Facebook, Snap, Twitter, Amazon, and Google all reported their third-quarter results last week, providing insight into over $100 billion of digital advertising spend.  This special edition of The Spark highlights the most interesting commentary through the lens of consumer brands.

 

Topics Covered:

  1. Quantifying market performance
  2. Insights on near term consumer behavior
  3. Apple’s ATT initiative impacts some more than others
  4. Platforms building social commerce capabilities
  5. Future investment flowing to search, AR, social commerce, and personalization

 

TL/DR

After ripping ahead in 2Q, the five largest digital advertisers came back to earth in the third-quarter, delivering a combined 40% Y/Y growth rate (vs. 62% in 2Q). The primary drivers to the deceleration include Apple’s ATT initiatives, eCommerce growth slowing, and potentially supply chain issues that are leading to advertiser spend pullback.  Privacy initiatives at Apple and Google mean retail media is as valuable as ever and it is encouraging social platforms to commit to enabling commerce on their sites.

 


 

The Market for Digital Advertising

The analysis below is a revenue weighted index of the major digital advertising platforms. This third-quarter saw a notable deceleration in the Y/Y growth rate. Facebook and Snap cited Apple’s ATT initiative as the primary cause for their businesses slowing. In addition, the comp was 14 points more difficult. 
 
There has been a great deal of talk around supply chain issues causing pull-backs in digital ad spend. Both Facebook and Snap indicated they believed these were having a compound effect on their slowdowns. However, Amazon and Google did not say they were seeing this in their business when asked directly.

 

 

Amazon’s business largely followed the deceleration trend as its peers, which is somewhat surprising considering it is essentially not exposed to Apple’s ATT initiative.  Growth in Amazon’s ad business is coming from CPCs increasing on sponsored products, greater adoption of sponsored brands and sponsored brand video ad units, and increased spend on sponsored display and DSP by advertisers.

 


 

 

Consumer Mobility Picking Up

Facebook attributed consumers returning to stores as part of why it saw a slowdown.  In addition, Amazon indicated it felt consumers started spending more on other things like travel as it looked to explain its decelerating retail and ad revenue.
 
Facebook seeing eCommerce taper: “The strong e-commerce growth in recent quarters was driven in part by the acceleration of the digital transformation that is now tapering off.” 

Amazon seeing more mobility: “Consumers have started to return to pre-pandemic spending patterns, increasing their mobility and spending more on travel and services in Q2 and Q3, but we are appreciative that the incremental demand that came our way during the pandemic has remained and that we are continuing to grow on top of that.”  [Editors Note: This feels sort of like when B&M retailers blame the weather for poor comps, and it's the first time I've seen Amazon management say something like this. ?]
 
Google betting consumers want both physical and digital experiences: “the consumer shift to digital is real and will continue even as we start seeing people return to stores. Shopping habits have ebbed and flowed over the last 20 months, but the underlying takeaway is that people want more choice, they want more information, more flexibility, and we don’t see this reversing.”
The company is now planning an IPO at a $6 billion valuation after GMV has grown 82% on a two-year stack basis. 
 

Apple's Privacy Issues Impact Market

Facebook and Snap appeared to be the most negatively impacted from Apple’s ATT initiatives.  The companies are finding it difficult to measure performance and target consumers, both of which are related to each other. 
 
As Snap put it: “advertisers are no longer able to understand the impact of their unique campaigns based on things like time between viewing an ad and taking an action or the time spent viewing an ad. Additionally, real-time campaign and creative management is hindered by extended reporting delays and advertisers are unable to target advertising based on whether or not people have already installed their app.”

 

 

Amazon did not comment on ATT, while Google and Twitter indicated they were mostly not impacted.

Snap quantifies the impact at $3 million for quarter: “…we missed the lower end of our guidance by $3mm due to a few key factors, including changes to advertising tracking on iOS and macroeconomic factors that have impacted our advertising partners. Our advertising business was disrupted by changes to iOS ad tracking that were broadly rolled out by Apple in June and July. While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS. We have remained very focused on driving ROI for our advertising partners, and we continue to see strong consistent performance on our ad platform based on first-party data and conversion lift studies, and are working on building flexible first-party tooling and measurement solutions to serve the diverse needs of our advertising partners.”
 
Facebook is positioning Apple’s privacy measures as coming at the expense of small business: “…we did experience revenue headwinds this quarter, including from Apple’s changes that are not only negatively affecting our business but millions of small businesses in what is already a difficult time for them and the economy.”
 
It will take Facebook years to build new approaches to ATT: “Our direct response products are built on user-level conversion, and as a result of the iOS changes, we don’t see the same level of conversion data coming through, so we have to rebuild our targeting and optimization systems to work with less data, so this is a multiyear effort.”
 
