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As ad spend moves to digital is it enough to drive digital transformation in CX?

Den Howlett Profile picture for user gonzodaddy November 7, 2018
Summary:
Ad spend in the UK is up but should we celebrate or beware? As always, it depends and while much thinking centers on GDPR/Brexit, there's other things going on.

 

UK ad spend

High street/main street/strip mall bloodbaths aside, there is a growing list of examples where the transfer of labor to digital processes, getting closer to the customer and removing friction in the supply chain are combining to deliver clear benefits up and down the value chain. And while uncertainty over Brexit plus the initial shock of GDPR have had an impact in both the UK and, to a lesser degree in Europe, Internet ad spend continues to eat away at legacy media.

Research from AA/WARC for the UK reported in The Drum said:

Online advertising was the dominant major driver, this spend includes including newsbrands, magazine brands, broadcaster video-on-demand and radio station websites. This sector saw 13.3% growth in 2018, generating spend of £13bn. Mobile internet spend was up by 27.9%, slower than the 37.3% the prior year. This slowdown is expected to continue into 2019 with 19.5% growth.

Mobile accounted for over half of search spend for the first time in the second quarter. The TV market also experience growth in the second quarter, growing ahead of expectations in the second quarter of 2018, with total spend rising 1.9% to £1.2bn.

While all this sounds rosy, Nick Field, director of the Media and Technology team at M&A firm Livingstone commented in an email that:

  • Concerns about ad safety and the quality of digital inventory have clearly had an impact on the mix of adspend in 2018.  News brands and magazines seem to have benefitted from a ‘flight to quality’, significantly reducing the decline in spend on these channels to an average of 7% (compared to 13% in H1-17). Given the uncertainty created by Brexit and challenges facing the UK consumer, growth in adspend significantly above expectations, and well ahead of inflation is certainly positive for media owners.
  • Whilst the year-on-year growth in internet advertising has continued to increase reaching 14.8% (up from 13.8% in H1-17) within this the growth of mobile has slowly markedly falling 8% compared to H1-17.  In the context of concerns around the quality this is unsurprising, as mobile is the platform most exposed to programmatic inventory of this kind.
  • The impact of GDPR is clearly demonstrated by the accelerating decline in direct mail spending. It looks likely that the one-time effect of GDPR on marketing databases and mailing lists has taken tens of millions of pounds of expenditure out of the direct mail channel in 2018.

Field's points are well made - up to a point. In Facebook's last quarter scorecard, the company reported a steep dive in the EU. Stuart Lauchlan noted:

In privacy-sensitive parts of the world, rot has set in following the Cambridge Analytica scandal. For example, in Europe Facebook has lost a million daily and monthly active users in the past three months alone.  The number of Europeans logging on every day dropped from 279 million to 278 million, while monthly European users fell from 376 million to 370 million.

Lard onto that dismal outcome, Zuckerberg's continued refusal to face a UK Parliamentary Committee and it's hard to see how, in the long-term, Facebook (and probably Google), avoid what will be a series of EU/UK imposed tactics that force these behemoths to pay much more than they currently do by way of taxation. Whether that's direct through sales/corporate taxes or through GDPR imposed fines remains to be seen.

Perhaps of deeper concern, will Facebook/Google survive the flight to quality? That is much harder to predict because when you look at what the company emphasizes, there is a lot of talk about the many small businesses that use Facebook as a platform for (relatively) cheap and effective ad spend, despite our and many others discovering that ad fraud at Facebook's door is prevalent. Check:

I guess this represents a fresh spin on the old adage, "Half the money I spend on advertising is wasted; the trouble is I don't know which half." Elsewhere, political economic activists like prof Mark Blyth question whether the big ad spenders like Nike, Unilever, and others will continue to support Facebook in particular. These thinkers believe that a coordinated attack on Facebook's ad-model by the big ad spenders would bring down what they see as a house of cards.

Media ad model proponents (of which we are not one) continue to think that any flight to quality helps niche media titles with their emphasis on quality but I remain unconvinced.

Media brands like The Guardian, WSJ, WashPo, The Economist, NYT and at the small end The Information and Stratechery, have clearly demonstrated that when you can tap directly into the psyche of a specific demographic, then you don't need advertising. Subscriptions are growing handsomely as evidenced by the 'failing' NYT numbers. From the reader's perspective, this means they're perceiving paid for content as more reliable than the aggregated 'free' stuff coming from Facebook and Google. But then those same titles have to innovate and invest in their models to make them attractive. This is very much a work in progress but it is interesting to see how this stands as a reflection of consumer desires for great CX.

Technology companies are recognizing this as well. Chris Middleton is currently in Barcelona at JDA's event. He reports JDA Software CEO Girish Rishi saying about the retail supply chain:

Our futures are inextricably linked. As your supply chain becomes more efficient, as you grow, we grow. We are in a value-driven economy. And you will see us come back and underscore that with more specificity.

Interestingly, Middleton heard from BP, a company with which I associate both the up and downstream oil/gas supply chains:

Rhid Tinkler, IT Director of Retail and New Markets for oil giant BP. What few people fully realise, he suggested, is that BP is itself mid-pivot – and on an epic scale. Not only is it slowly withdrawing from the oil business as fossil fuels dry up (not that he actually said that), but it is transforming into an impulse-buy, convenience-store network that, increasingly, will revolve around electric vehicles.

There’s a generational aspect to this, Tinkler explained: unlike their parents and grandparents, today’s young adults now aspire to mobility by any means, and not to having a driving licence. The subtext was clear: oil is an old-world business, and, over time, will become increasingly marginal to BP.

These pivots don't occur in isolation and I can see a good argument for saying that ad spend needs to shift towards brand building for the 21st century but that also has to be contextualized to a changed trust environment. But when was the last time you saw an ad where your visceral reaction was: 'Gee, I really do trust that brand?'

My take

Ad mavens will continue to live in a deluded world where they think the main competition is Facebook and Google. What they don't understand, despite the allure of Aggregation Theory as a way of developing a two-sided market, is that the flight to quality demands innovation. From my perch, the only innovation I see coming from these companies are investments designed to get their claws deeper and deeper into the individual's social graph. It's certainly not in the product.

On the flipside, when you consider the totality of the customer experience, trust is a key factor in a world sullied by fake news and a changed economic environment where the current millennial and next generations only want baby boomers like me to die so they stand half a chance of owning something, anything that will allow them to put down roots. Aligning to that mindset and belief system will require a lot more than ads.

Oh - and by the way - GDPR isn't a one-time event. We've only seen the opening inning. There's a LOT more to come.

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