Are We Witnessing the Enshittification of the Agency Holdco?

I read the interview with Mark Read in AdWeek, following the weak earnings results for Q4 and 2024 as a whole, and was drawn in particular to the reference to principal buying, and more ‘media products’ as being a growth opportunity for WPP.

The concept of enshittification, as coined by Cory Doctorow, describes the degradation of platforms or services as they prioritise profit over user experience, leading to a decline in quality and trust. 

WPP's adoption of Principal Media trading exemplifies this phenomenon, reflecting a shift from client-centric services to profit-driven strategies that may ultimately harm both the company and the industry. Now the profit motive isn’t de facto going to lead to the demise of WPP, but the short term horizon that they - as a publicly listed business - need to show results against, is leading to decisions that could severely damage their future fortunes.

Principal Media as a Profit-Extraction Mechanism

Traditionally, media agencies acted as intermediaries, securing (or trying to) the optimal media selection for clients based on effectiveness and pricing. Principal Media trading alters this dynamic by having agencies purchase media inventory themselves and resell it to clients at a markup. This practice introduces several issues:

Conflict of Interest: Agencies may prioritise media deals that offer higher margins over those that best serve the client's interests, compromising the quality of media planning.

Reduced Transparency: Clients may remain unaware of the actual costs of media placements, undermining trust and informed decision-making.

Nick Manning, co-founder of Manning Gottlieb Media, and more recently of Advertising, Who Cares?, is an eloquent critic of the practise. Highlighting that it perpetuates an unhealthy oligopoly in advertising, limiting genuine competition and innovation. 

“In former times, the supply-chain was short and the media agencies strove to make the clients’ money work as hard as possible. But the balance has tipped over from being demand-led to supplier-driven. That means that the big media agency groups have become part of the supply-side, selling so-called ‘products’ to their clients at inflated and undisclosed prices.”

The Degradation of Trust and Client Experience

The adoption of Principal Media aligns with the stages of enshittification:

Initial Stage: Agencies provide transparent, strategic media planning, optimising client investments.

Intermediate Stage: Introduction of profit-driven practices like Principal Media leads to opaque pricing and potential conflicts of interest, benefiting shareholders at the expense of clients.

Final Stage: Erosion of trust prompts clients to seek alternatives, such as in-house media buying, resulting in revenue declines for agencies.

Nick warns that Principal Media invites advertisers to accept short-term cost reductions at the expense of transparency, damaging long-term relationships. 

Shareholder-Driven Decision Making

WPP CEO Mark Read's emphasis on Principal Media as a growth strategy indicates a shift towards shareholder interests over client satisfaction. This mirrors the enshittification trajectory observed in platforms like Meta and Amazon, which initially focused on user value before maximizing profit extraction. Such a shift can lead to:

• Erosion of Client Trust: Clients may feel their interests are secondary to agency profits, leading to dissatisfaction.
• Industry-Wide Implications: As major holding companies adopt similar practices, the entire industry risks a decline in ethical standards and effectiveness.

The Risk of Long-Term Decline

The pursuit of short-term profits through Principal Media can result in long-term negative consequences:

• Client Attrition: As transparency diminishes, clients may seek more trustworthy partners or internalize media functions.
• Regulatory Scrutiny: Opaque practices could attract regulatory attention, leading to potential sanctions and loss of reputation.
• Industry Degradation: Widespread adoption of such practices may lower overall industry standards, reducing the quality and effectiveness of advertising services.

Is it Enshittification?

WPP's open embrace of Principal Media exemplifies enshittification by:

1. Delivering Initial High Value: Establishing trust through client-focused services.

2. Introducing Profit-Extraction Mechanisms: Implementing practices that prioritise agency profits. Over client success

3. Degrading Client Experience: Reducing transparency and compromising service quality.

4. Facing Long-Term Decline: Risking client loss, regulatory action, and industry deterioration.

In summary, WPP's shift towards Principal Media sacrifices long-term client trust for short-term shareholder gains, reflecting a pattern of enshittification that could lead to broader industry challenges.

Now, it’s worth noting that companies that have been called out for enshittification previously, Meta, Amazon et al, haven’t crumbled to dust because they’re maximising shareholder returns. In fact some companies enshittify but continue to dominate because they control network effects, monopolies, or essential services. But none of this serves client interests. Which is what agencies should be doing if they want to thrive.