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Digital Advertising in 2022

 

Digital Advertising in 2022

Courtesy of Ben Thompson, Stratechery

Six years ago tomorrow, in The Reality of Missing Out, I wrote that the digital advertising market was settled, and Google and Facebook won:

I have been arguing for a while that in the aggregate the tech sector is fine, and the state of advertising-based services is a perfect example of what I mean: taken as a basket the six companies in this article (Google, Facebook, Yahoo, Twitter, LinkedIn, and Yelp) are up 19% over the last year, even though the latter four companies are down a collective 53%; the fact that Google and Facebook are up a combined 31% more than makes up for it.

This makes sense: while advertising as a whole is a zero-sum game, there is a secular shift from not just print but also radio and TV to digital, which is why this basket of digital advertising companies is up. Digital, though, is subject to the effects of Aggregation Theory, a key component of which is winner-take-all dynamics, and Facebook and Google are indeed taking it all.

The Article was prescient for a time; Yahoo has been passed around for peanuts, LinkedIn was bought by Microsoft a few months later, and while Yelp and Twitter’s stock have more-or-less doubled since then,* that gain pales in comparison to that of Google and Facebook:

*Twitter did have a large run-up a year ago that has since disappeared

Google, Facebook, Twitter, and Yelp's market gains over the last six years

That chart, though, only runs through last Wednesday; here is the new chart post-Facebook earnings:

Google, Facebook, Twitter, and Yelp's market gains over the last six years, including Facebook's recent earnings

It turns out that, for now anyways, buying $TWTR on the day I wrote that article would have provided a better return than $FB.

Direct Response and the Collapse of the Funnel

In that Article I painted an idealized picture of the traditional marketing funnel and how Google and Facebook’s advertising products mapped onto it:

What Sandberg is detailing here is really quite extraordinary: Facebook helped Shop Direct move customers through every part of the funnel: from awareness through Instagram video ads to consideration through retargeting and finally to conversion with dynamic product ads on Facebook (and, in the not too distant future, a direct customer relationship to build loyalty via Messenger).

A drawing of Digital Advertising 2.0

Google is promising something similar: awareness via properties like YouTube, consideration via DoubleClick, and conversion via AdSense. Just as importantly, both companies are promising that leveraging their respective platforms will provide benefits on both sides of the ROI equation: the return will be better given the two companies’ superior targeting capabilities and ability to measure conversion, and the investment will be smaller because you can manage your entire funnel from a single ad-buying interface.

Herein lies the first thing that I got wrong: the traditional marketing funnel made sense in a world where different parts of the customer journey happened in different places — literally. You might see an advertisement on TV, then a coupon in the newspaper, and finally the product on an end cap in a store. Every one of those exposures was a discrete advertising event that culminated in the customer picking up the product in question in putting it in their (literal) shopping cart.

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