Twitter experienced better than expected results: “Since the launch of ATT in April, we’ve invested in supporting SKAdNetwork, opening up 30%-plus more inventory and scale on iOS and launched support for view-through attribution and SK-campaign ID management features in the Twitter Ads Manager. It’s still too early for Twitter to assess the long-term impact of Apple’s privacy-related iOS changes, but Q3 revenue impact was lower than expected, and we’ve incorporated an ongoing modest impact into our Q4 guidance.”
 
Google also saw a minimal impact: “In terms of the iOS 14 changes specifically, they had a modest impact on YouTube revenues. That was primarily in direct response.”

 

Building Social Commerce

As technology increasingly enables consumers to go from product discovery to buying immediately, social and search platforms are increasingly looking to enable check-out “within app”.  While this has steadily been building over the last five years, Apple’s ATT initiatives make it more imperative for social platforms to do this as they need to be able to accurately measure and target their users with personalized ads.  It remains an extremely small sales channel at the moment, and it will take years to build it into a more meaningful channel for consumer brands.

 

Snap is investing in Augmented Reality: “We have continued to roll out a number of tools and capabilities to help empower AR commerce on Snapchat. Not only can our AR try-on technology drive higher return on ad spend for businesses, but it can also deliver a huge uplift for brands because Snapchatters can visualize what they look like wearing different products.”
 
Facebook sees this as a multi-year journey: “As Apple’s changes make e-commerce and customer acquisition less effective on the web, solutions that allow businesses to set up shop right inside our apps will become increasingly attractive and important to them. We build solutions like ads that can dynamically point to either a business’ website or their shop on our platforms depending on what will perform better for them and that will help more businesses navigate this challenging dynamic environment. Building a full-fledged commerce platform is a multiyear journey.”
 
In the near term, Both Facebook and Google are doing livestreaming:

  • Facebook: “Starting next week, we’ll host daily live shopping experiences with companies, large and small, brands like Walmart, Macy’s, Benefit Cosmetics and Paintbox Nails to educate shoppers and share exclusive deals.”
  • Google: “There is a lot more to come including tapping into commerce on YouTube. From shoppable live-stream experiments with retailers like Sephora, Target and Walmart to pilots that let viewers buy directly from the favorite creators’ videos, we’re still in the early innings of what’s possible.”

 

Future Investments

Augmented Reality at Snap: “Augmented reality is one of our most exciting long-term opportunities because it is simultaneously very early in its technological development and already used by hundreds of millions of people.  More than 200mm people engage with AR every day on Snapchat across a variety of use cases, including entertainment, fashion, education and the arts.”
 
Paid Search & Video at Amazon: “We still see there’s a lot of opportunity in…sponsored activity…continuing to find ways to just measure that information and be able to service it credibly and quickly and improve on that for advertisers out there.  There’s a lot of excitement in the Video advertising area…It’s not the biggest piece of that run rate that you see in there, but growing well. And I think just the technology we’re able to develop some of the relationships that we’ve been able to foster with things like live sports, the opportunities with the Fire TV device and the Video community and where we can reach folks through those areas is really exciting. IMDB TV, our ad-supported channel continues to do really well.”
 
The metaverse at Facebook: “Beyond Reels and commerce, I also want to share some thoughts on our longer-term efforts to build the next computing platform and help bring the metaverse to life. This is a major area of investment for us, and an important part of our strategy going forward, and I view this work as critical to our mission because delivering a sense of presence, like you’re right there with another person, that’s the Holy Grail of online social experience.
 
Over the next decade, these new platforms are going to start to unlock the kinds of experiences that I’ve wanted to build since before I even started Facebook. Along with those social experiences, I expect a massive increase in the creator economy and amount of digital goods and commerce. If you’re in the metaverse every day, then you’ll need digital clothes and digital tools and different experiences.
 
Our goal is to help the metaverse reach a billion people and hundreds of billions of dollars of digital commerce this decade and strategically helping to shape the next platform should also reduce our dependence on delivering our services through competitors. Building the foundational platforms for the metaverse will be a long road.”
 
Too Many Old People on Facebook: “we are retooling our teams to make serving young adults their North Star, rather than optimizing for the larger number of older people. Like everything this will involve trade-offs in our products and it will likely mean the rest of our community will grow more slowly than it otherwise would have, but it should also mean that our services become stronger for young adults, this shift will take years, not months, to fully execute, and I think it’s the right approach to building our community and company for the long-term.”
 
Personalization at Twitter: “one of our biggest priorities in the company right now is personalization. So we’re going to put a premium on finding all the right signals to make sure that you’re not just seeing more relevant ads but you’re seeing more relevant tweets as well. These are very similar systems. So, I don’t think it’s all that far off and that we can start using more and more of these signals to increase the relevance of what we show. But this is the greatest opportunity for us in terms of relevance, and that drives everything from growth in usage but also to our advertising business.”