WPP sees AI as a deal winning capability, but warns that clients want work that’s “copyright-proof”

Derek du Preez Profile picture for user ddpreez February 23, 2024
Summary:
WPP’s share price dipped upon release of its full-year results, as the advertising giant faced a challenging year in 2023. However, it sees plenty of opportunity with its AI and data strategy.

An image of an AI generated picture, which features lots of bright colours and shapes
(Image by Tomislav Jakupec from Pixabay )

One of the world’s largest advertising companies, WPP, is betting a lot on Artificial Intelligence (AI), data and technology investments, with CEO Mark Read claiming that AI will be a client winning capability in the years ahead. However, 2023 was a challenging year for the firm as it experienced a slow down in sales and faced increased costs, as it invested in new capabilities as part of its transformation strategy. 

The company’s share price dipped upon the release of its full-year results, with revenue for the full year (less pass-through costs) standing at £11,9 billion, reflecting a like for like rise of 0.9 per cent. This is a slowdown on the prior year, as WPP saw reduced spend in Q4 in the US (its largest market) from its technology, healthcare and retail clients. 

In addition to this, WPP incurred restructuring and IT-related transformation costs of £196 million. However, the company said that beyond 2024 it expects to realize structural and efficiency savings, and greater operating leverage, as its investments in AI and its AI platform, WPP Open, take hold. 

Separately, CFO Joanne Wilson said that the company’s restructuring costs for its ERP program have declined to £52 million in 2023 and that it expects the bulk of its ERP consolidation to be completed by 2026 

Using AI for creative work

However, the bulk of WPP’s earning call was taken up by questions regarding the company’s AI investments, where it has partnered with the likes of OpenAI, Google Cloud and NVIDIA, to change the way that it generates content for its clients and the way that its staff work on campaigns. 

diginomica recently spoke with WPP CTO Stephan Pretorious about the company’s AI plans, where he said that the advertising giant had created a framework for generative AI that focuses on three core use cases: inspiration, automation and optimization. You can read the discussion in full here, but Pretorious highlighted one example that is seeing WPP automate information collection for client briefs that typically took three to four days. 

During the company’s earning call this week, CEO Mark Read spoke more about WPP’s AI and data strategy. Commenting on the ambition, he said:

The impact of AI on our business model…it's early days, but we do see opportunities for our investments in AI to lead to  improved growth and better financial performance. 

We see the ability to earn technology license fees in areas such as commerce, production, and media from WPP Open. Secondly, we have the ability to help our clients embrace AI, offering them consulting projects to use AI, as well as technology projects with AI embedded with it.

Speaking to industry fear that AI will replace people’s jobs, particularly those working in creative fields where the introduction of generative AI could mean that the cost of creating content could effectively approach zero, Read said that this isn’t the ambition at APP. He added: 

We also see how AI can help to drive improvements in the effectiveness of our work. It can augment, not replace roles, to make people more productive and we will see the AI-augmented work is driving better ROI for our clients. 

AI will also offer the ability to develop new business and financial models and to accelerate the shift away from hours-based compensation to remuneration more linked to results, particularly in areas such as commerce, media, and production, where a meaningful percentage of our remuneration today is already non-hours-based. 

And lastly, we see the ability of AI to make us more efficient to reduce our back-office costs and to improve profitability. 

Winning business

During the analyst Q&A, Read was asked about OpenAI’s recently announced Sora - a generative AI tool that lets users create realistic videos from text - and whether or not he believes it could have an impact on WPP’s business (presumably because it could allow clients to generate their own video content at a low cost point). However, Read doesn’t believe Sora is a threat. He said: 

Look, I think it's impressive. At one level, that shouldn't be a surprise, but it does remind us of the speed and pace at which innovation is taking place in AI. 

I don't think it changes our strategy and I think it reinforces what we are doing. What clients need is work that's copyright-proof. [Work that] accurately represents their brands and reality. And Sora is not yet at that stage.

And I think as we showed at the Capital Markets Day, our strategy is very much to work with these models and work with the technologies out there but adapt them to use them for our clients and apply our understanding of brands and marketing and creative work to direct them in ways that are most effective for clients and I think that shows what we can do.

We've shown examples to you in the past of work that we're doing with NVIDIA. We were again mentioned in NVIDIA's earnings call yesterday as one of their key strategic partners in this area, to deliver video using AI - and I think that's sort of a direction in which clients will go - [one that’s] copyright-safe. 

And looking to the future, Read is assertive in his belief that WPP’s AI partnerships and investments will lead to deals being one, as prospective clients look for advertising and creative partners that can speak to how best to utilize AI in campaigns. He added: 

I expect AI to be a big focus of reviews, looking to see who is best positioned to partner with them on that in the future. I think in each of those cases, we have a strong case to make. In our industry, as you know, this is competitive and we won't win them all, but we're absolutely focused on winning.

My take

Perhaps not the best set of results for WPP, but the company saw significant investment costs during the year as it seeks to capitalize on changes in the market, as well as tough market conditions. That being said, it’s compelling that WPP is going head first with AI - rather than waiting to see how things play out elsewhere. If this works out, it could be a real differentiator for the giant. Time will tell and we will be keeping a close eye on future performance. 

Loading
A grey colored placeholder image