In his talk at L2’s Digital Leadership Academy, Scott Galloway argues that advertising is becoming less essential to brand building as consumers are discovering products with tools like Google, Amazon, and TripAdvisor. The brand is no longer on the tip of the tongue, it’s what Google says it is. Furthermore, wealthy shoppers are paying to avoid advertising altogether. However, it is not all bad news for brands even though it might be for traditional ad men (appearing less and less often on the cover of BusinessWeek). Winners in this new age are not always the biggest spenders on ads, but innovators in product, supply chain, and influencers. Scott Galloway: https://www.linkedin.com/in/profgalloway L2inc: https://www.linkedin.com/company/l2-inc-

1. DEATH OF THE ADVERTISING
INDUSTRIAL COMPLEX
SCOTT GALLOWAY | DIGITAL LEADERSHIP ACADEMY | JULY 13, 2016
@PROFGALLOWAY

2. 2
December 4, 2014–May 4, 2016
Amazon Stock Appreciation
“AMAZON WILL DECLINE IN VALUE”
Source: Google Finance
JAN 20
DLD Talk

3. We get it wrong all the time.

4. THE NEW ORDER

5. 5
THEN VS. NOW: THE ROLE OF BRANDS

6. 6
80%
58%
67%
47%
61%
40%
37%
28%
Fashion Brand Jewelery Brand Luxury Hotel Retailer
 2007/8  2014/15
USA, Top 5% by Household Income (HHI)
Percentage of Affluents Who Can Identify a “Favorite” Brand
SUN HAS PASSED MID-DAY ON BRAND
Source: YouGov & Time Inc., April 2015.

7. 7
October 2015
Percent of Respondents
USA: Sources Used to Research Products Prior to Purchasing In-Store
DUE DILIGENCE WEAPONS
Source: Salesforce, “2015 Connected Shoppers Report,” conducted by The Harris Poll, November 2015.
56% 55%
46%
16% 18%
Online-only Retailers
(e.g., Amazon)
Retailer Sites Brand Sites Social Media Don't Research Digitally
Before Going to Stores

8. 8
NEW PATH TO DISCOVERY

9. 9
1998–2013
USA Cable Prices vs. Inflation
RIPE FOR DISRUPTION
Source: FCC, Bureau of Labor Statistics.
Cost of Cable
$27.88 $39.85
1998 Cost Adjusted for Inflation
Cost of Cable
$64.41

10. 10
◼ Subscribe to Video Streaming Service ◼ Plan to Cut Cord ◼ Subscribe to Cable/Satellite Service
n=30,000+ Online Consumers Across 63 Countries, Q3 2015
TV and Video Subscription by Age Group
CORD CUTTERS ARE YOUNG…
Source: Nielsen.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Generation Z
15–20
Millenials
21–34
Generation X
35–49
Baby Boomers
50–64
Silent Generation
65+

11. 11
2014–2015
Change in Viewership of Top 25 Cable Networks
VIEWERSHIP IS DOWN
Source: Nielsen.
-25% -25%
-23%
-20%
-19% -19%
-18%
-15% -15%
-14% -14%
-12% -12%
-9% -9%
-8%
-7% -7%
-4%
-1%
2%
3%
8%
9%
15%
HIST
A&E
MTV
Comedy
USA
TLC
FX
SYFY
NAN
FAM
TNT
BRAVO
Spike
TBS
VH1
ESPN
LIFE
Disney
FOOD
ADSM
E!
DISC
HGTV
AMC
TOON

12. 12
◼ Q2 2013 ◼ Q2 2014 ◼ Q2 2015
United States, 2009–2015
Total Subscribers, Cable Companies vs. Internet Video Providers
AFFLUENTS PAY AND AVOID
Source: Pacific Crest.
0
20
40
60
80
100
120
Cable Companies Netflix, Amazon, Hulu
-1% CAGR
30% CAGR
SUBSCRIBERS,MILLIONS

13. 13
CHANGING THE GAME

14. 14
◼ Offers Video Advertising
March 2015
Percent of Respondents Who Use On-Demand TV Services
ON DEMAND REACH & GROWTH
6%
8%
9%
11%
12%
15%
16%
19%
25%
38%
GoogleTV
AppleTV
iTunes
Authenticated Service
Hulu Plus
Hulu (free)
Netflix DVD Plan
Amazon Instant Video
TV shows (free sites)*
Netflix Streaming
Service Provider
No change
60bps
(150bps)
20bps
170bps
(110bps)
(190bps)
40bps
(270bps)
470bps
2014 vs. 2015 YOY
Source: Morgan Stanley Research
*Note: TV shows on free sites include network sites (ABC.com, MTV.com, etc.)

