FNF: How Digital Ads Went From Volume To Value
more than you wanted to know about the last ten years and next ten years of digital ads
The golden rule of digital advertising in the 2010s was: know your audience, know how you can find them, and reach them as many times as possible at as low of a cost as you can. You could, and still can, buy ads to reach them for a fraction of a cent. People reported back to their clients that they had reached their potential customers millions of times.
Was it working? Who knows! In some cases it clearly did, in others, not so much. But it made a bunch of people – most ad tech executives – a ton of money.
A new breed of startup emerged during this period, too – tech companies pumped full of cash that they’d fundraised, much of which they poured into digital ads, which they turned into leads, which drove their growth. A generation of hyper-growth companies were built on the backs of 7 or 8 figures of digital ad spend. Yes, these were real customers and real revenue, but as these companies sprinted to gobble up market share, the costs to acquire them were often higher than the actual short-term revenue they brought in.
After a while, companies began re-evaluating just how much those massive digital ad budgets helped. Yes, the digital ads worked, to a certain extent. But how was their strategy of chasing volume over everything actually going?
More recently, Headphones.com reduced their ad spend from $1200/day to $40/day. The results? Basically no difference in revenue. Uber even sued Phunware, one of their ad vendors, for running a bunch of ads on inventory that was either fraud or complete garbage and wasting a bunch of their money in the process. Phunware settled with Uber for $6 million in October 2020, right as Phunware’s contract with the Trump campaign was ballooning in the run-up to the election. Oops. On a completely unrelated note, this article contains a fun quote from early 2020 in which I say Brad Parscale, Trump’s digital ad guy and temporary campaign manager, had no idea what he was doing.
At this point, it has become clear that the digital ad strategy that many political campaigns, major corporations, startups, and non-profits chased for much of the 2010s was built on a combination of bad information and fraud. Many of the ads may not have gotten to their intended recipients, many of the ones that did were on placements that people didn’t look at, and many of the ones that got to the right people in the right place didn’t actual compel them into action.
Once again, this isn’t an argument against digital advertising, which works on the whole. It’s an argument to bury the strategy of chasing after volume and really inexpensive placements and trade it in for one that chases valuable connections and valuable placements with the people you actually want to reach. Much has been made of the shifts to subscription and membership (I’m a huge believer in both, and much of that drives my “Volume to Value” thesis), but advertising is still a critical component of how basically every company with a digital presence gets revenue.
These two charts, one tracking 2019 digital ad spend and the other projection 2021 digital ad spend, tell an important part of the story:
Facebook (including Instagram, which they own) and Google (including YouTube, which they own) have captured 59 cents of every single dollar spent in the digital ad market. When you add in Amazon (who will gain more digital ad market share than anyone in 2021), they’ll be at 70 cents of every dollar as soon as next year. I’ve made arguments about why we need to break up these companies (especially Facebook) a bunch of times, but this tells the other side of the story – those companies have more valuable relationships with their customers, so they know more about their customers, and they put their ad units in more valuable places, meaning that people are more likely to perform whatever action you want (buying your product, voting, etc.) after they see your ad. These companies are perfectly positioned for the shift to value, just as they were perfectly positioned for the move to volume. They dominate these charts for a reason, and their stranglehold on the proportion of digital ad spend is only going to increase.
The most interesting fight, and really the only thing outside of antitrust that has the ability to unplug the vacuum that’s sucking up our data and shipping it to these three, is Apple, who is sick of companies being sneaky about user privacy on their devices. Their relationship with Facebook, in particular, has gotten quite contentious, and a major fall-out would really mess up Facebook’s plans.
But who else will benefit in the next couple years? In short, companies and organizations that have good relationships with their users, readers, and customers. You need to have information about the people you’re selling to, either who they are or what they like to read, watch, or listen to, to try to sell things to them. The tech giants will continue to dominate, but the most obvious group that stands to benefit from the shift away from the advertising technology/banner ad giants are media companies.
Knowing what people read and being able to offer up a valuable placement is going to become one of the most important drivers of the value era. Smart local news companies that are focusing on how to build great ad units (think putting one big central ad on a page or in an email instead of 4-5 auto-play videos that make your computer’s innards scream) are going to have an opportunity to start clawing back advertising dollars if they can sell them in the right way. The shift from volume (which they mostly don’t have) to value (which they absolutely do) could be hugely important for the revenue of smart local news providers across the world.
Media companies, by the way, are all over the volume to value shift, and adjusting their corporate strategies accordingly:
The NYT launched its own advertising data program, focusing on using as much of their first-party data (things happening on their site) as they can. The early results are super promising.
This week, a bunch of the people kicked off the more civil places of the internet moved to Telegram. They did that because of the anonymity and security it offers. But less than a month ago, Telegram announced it was launching an ad platform, which means that sooner or later, meaning that they’ll be hoovering up as much data on the people using their platform as they can to run it.
Facebook is running out of ad space on their News Feed and in Instagram, so guess what’s next – WhatsApp is going to be getting ads, too.
Medium bought an online book platform, which will likely serve as the backbone of their coming ad platform.
Smart companies and their ad buyers have already shifted their digital ad strategy from chasing volume to chasing value. If you haven’t yet, well, get to work – now.
As someone who uses the internet, you should be cognizant of the fact that when you put data out there, you really can’t know whose hands it will end in, and that every major company in America is going to be chasing new and creative ways to get it. Sure, you were fine giving your data to Slack, but now Salesforce has it, and has to turn it into $3B of value for its company. Sure, it was no big deal letting Fitbit know everything about your workouts, sleep routines, and diet, but now Google has it, and has to turn it into $2.1 billion of value for its company.
The digital advertising world, like the rest of the internet, was never going to be able to avoid the volume to value shift. It was inevitable. Some people will win, others will lose. But that’s how we got here and where we’re heading.
Interesting Links
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From Volume to Value alert: The San Jose Sharks are leaving broadcast radio and moving their radio broadcasts to their website and app, where fewer people will listen to them but they’ll have better relationships with the ones they do.
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