Mythbuster: an ad recession’s biggest misconceptions

A cursory glance at the big headlines over the last year paint a picture of ad spending dragged down by all that ails the economy. Dig a bit deeper, though, and that’s not it all. On the contrary, this ad slowdown is thanks to more structural issues like the DTC craze running out of steam and perhaps more importantly a covid hangover. The intense boost ad spending got on the back of how the pandemic and subsequent lockdowns refined the way people consume media was always going to run out of steam. 

“Economic headwinds are a small factor in the ad slowdown and should not be used as an excuse to justify any performance slowdowns that companies haven’t resolved,” said IAB Europe chief economist Daniel Knapp.

Advertising is decoupled from the economy

To be fair, advertising is decoupled (ish) from the economy. The fact that spending has grown in spite of rising interest rates and amid rampant inflation is a testament to that. But this isn’t a complete divorce. Like all capricious relationships there’s always a chance for reconciliation — now, more than ever given how precarious the economy looks next year. 

On the one hand, central banks could go the hawkish route and put further financial pressure on people. On the other hand, they could ease up if inflation shows signs of responding to the hardest-hitting hikes since the 1980s. 

Either way, marketers are wary. After all, when business dries up CEOs go into savings mode and ad dollars are among the first to get saved because they’re fungible in a way others aren’t. No amount of Harvard Business Review articles will change that. That was clear coming out of the last earnings window when some of the largest advertisers including Procter & Gamble, Unilever and Coca-Cola painted a cautious but not pessimistic picture of their ad outlook for next year.

“When I talk to our clients they’re certainly preparing to pull money,” said Eric Schmitt, senior director analyst at Gartner. “The questions we get asked revolve around things like ‘what would be the triggers for money back’, ‘where would i redirect it’, and ‘what are the best practices for advertising in a recession’. That said, my sense is that Q4 has been pretty solid so far, and depending on how the year wraps up will determine (to a degree) how ad spending shapes up for next year.”

TikTok will be one of the biggest beneficiaries coming out of this downturn

Don’t be so sure. From a certain point of view, it’s clear that TikTok will emerge from the downturn with more ad dollars than it had going into it. But that shouldn’t really be a surprise. Of course, one of the most popular apps in the world is going to attract more ad dollars at a time when spending is being rationalized. The real litmus test for TikTok’s status as a big beneficiary of the current turmoil is whether it can get closer to convincing marketers to make it a permanent feature on media plans. That’s not so clear so far. 

For starters, agencies are still trying to get their heads around TikTok. Look at trading deals, or to be more precise the lack thereof for proof. These deals are a good gauge of how committed agencies are to spending with any platform, and there aren’t many for TikTok.

Then there’s the fact that TikTok is still the preserve of a marketer’s brand dollars — the ad dollars that get squeezed most during a downturn. To say nothing of the brand safety concerns that cast a long shadow of advertising there. Not to mention the geopolitical concerns that while in the background of a lot of conversations over advertising on the app now, increasingly threaten to spill over to the forefront. That’s a lot of reasons not to spend ad dollars freely. 

“We haven’t seen massive growth when it comes to client spending there,” said Will Jennings, head of paid media at ROAST. “As we’re more of a performance agency, we’re focused on driving the best, tangible result for our clients, while TikTok sits slightly outside of that. It’s on a plan when a client wants it to be on a plan, but we wouldn’t always recommend it because it hasn’t always driven the best performance typically and we see much greater results from other platforms. It’s more of a brand favorite than an agency one right now.”

Sustainability for the win in ad tech

Environmental, societal and governance issues are all the rage in ad tech circles these days. Everyone seems to have a view on it, and increasingly a plan for it too. But not all plans are created equal. Buying green data centers is a start, of course. And there are many ad tech vendors that have done exactly that. But it doesn’t stop the carbon emissions from getting into the atmosphere in the first place. For this to happen, ad tech companies and the industry they power need to be rewired completely so that there’s less wastage, fraud and unviewable inventory traded. Perhaps, then there would be less cynicism than there currently is around the topic of sustainability in ad tech. 

“On the subject of mythbusting, I think sustainability has replaced supply chain transparency,” said one ad tech executive on condition of anonymity. “Can we really trust all ad players who are jumping on this bandwagon to be genuinely concerned about something sustainable when they were creating and self-perpetuating a hyper complex ecosystem a few months ago.”  

The future is bleak

Mass layoffs. Structural upheaval. Economies on the brink of recessions. No, this isn’t a rundown of all that ails the ad economy today. It’s a flashback to 2008 when the industry was swept in a wider economic crash that saw ad dollars shrivel up, and agencies shut shop. In many ways, it was a turning point. The first phase of online advertising was replaced by a second one. Enter Google, Facebook as well as ad tech. The rest is history, as they say. 

Over a decade later and the ad industry is at another inflection point, caught between a structural reset and an economic reckoning. It’s a curveball that won’t necessarily cause every ads business to backslide. It will, however, mean ad execs need to have a more informed plan to chart a course through all the challenges to get to the opportunities successfully. That’s especially true for execs in retail media and CTV — two of the fastest growing areas of ad spending up to this point in the slowdown. 

As Kate Scott-Dawkins, global director of business intelligence at GroupM, explained: “We expect retail media to grow faster on average than both digital ad spending as well as overall ad market, while CTV continues to grow double digits on the back of new players and as a result of people continuing to shift their mode of viewing from linear TV to streaming services.”

The e-commerce slowdown is bad for retail media 

By now, it’s clear the e-commerce sales boom is slowing down. The pandemic boost that accelerated the shift to online shopping by five years, according to some estimates, is fading. The hot take doing the rounds is this means bad news for retail media, which has grown exponentially in the slipstream of those sales. The logic here is simple enough: more online sales means more inventory for retail ads. True as this is, it won’t mean a net loss for retail media — quite the opposite, in fact. Keep in mind that all the money that’s come into the space on the back of the e-commerce boom has funded infrastructure, talent and technology that wouldn’t have otherwise been possible.

The risk for retail media is whether retailers can really deliver on its promise. For starters. Inventory on retailer sites and apps is limited. Not everyone will want to increase the ad load on their media like Amazon has done and subsequently turned ads into a tax for companies looking to sell from its marketplace.