15. 15
June 2016
USA, n=1,200 Netflix Users
Percentage of Users Who Would Cancel if Netflix Started Showing Ads
WHY?
Source: All Flicks, June 2016
No, Would
Not Cancel
26%
Yes, Would
Cancel
74%

16. 16
Meerkat
Periscope
Embedded
Video Player
Removal of
Tap-and-Hold
to Watch
400 Hours
of Video Uploaded
Every Minute
Maximum
Video Length
to 30 Seconds
360 Video
Boomerang
YouTube Red
2016
Live Video
Embedded
in Twitter Feed
Video Views Counts
Extended
Video Length
to 60 Seconds
Facebook Live
Ecommerce Ads
Video Carousel Ads
Pre-Roll Video Ads
on Instant Articles
Removed Pic/Video
from Character Limit
Video Comments
on Video Pages
Advertising API
2014–2016 Video Launches
SOCIAL TAKES ON TV2014
Video Auto-Play
Our Story
Live Rail Acquisition
Hyperlapse and
Promoted Video Ads
Video View Counts
Google Preferred
2015
Native Video Upload
Discover

17. 17
43% 42%
13%
6%
3%
-5%
-10%
0%
10%
20%
30%
40%
50%
Video Social Media Search Display TV Print
Print
2014–2015, in Billions
YOY Change in Media Ad Spending Worldwide
SHIFTING AD BUDGETS
Source: eMarketer, 2015.

18. 18
2009–2015
Monthly Active Users of Major Browser Ad Blocking Extensions
Global Ad Blocking Growth
AD BLOCKING ON THE RISE
Source: eConsultancy, 2015.
198M

19. 19
Advertising Revenue vs. Subscription Revenue, 2015
% of Total Revenues by Source
SURVIVAL INDEX
Source: Company Reports, L2 Analysis.
Company Ad Revenue Subscription Revenue
Viacom 38% 37%
The New York Times 40% 54%
Time Inc. 53% 34%
Gannett 56% 37%
Scripps 68% 37%

20. 20
$50M’15 Annual Revenue
90MUnique Monthly
Visitors
$0.55
per User
=
SPARE ME
Source: “Some facts about Business Insider’s acquisition by Axel Spinger,” Mathew Ingam, Fortune, September 29, 2015.

21. 21
$198M’15 Digital Ad Revenue
75M‘15 Unique Global
Monthly Visitors
$2.64
per User
=
SPARE ME
Source: Company Filings and NYTimes.com

22. 22
AD REVENUE IS LOW
$3.1M’15 Avg Episode
Ad Revenue
7.2M‘15 Viewers
$0.43
per Viewer
=
Sources: Nielsen Ratings and Variety.

23. 23
PRICE OF FREEDOM
The price of freedom is only $2.99

24. 24

25. 25
RESPONSE

26. WHO DOES
THIS HURT?

27. 27
Advertising Industrial Complex
VICTIMS

28. 28
USA
Total National Ad Spend as a Percentage of GDP
ADVERTISING ≠ GROWTH BUSINESS
Sources: REDEF, The Economist, eMarketer. U.S. Bureau of Labor Statistics.

29. 29
◼ Auto ◼ Beauty & CPG
Top 10 Advertisers by Spend, USA
SOME THINGS NEVER CHANGE
Source: AdAge Datacenter.
Rank 1956 1999 2010 2016
1 General Motors Co. General Motors Co. Procter & Gamble Co. Procter & Gamble Co.
2 Procter & Gamble Co. Procter & Gamble Co. AT&T AT&T
3 General Foods Corp
(now Kraft Heinz Co.)
Johnson & Johnson General Motors Co. General Motors Co.
4 Ford Motor Co. Philip Morris Cos. Verizon Communications Comcast Corp
5 Chrysler Co.
(now Fiat Chrysler)
Ford Motor Co. American Express Co. Verizon Communications
6 Colgate-Palmolive Co. Pfizer Pfizer Ford Motor Co.
7 General Electric Co. McDonald's Corp. Walmart Stores American Express Co.
8 Lever Bros.
(now Unilever)
Tricon Global Restaurants Time Warner Fiat Chrysler
9 National Dairy Products Corp.
(now Kraft Heinz Co.)
DaimlerChrysler Johnson & Johnson Amazon
10 Distillers Corp.-Seagram’s Ltd.
(now Diageo and Pernod Ricard)
WorldCom L'Oréal Samsung Electronics Co.

