1. Spend decreases in obvious advertising categories will be offset by overall digital growth
Travel represents 9% of digital ad spend and in the past day alone, three of my clients have shared they’ve seen spending cut to near zero from brands in travel & hospitality. Publishers who over-index on spend from the travel category will be hit harder, as well as agency teams operating on an undisclosed or % of media spend (versus those operating on an FTE model).
Retail was forecasted to be 22% of digital ad spend in the US this year and will be impacted two ways. First, supply chain dependencies on China will create a massive backlog and inventory shortages. Second, less people will be physically walking into brick & mortar stores (store closures may further accelerate 6-12 months from now, which will also impact hourly workers and commercial real estate). P&G, Unilever, Microsoft, Microsoft, Danone, AB InBev, Burberry and Aston Martin have all already made cuts to sales forecasts for the year.
Entertainment & sporting events (I believe that the Olympics will be cancelled), restaurants and luxury goods are all other categories that will see spend impacted.
Overall, I estimate that from the above categories, we will see a reduction of 20%+ in total ad spend for the balance of 2020. However, given that digital advertising is growing 15% year-over-year and digital has proven to be more effective, measurable and accountable than traditional, digital ad spend overall will be at worst flat year-over-year, possibly have some growth at the expense of traditional advertising channels (like outdoor and radio).
2. Spend increases in other advertising categories present new brand growth opportunities
Entrepreneurship is about seeing opportunity, even in the face of challenge. There are a number of niche categories that could accelerate digital ad spend this year ahead of plan.
Productivity and collaboration technologies, be it cloud-based (e.g. Slack, Zoom, etc.) or physical device makers (i.e. home office equipment) should see growth accelerate. We will see more investment in technologies that help companies be more efficient and effective in a new paradigm of more distributed and remote work.
Trade and B2B marketing should see a boost with business travel reduced and industry events cancelled across the board (see Adweek and AdAge live trackers of cancelled events). B2B companies will have additional travel, entertainment & marketing budgets that they can reallocate on digital advertising channels to stay connected with their customers.
Consumer services related to gaming, music, dating and of course, subscription video, should be attractive to investors as people spend less time commuting and look to the digital world for social connectivity and entertainment. All of these companies will increase brand spending.
Education technology, be it for institutions or consumers, will be another growth area as we become aware of how weak our digital education infrastructure is (at all levels, outside of the few elite, well-funded schools) and a new wave of investments are made for the long-term.
Online brands, including direct-to-consumer goods and services, that do not have a supply chain reliance on China have a unique opportunity to build brand awareness in the face of their traditional competitors pulling back on branding and general ad spend.
Other categories, such as healthcare, pharma, alcohol, politics and home fitness may all also see growth. From all of the categories mentioned above, I would estimate digital spend could see at least a 10% boost in new budgets if these companies invest in the brand opportunity.
3. Platforms will be impacted even more than publishers, agencies and ad tech companies
While platforms may be immune to cookies, they are not immune to Coronavirus. The bigger they are, the harder they fall. Major Chinese platforms like Alibaba, Weibo and Baidu last month predicted 20-30% declines in media revenue for Q1.
70% of the travel industry digital ad spend goes to search. Retailers are another big spender on search advertising. Google, Microsoft and Verizon will all see slowdown from these categories and more.
The major ad platforms report Q1 earnings in late April, which will be informative for how they are forecasting revenue for the balance of 2020. I am in favor of the generous paid sick leave policies many have all instituted, however investors should note that this will impact profitability.
As public markets took a hit this week, regardless of how they rebound, the relative differences in how platforms were hit is a signal to how they are valued relative to one another. Smaller platforms like Pinterest and Snapchat declined 12%, programmatic poster child The Trade Desk declined 14% while Google and Facebook each fell only 6%.
Ad prices in platforms should go down, as there is less competition in their auctions from advertisers willing to spend less in some categories and more consumption (with people having more time to scroll mindlessly through social feeds).
Brands who value trust will also further question if social media is brand safe. In the wake of misinformation spreading quickly on Facebook, the News Feed is now the Corona Feed. I am not sure it is the best environment for brands to be placing such a massive chunk of their spend right now.
4. Brands will want to increase working media spend with creative automation
There are no creative standards in digital advertising today. Facebook, YouTube, Instagram, Twitter, LinkedIn, Pinterest, Snapchat, the programmatic web and publisher branded content all have their own creative formats and specifications. This has led to brands having to invest a lot of non-working media spend on creative production, management and approvals. The costs grow exponentially for multinational brands operating a multitude of brands in diverse local markets.
With macroeconomic uncertainty, brands may double-down on fewer digital marketing channels and as a result, not have the budget, time or patience to build, manage and approve new creative for new channels.
At Polar, we have been investing aggressively in creative automation technology to make it easy for brands to repurpose their existing social ads, posts and videos from Facebook and Instagram to run across trusted publisher environments. Last year, our first year in-market with this new technology, we saw over 3,000 brands use our creative automation technology to run over 1 billion Facebook ads outside of Facebook on publisher channels, without incurring creative production costs.
As brands prioritize efficiency and increasing working media spend, a new wave of creative automation technology will see further adoption.
5. Opportunity for “brands with purpose” to step up
At Cannes last year, “brands with purpose” was the buzz and this is a pivotal moment that will separate the leaders from the laggards.
Publishers are doing their part. Many have already lowered paywalls and increased usage limits to make sure that Coronavirus coverage is available to all. This will hurt their short-term revenue and is counter to their subscriptions-first strategy, but the right thing to do. Trusted publishers have a responsibility to create quality journalism that we can rely on, especially in times of confusion and uncertainty.
Platforms are also doing their part. Google, Facebook, Amazon, eBay, Pinterest and more have all taken proactive steps to stop ads for false cures and diminish sales of products for price gouging.
Brands are not yet doing their part. Many advertisers are actively targeting their digital spend away from pages that have any mention of Coronavirus. This is understandable and expected from a brand safety perspective but I have two issues with it. First, it is inconsistent as Facebook spending patterns have not changed although the News Feed is now a Corona Feed. And second, it is short-sighted and sends a message to publishers that brands do not want to support and fund quality and trusted journalism that keeps the public informed at a time of need.
This is an opportunity for brands with purpose to step up and show leadership. I believe this will lead to winning the hearts and minds of customers over the long-term.