US advertisers are on track to spend $65.3bn on networks such as Facebook, Snap and Twitter this year, a year-on-year increase of just 3.6 per cent. That is about 10 times slower than in 2021, according to estimates from eMarketer.
The social media slowdown is such that its forecast growth rate for 2022 is almost the same as traditional media such as television and radio, whose audiences have been shrinking for years.
WPP, Omnicom, Publicis and Interpublic have all raised their forecasts for the year. “Snap called the advertising recession in the first quarter,” said Mark Read, WPP’s chief executive. “We are still waiting for that to happen.” So who are the suspects in the clobbering of social media?
So how are big advertisers responding? Some big advertisers are taking a more prudent approach. Meta’s chief financial officer, David Wehner, told analysts that growth from large advertisers “remains challenged”.
Marketers from financial services to consumer goods are “all having to rethink”, said Phil Smith, director-general of ISBA, the body that represents British advertisers, probably due to the state of the economy. “There are some things that it would be tone deaf to try to go out and sell right now.”
Read of WPP said that digital platforms were more reliant on aggressive campaigns by venture capital-funded companies seeking market share. “Quite a lot of that financing has dried up.”
Furthermore, the popularity of short form content means that while attention span for content is decreasing, it also is for advertising. Not even TikTok has managed to monetise its advertising successfully, according to staff at the loss making company. Analysts at eMarketer estimate the platform will generate around $5bn of ad revenue in the US this year — a fraction of Facebook’s turnover. But the TikTok threat has frightened Facebook and YouTube into disrupting their own businesses, with an impact on ad revenues. YouTube is pushing YouTube Shorts but will only start monetising it early next year.
Just this week, Meta accused Apple of “undercutting others in the digital economy . . . to grow their own business” following Apple chief executive Tim Cook’s statement insisting that its new App Store ads business was “not large relative to others”. Nonetheless, it has grown rapidly at the same time as iOS privacy restrictions introduced last year have taken a $10bn bite out of Meta’s revenues.
When it comes to commerce, retailers, including Walmart and Target, have been quietly building digital marketing businesses of their own, following Amazon’s lead as an alternative to social media advertising. It has effectively opened a new competitive threat to social media platforms.
Advertisers have suddenly had more choice over how to reach consumers. Search and banner ads are also able to reach customers closer to the point of purchase, an important factor for some marketers.
So-called retail media have also been less affected by recent privacy changes such as those implemented by Apple, since they do not rely on “third-party” data that track users across the web.
“Some of Facebook’s [ad dollars] are going to Walmart, Target and, obviously, Amazon,” said Berenberg’s Simon. Amazon this week said its advertising revenue jumped by 25 per cent in the third quarter to $9.5bn.
Wall Street is irritated by Meta’s refusal to reduce investment in the metaverse in the face of an ad slowdown and some investors and analysts see Facebook’s founder as the biggest threat to the company’s longevity.
Mark Mahaney, an analyst at Evercore, challenged Meta executives on Wednesday’s call about its progress in rebuilding the ad targeting tools that were hobbled by Apple’s privacy changes. “It had a material financial impact,” he said. “And listening to the call, I just don’t hear it as a major investment priority.”
Meta executives insisted that they had improved its ad tech. But Zuckerberg himself — as the last founder leading a Big Tech company in Silicon Valley, whose controlling shares ultimately insulate him from any investor fury — was unapologetic.
“I’d just say that there’s a difference between something being experimental and not knowing how good it’s going to end up being,” he said, adding: “I think that those who are patient and invest with us will end up being rewarded.”
And that’s the tea.