30. 30
◼ GM ◼ Ford ◼ Procter & Gamble
1995–2015
USA Net Sales as a % of USA GDP
PULLING LESS WEIGHT
Sources: Company Filings and World Bank.
Note: GM numbers are based on total North America sales.
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1995 2005 2015

31. 31
◼ Apple ◼ Samsung
Advertising Expense as Percent of Revenue
APPLE VS. SAMSUNG
Source: Company Filings.
1.2%
1.1%
0.9%
0.6% 0.6% 0.7%
2.0%
2.1%
1.8%
2.4%
1.8% 1.8%
2009 2010 2011 2012 2013 2014

32. 32
◼ Apple ◼ Microsoft ◼ BlackBerry ◼ Samsung ◼ HTC ◼ LG ◼ Lenovo+Motorola ◼ Sony
2010–Q3 2015
Global Smartphone Operating Profit Share
APPLE DOMINATES
-20
0
20
40
60
80
100
2010 2011 2012 2013 2014 2015
Source: Canaccord Genuity, 2015.

33. 33
USD Billions
Apple: Future Minimum Lease Payments Related to Retail Space
REALLOCATION OF CAPITAL
$1.5
$1.7
$2.4
$3.1
$3.5 $3.6 $3.6
$3.9
2009 2010 2011 2012 2013 2014 2015 2016*
Source: Company Filings.
*Note: 2016 reflects 10-Q reporting, as of April 2016.

34. CPG

35. 35
90%
Lost share
33%
75%
Trailing 12 months, June 2015
Performance of Top 100 CPG Brands in the USA
TRADITIONAL ADVERTISING ≠ SUCCESS
Source: Catalina Marketing.
68%
Declined in Sales

36. 36
■ Top 100 CPG Brand Growth ■ Category Growth
52 Weeks Trailing, June 30, 2015
Growth of Top 100 CPG Brands vs. Overall Category Growth
FALLING GIANTS
Source: Catalina Marketing.
-1.6%
-0.3%
-5.5%
0.1%
1.5%
0.7%
-5.5%
5.0%
5.9%
2.4%
9.4%
7.3%
8.1%
5.7%
BABY CANDY
/SNACK
CEREAL COFFEE DAIRY BEAUTY PET

37. 37
Startups “Unbundling” P&G
UNDER ATTACK
Source: CB Insights.

38. 38
◼ Pampers ◼ Huggies ◼ Honest Company
USA Indexed Search Volume, 2004–June 2016
Google Trends: Search Popularity Over Time
HONEST COMPANY > PAMPERS
Source: Google Trends.

39. 39
◼ Dollar Shave Club ◼ Gillette ◼ Harry’s
January–December 2015
Monthly Search Volume for Brand Term
GILLETTE ALREADY TRUMPED
Source: Google.
0
100,000
200,000
300,000
400,000
500,000
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
MONTHLYSEARCHVOLUME

40. 40
EV/EBITDA Multiple
RECURRING REVENUE
Source: Yahoo Finance, accessed June 16, 2016.
33.1
22.9
16.1
13.3
11.8 11.5 10.7 10.4 10.2 10.1
Adobe Gartner Forrester Accenture Dish
Network
CEB IPG Cablevision WPP Omnicom

41. 41
"The brands that grew the most in 2014 were also very low [advertising-and-
promotion] intensive like Urban Decay, like Kiehl's, etc. ...
NYX has no media. Kiehl's has no media. Urban Decay has no media.”
– Jean-Paul Agon, L’Oréal

42. 42
Q1 2015 vs. Q1 2016
Market Share Changes, Top 10 USA Premium Makeup
WHERE’S THE GROWTH?
ELC Top 15 Makeup Brands
MAC ▽-1.5
Clinique ▽-1.1
Estée Lauder ▽-0.6
Bobbi Brown ▽-0.3
Smashbox △+0.1
▽-3.4%
Top 15 Makeup Indies
Anastasia
Cosmetics
△+1.5
Tarte △+1.0
Too Faced △+1.0
△+3.5%
Other Makeup Top 15
Urban Decay △+0.7
Lancôme ▽-0.6
Benefit ▽-0.2
Bare Essentials ▽-1.3
Chanel ▽-0.4
NARS 0.0
▽-2.5%

