So many apps for consumers, so much doom and gloom for platforms—what's really going on in digital ... [+]
A billionaire with lots of experience in posting on a media platform, but none in actually owning and managing one, shows that a lack of trust can lead to the hair-raising evaporation of advertisers–per Elon Musk himself, “Twitter has had a massive drop in revenue” as brands and agencies “paused” buying on the platform as soon as he took over.
Adding to the screaming roller coaster effect was that, at least for a while on November 2, the valuation of Apple was $2.31 trillion, more than that of Alphabet + Amazon + Meta's valuations combined, which added up to a “paltry” $2.3 trillion. That was a surprise!
These days of fright in the “ad-verse” in early November didn’t just follow Halloween, they came on the heels of earnings season in late October. When those earnings reports came out from the biggest platforms, late last month, suddenly the common wisdom was that the sky was finally falling on the digital advertising market. “Digital ads collapse” reported CNBC. The industry is bracing for “economic disaster” proclaimed the insiders at Insider.
Snap’s stock plunged 26% on the news. Facebook/Meta dropped 25%, with the stock already down 75% since September 2021. Alphabet showed revenues up 6%, at $69.09 billion, not enough to prevent a slump in that stock. So much doom and gloom.
Advertising-dependent heavyweights that were once considered unstoppable were reported to be looking washed up. Suddenly Big Tech wasn’t so big anymore.
But is that what’s really going on? We’ve been here before. Sure, if you’re investing, you’ve got to watch the swings, but if you’re a marketer trying to reach audience, or a government regulator thinking you have to swat the biggest players, the news hasn’t changed: the internet is phenomenally competitive. You’ve got to be nimble. The Great Pause on Twitter does not mean that the large consumer brands can afford to be out of the consumers’ eyes for long, and they might just relieve Snap and Facebook’s pain, which could well capture the loyalty of ad buyers leaving Twitter because they deliver the kinds of engaged audiences brands want. Or maybe all the consumers go to Mastodon and, like day follows night, the brands appear there?
Giants shrinking and expanding like imploding stars at lightning speed actually does take place in the competitive blood sport known as digital advertising, just as we saw with our own eyes in the first few days of November. And adding that to the results from earnings season makes one wonder, What appears to be happening? Is the tide going out on all digital advertising?
While marketers, or at least investors, might be wondering about Twitter’s ability to deliver a brand-safe environment, and Meta, Alphabet and Snap saw their own challenges in advertising results, Amazon defied the trends and grew its advertising business 25% year-over-year to $9.5 billion in the third quarter. It’s now at a run rate of almost $40 billion for the year, or about one-third that of Meta and one-sixth that of Google. That’s a phenomenally fast and lucrative business, even as talk of recession rings in the holidays. And it is happening with such speed that we can assume we are in for an “up and to the right” continued move at Amazon.
Sure, Amazon investors were still pretty disappointed, and the stock took a hit. Amazon Web Services cloud business slowed down and its commerce business is still losing quite a bit of money after some felt it overspent on staffing and warehouses. But that all underscores the reality that the most ubiquitous shopping service in my life, and likely yours, is currently only profitable because of AWS and advertising.
Similarly, Microsoft, also emerging as a stealth ad-tech giant, had its worst day since March 2020 after giving a disappointing forecast. Besides, its push to dominate the metaverse might also be in stall mode. But Microsoft’s ad business is up 16% on Bing search and news ad revenue (would you have predicted that?) and it expects a $20 billion boost from its deal with Netflix. Not bad for a side hustle.
And then there’s Apple, the elephant in the ad room, so large it shook the planet with its recent outsized valuation. Meta and others took hits to their ad businesses when Apple made some “privacy” changes last year which has made it significantly harder for Facebook, Snap and Instagram to track user data and deliver targeted advertising. Earlier this year, Meta CFO David Wehner said those changes would cost Meta $10 billion this year (ouch!) and those predictions have come true. This same change by the way is also what might well have prompted Snap to lean more toward direct sales efforts as it looks to dig out of a hole caused, in large part, by Apple’s new data restrictions.
To add insult to injury, Apple also announced with interesting timing, the day before Meta's earnings report, that it would start taking a 30% cut of "boosted post" revenue, laying the groundwork to chomp yet another bite out of Meta’s business. Apple is able to push Meta around on the revenue front because Meta does not control the platforms for its apps. Like Amazon and Microsoft, Apple at earnings time announced underwhelming results for its last quarter—at least from the perspective of investors. Revenue from services like the App Store grew just 5%, less than half last quarter’s rate and iPhone revenues came in a little weaker than expected. And you can see why the company announced price hikes to Apple Music and Apple TV+. But Bank of America analyst Wamsi Mohan forecast that Apple's ad business could bring in $20 billion in ad revenue by 2026 from an estimated $5.3 billion this year if it extended serving ads within its App Store to its full suite of products and services.
As an aside: Another wildcard here of course is TikTok, which is grabbing market share from YouTube, Snap and Meta properties like Facebook and Instagram. TikTok had more than 1 billion monthly active users in January 2022 and some predict its ad revenues will rise by over 184% to nearly $6 billion by the end of this year. (See our earlier note about the internet being phenomenally vital and competitive…)
Clearly economic uncertainty, the rise of the dollar against other currencies and inflation are very real, and spending cuts are happening. But digital remains the single best and most effective way to target and reach consumers, and that’s not going to change anytime soon (consider the amount of time the average American consumer spends glued to the phone each day, 8.2 hours).
Digital marketing is not discretionary spending for big swaths of any of today’s brands; it’s a critical investment. The interesting thing will be to see what new and existing platforms will do to capitalize on others’ weaknesses—and what new giants might well emerge right after any pummeling in the works from the possibly oncoming recession.
