READ: 15 mins
AUTHOR: Robert Craven
Adland and Digital Agencies Post-Pandemic
There was an awesome article in the Economist this week (27th June 2020), The New Admen. I have pulled out the key passages and sections and added my own commentary.
The pandemic has been like an asteroid strike but there are reasons to be cheerful!
The earth will survive but some dinosaurs will die. “Agencies are like cockroaches and not like dinosaurs. We scurry around, we figure out the new world” (Rishad Tobaccowala, Publicis Groupe).
Prediction: Global Ad Spending
Global ad spending is expected to be 10% lower than in 2019 (GroupM, the world’s largest advertising firm by billings).
As the Dust Settles, a Reshaped Advertising World is Emerging
Offline-ad sellers, long in decline, and the creative agencies, whose middleman business is being pinched from both sides, face gradual extinction.
Despite a slump like no other, ad spending may fall by less this year than the 11.2% drop that followed the financial crisis in 2009.
Prediction: Post-Pandemic Spending Levels
Most of the advertising dollars pulled during the recessions of 2001 and 2009 never came back. This time they may return to pre-pandemic levels as early as next year, (MoffettNathanson) (see Chart 1).
All because of the internet.
The Decline of Offline
Companies that have pulled radio and print in the past downturns realised they didn’t need them. The same may well be true now for TV advertising! (see Table 2).
Old-school formats are taking a beating this year - print advertising will fall by 32%, (MAGNA), digital will be flat, or even tick up.
Online is Winning
The internet draws in new advertisers and persuades existing ones to spend more.
Smaller firms that cannot pay for pricey television clips can afford to experiment online.
Companies are also diverting their “below the line” marketing budgets - for things like direct mail and in-store promotions - online.
The growing number of firms that only exist on the internet cannot easily cut online ads.
For them, digital advertising is “the new rent”, (Mark Shmulik, Bernstein). Online retailers save on physical shopfronts but must maintain a visible virtual presence, recession or not.
Meanwhile, everyone is at the mercy of a near-duopoly. Two landlords, Google and Facebook, control 60% of worldwide digital-ad real estate.
The Next Adword Frontier(s)?
Investors long for Google to introduce ads to its Maps app. Their calls may grow louder as Google’s net advertising revenue in America is expected to fall by 4% this year (eMarketer).
Facebook could put more on Instagram. WhatsApp, also part of Facebook, is “the most under-monetised app in existence” (Bernstein).
Digital Ad Spending is Resilient
There is one final - and vital - reason for the resilience of digital-ad spending. Whereas a decade ago it bore little relation to people’s actual media habits, today it is closely aligned with how they while away their time, notes Mary Meeker (Bond Capital) (see Chart 3).
Digital Ads in favour
Mobile screens have overtaken TV as the biggest grabber of people’s attention.
In the next few years TV advertising, which has held up reasonably well, “will finally start to crack” (MoffettNathanson).
As more ad dollars migrate online, an even bigger wodge will end up with Google and Facebook, which last year hoovered up 90% of new online ad spending (Bernstein).
They are on track to increase their share of the worldwide digital-ad business to 70% or so within a few years, and still have ample capacity to display more ads (see Chart 4).
Digital Ad Saturation?
If the flood of online ad spending continues, however, current digital-advertising space may reach “a point of saturation” (Andrew Lipsman, eMarketer). Ads will then seep to other digital media like gaming and video-streaming.
And what of Amazon?
The e-empire is still a distant third in digital ads but growing fast.
It has bitten off a chunk of Google’s search business: more than half of all online product searches now happen on Amazon.com.
Its advertisements are particularly effective: shoppers come to the site ready to buy and its purchase-history data allow it to target consumers minutely.
It has yet to run commercials on its Prime Video service. But if it does…
The tech giants are stealing business
The tech giants are stealing business from the admen by making it easy for advertisers to create their own ads.
The agencies are fighting back offering more data analytics and pitching themselves as broader brand consultancies. Meanwhile consultancies are buying advertising and digital agencies.
Is This the End?
Mr. Tobaccowala believes his industry can dodge the asteroid. “Agencies are like cockroaches and not like dinosaurs,” he says. “We scurry around, we figure out the new world.” Nowadays this counts as optimism.
The original Economist article can be found here.