43. 43
SKINCARE MORE OF THE SAME
OF THE TOP 10 PRESTIGE SKINCARE BRANDS ONLY
ONE – KIEHL’S – GAINED SHARE…
THE OTHER NINE WERE DOWN -2.9%

44. 44
Q1 2015 vs. Q1 2016
USA Premium Skincare Market Share
LONGTAIL SHARE GROWTH IN SKINCARE
*Other Tracked = Brands with >.1% Market Share; Other–Not Tracked = Brands with <.1% Market Share
Q1 CY 2016Q1 CY 2015
Estée Lauder
Companies
35%
L'Oréal
15%
Other:
Not Tracked
13%
Other:
Tracked
37%
Estée Lauder
Companies
37%
L'Oréal
16%
Other:
Not Tracked
11%
Other:
Tracked
36%

45. 45
Percent Change 2014 vs. 2015
Top-10 US Beauty Industry Advertisers, by Traditional Media Ad Spend
DECREASING AD SPEND
Source: Kantar Media, April 2016.
2014 2015 % Change
1 L’Oréal 1,346.8 1,198.3 -11.0%
2 P&G 799.6 572.2 -28.4%
3 J&J 389.6 389.0 -.2%
4 Unilever 398.3 266.6 -10.6%
5 Estée Lauder 222.8 244.4 +9.7%
6 Genomma Lab 88.5 167.7 +89.5%
7 Coty 199.9 165.5 -17.2%
8 Revlon 164.9 153.2 -7.1%
9 LVMH 109.8 114.5 +4.3%
10 Kao 102.1 103.2 +1.1%
TOTAL $4,698.9 $4,508.0 -4.1%

46. 46
Beauty: Share of Total Instagram Interactions vs. Posts
SO WHAT ARE THE WINNERS DOING?
Source: L2, Inc. Digital IQ Index®: Beauty, 2015.
Tarte
8% Benefit
Cosmetics
7%
NYX
7%
MAC
Cosmetics
7%
Too Faced
Cosmetics
6%
Anastasia
Beverly Hills
34%
Other
31%
Share of Interactions
n=52,722,360 Interactions
Share of Posts
n=3,320 Posts
Anastasia
Beverly Hills
8%
Tarte
5%
Kat Von D
5%
Butter
London
4%
Benefit
Cosmetics
3%
e.l.f.
Cosmetics
3%
Other
72%

47. 47
Kiehl’s and ABH Reinforcing Tight Brand Codes Through Influencers
WORKING WITH INFLUENCERS

48. 48
PRODUCT INNOVATION = ON TREND

49. 49
 NYX  L’Oréal Paris  NYX  L’Oréal Paris
Google AdWords Number
of Keywords Purchased
SKILL TRUMPS SPEND
Source: L2 analysis of SEMRush data.
1.4%
vs.
60,727129 0.3%
Google Organic Visibility
of Unbranded Color Cosmetics
Source: L2 analysis of Advanced Web Ranker data
n=239 Keywords.

50. 50
UNLIKELY WINNER HIGH END RETAIL
February 2014
1991
Fall 2015

51. 51
CHARLOTTE TILBURY
KIKO MILANO
3INA
MAC COSMETICS
THE BODY SHOP
BOBBI BROWN
CLINIQUE
JO MALONE
NARS
AESOP
URBAN DECAY
CRABTREE & EVELYN
L’OCCITANE
CHANEL
DIOR BEAUTY
BURBERRY
COVENT GARDEN
2016

52. AUTO

53. 53
USA Market Share for Auto/Light-truck Brands
Top USA Auto Brand Advertisers by Measured Media Spend 2014
BIG AD SPENDERS ARE DOWN
Source: AdAge Datacenter.
Measured
Media Spend
Market Share
% Change
2013 2014
1 Chevrolet $888M 12.5% 12.3% ▽-1.6%
2 Toyota $736M 12.1% 12.1% 0.0%
3 Nissan $703M 7.3% 7.7% 5.5%
4 Ford $612M 15.4% 14.4% ▽-6.5%
5 Honda $430M 8.7% 8.3% ▽-4.6%

54. 54
USA, 2004–June 2016 ◼ Tesla ◼ Toyota ◼ Chevrolet ◼ Honda ◼ Ford ◼ Autos & Vehicles Category
Indexed Search Volume Compared to Changes in Interest in Autos & Vehicles Category
Google Trends: Interest Over Time
TESLA MAKING WAVES….
Source: Google Trends.

