam runs counter to conventional thinking about the gains from industrial clusters. But Valeo is not the only firm to see benefits from sticking operations in remote spots. Turbomeca, the helicopter-engine unit of Safran, a big French defence firm, is based in the Pyrenees on the French-Spanish border. That location, Bordes, with just 2,700 residents, makes Tuam look like a metropolis. Again, history explains the initial choice of location: Turbomeca was founded pre-war, then moved to a remote spot to avoid invading Germans. Being in the boonies means sympathetic local officials and staff who are extremely loyal. For high-end manufacturing firms that rely on highly skilled workers, a location with an appealing climate, good housing 1