Is Money Making Apple Stupid?

According to Ad Age, Apple (NASDAQ: AAPL  ) is planning to build an internal team of close to 1,000 advertising and creative executives to compete with the company's external marketing partners, including longtime ad agency TBWA\Chiat\Day.

Mad strategy
Color me displeased. Why? I'm having a hard time seeing the benefit of bringing on so many people just to keep external agencies honest. And yet that seems to be precisely what CEO Tim Cook and team have planned. From the Ad Age article:

Amid criticisms that it has failed to innovate, Apple is increasingly taking marketing into its own hands. It's madly building an internal agency that it's telling recruits will eventually number 1,000 -- the size of Grey Advertising. It's pitting TBWA/MAL against this internal agency with "jump balls" to mine the best creative ideas, a controversial tactic with outside agencies, let alone an internal one.

Of course, Apple should beef up its advertising. Recent campaigns haven't resonated with consumers at the level investors are used to. Nevertheless, I'm unconvinced that paying up for a small army of Madison Avenue talent amounts to a good use of capital.

Apple's "I'm a Mac" ads are now the stuff of legend. Can hiring ad executives bring back the magic? Credit: Apple

Where will they add value?
I'm a former PR and marketing executive and I've worked at agencies, so I know the value of what Apple is proposing. Competing for business is par for the course. And yes, it's always smart to test ideas with a wide range of people inside and outside the company. Hiring 1,000 to get a quorum is probably overkill.

As an investor, I wonder if Cook would be spending like this if Apple didn't have $150 billion in cash and investments socked away? The whole affair has a "we're Apple and we're loaded" feel to it. To me, a longtime shareholder, it comes off as unseemly.

And we shouldn't forget that it wasn't long ago that Cook was playing a game of PR chicken with Carl Icahn and David Einhorn over uses for Apple's obscene sum of cash. And while returns on equity and capital are good, they're also falling. (Down from 42.8% and 35.4%, respectively, in fiscal 2012 to 30.6% and 23.7% last year.)

Fortunately, excessive hiring isn't likely to mean much at this stage. Apple has far too much capital on hand for that. Yet the pattern is still troubling. Money is great, Mr. Cook. Just don't let it make you stupid.

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  • Report this Comment On June 12, 2014, at 12:19 PM, jdmeck wrote:

    Advertising agencies do more than make commercials. A full service agency designs all marketing material and handles the purchasing and production of materials. I don't know how they handle marketing materials now, but bringing it inside is often cheaper in the long run.

  • Report this Comment On June 13, 2014, at 2:24 PM, donklos wrote:

    The last couple of campaigns have been very predictable and "usual." What put them on the map was their contrarian attitude and swagger. They've abandoned that. But in-house agencies almost always grow grumpy and entitled. They don't have the hunger and the pride of outside agencies who strive to move mountains and win awards. They also work with many other clients which vastly expands their world of creativity, creative people, techniques and forces them think outside the box. This can NOT be understated.

    There are many functions that can be done in-house, like web, collateral, even trade work, but they'd do best to keep the major awareness and branding done by outsiders who have the right motivations and aren't bogged down by internal krap.

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