55. 55
2014 Measured Media Spend in USD Millions Divided by Vehicles Sold
Ad Spending per Vehicle Sold
WITHOUT PAID MEDIA MUSCLE
Source: AdAge Datacenter.
$367
$313
$258
$0
Toyota Honda Ford Tesla

56. 56
THE NEW BIG IDEA = INNOVATION

57. 57
4% 4%
5%
13%
15%
4%
5%
4%
14%
18%
Toyota* Honda Ford Uber* Tesla
 2014  2015
R&D Expenditures as Percent of Revenue
REALLOCATION TOWARD INNOVATION
Sources: Company Filings.
“Leaked: Uber’s Financials Show Huge Growth, Even Bigger Losses,” Forbes, January 12, 2016.

58. 58
“To date, media coverage and word of mouth have been the primary drivers
of our sales leads and have helped us achieve sales without traditional
advertising and at relatively low marketing costs.”
– Tesla Motors Inc., 10-K, February 2016

59. 59
43.8%
13.6%
3.9% 2.8%
1.0% 0.3% -0.6% -1.2% -2.5% -3.7%
Facebook Google IAC Bertelsmann
AG
IPG Lagardère NYTimes Omnicom YuMe Viacom*
Most Recent Fiscal Year
Year-Over-Year Revenue Growth
WHERE’S THE GROWTH?
Source: Company Filings
Average: 29% Average: 0%

60. 60
In USD Billions, June 2016
Companies by Market Capitalization
NOT EVEN CLOSE
Source: Yahoo Finance

61. 61
January-February 2016
Percentage of Known Referrals to News Websites
Referral Sources for News Websites
FACEBOOK & GOOGLE CONTROL THE NEWS
40%
41%
19%
Source: Parse.ly.

62. 62
TARGETING VS. LACK THEREOF

63. 63
Share of Major Media Advertising Spend by Medium, USA
SQUEEZING TRADITIONAL MEDIA
Sources: REDEF, Bloomberg, eMarketer.
Newspaper
Magazine
Radio
Digital
Mobile
Television

64. 64
As long as you’re
or

65. 65
Contribution to USA Digital Ad Growth
Q1 2015 vs. Q1 2016
DRIVING 90% OF GROWTH
Source: Morgan Stanley Research.
52%
38%
10%

66. 66
THE OTHER 10%
Source: LUMA partners, LUMAscape.

67. 67
Source: Morgan Stanley Research Estimates.

68. 68
Source: CEASA, Morgan Stanley Research Estimates

69. 69
LONG TAIL HAS NEW LIFEShare
Number of Brands/Products/SKUs
Technology
Consumer Categories

70. WHAT DOES THE FUTURE
LOOK LIKE?

71. “Plans are worthless,
but planning is everything”

72. PREDICTION
The last gasp

73. 73
April 5, 2015–March 26, 2016
Broadcast, Cable, and Satellite TV and Radio Ad Spend by Candidates and PACs
Presidential Campaign TV and Radio Ad Spend
PLAYING OUT IN POLITICS
Sources: Ad Age and Bloomberg Politics Analysis of Kantar Media CMAG data.
$5,799,985
$11,535,694
$14,093,412
$18,479,967
$22,674,993
$34,800,460
$38,255,798
$54,620,657
$80,222,687
Carson
Trump
Kasich
Christie
Cruz
Sanders
Clinton
Rubio
Bush
Estimated value of Trump’s free news media coverage: $3 billion

74. 74
FOLLOW THE LEADER?
Source: Twitter, accessed July 7, 2016.

75. 75Source: “Eyeing 2016, G.O.P Embraces Digital Strategies, but Doubts Persist,” The New York Times, June 10, 2015.
DIGITAL LEANS DEMOCRAT
Political Operatives with Digital Experience
2004-2015, n=626
n=503 n=123

76. Value will transfer
from broadcast media
to Facebook and Google
PREDICTION

77. Digital media players that aren’t
Facebook and Google
will suffer most
PREDICTION

78. Conglomerates will split
good revenue
from bad revenue
PREDICTION

79. Public will call for the break up
of Facebook and Google –
the new “big banks”
PREDICTION

80. 80
Anna Brown
Account Manager
Bruce Johnson
Account Director
Jonathan Smith
Account Planner

81. We get it wrong all the time.

82. @PROFGALLOWAY