“In 2023 we almost survived. We’re in the midst of a revival where things are perhaps not as bad as we thought. And, there are many conditions that would suggest we’re in a position to thrive going forward.”
It’s not a ringing endorsement of the health of the digital marketing sector, but, as keynote speaker Luma Partners’ Founder and CEO, Terence Kawaja, put it at NDA’s recent Foresight event, (quoting Scott Galloway), the industry has been on a dose of “corporate Ozempic”. In essence, faced with a potential recession, the sector responded with “a year of efficiency” that put companies in a position to actually move forward and thrive.
“Cuts were made in anticipation of a recession that never happened, digital ad spend growth continued through Q4 of 2023 and it is expected to grow at 13% for the next several years,” he reveals. That’s better.
The result has been a lot of talk about new deals in the market – rationalisation and strategic – that are strengthening positions and exploring new areas. Subscription companies like Netflix have realised that advertising is also pretty fundamental to revenue and now even retailers are joining the party.
“Another major impact is the government. We have seen it enter into our sector [much more] than in the past. All of a sudden, it is super interested in the sector and that has manifested in privacy legislation and enforcement, as well as antitrust like blocking specific deals and potential limitations on foreign ownership,” Kawaja explains.
Could Google find itself part of this scrutiny? Kawaja paints the picture of a potential divestment of businesses, anticipating that Google might not be too happy to spin off parts of its lucrative enterprise. “They’re fighting this, obviously, but I argue it’s not that negative. It’s clearly great for the adtech ecosystem because it would oxygenate the market. I even argue it’s not that bad for Google. [Its adtech business] is its lowest margin business by far, its slowest growing and its biggest source of regulatory headaches.”
There’s no doubt the landscape is changing – and is in need of change. Kawaja suggests that the complex programmatic or open web environment is also seeing a change of scenery. From walled gardens and open web, we now find ourselves in the middle with ‘hedged’ gardens.
“These are large firms with huge pools of first-party data but insufficient to compete with big tech walled gardens. They have to go outside their network to build scale. Due to the enforcement of privacy legislation, we’re seeing the companies who historically operate in the open web also shifting to hedged gardens,” he explains. “We’re going from a third-party world where we had scale, ubiquity and ease, but lacked fidelity, control and privacy, to one where [it’s switched].”
Programmatic will experience some headwinds, but for data collaboration companies, clean rooms and those who are building cookieless solutions and non-audience-based targeting – the future looks rosier. Yet, Kawaja notes, we’re yet to see anything significant happen as a result of the new landscape.
“Adtech is the Peter Pan of industries – it’s highly fragmented and yet to grow up,” he warns. Every other industry, he points out, goes through a period of rationalisation but adtech has yet to do it in any meaningful manner. “We need consolidation” he insists.
But, you could almost say, ‘twas ever thus. The big story, Kawaja says, is commerce media. It’s a channel and a layer, sitting in the hedge garden world but also buying media in the open web. “We’re seeing a ton of partnerships, taking advantage of cutting deals and buying inventory in walled gardens as well.”
There are the anomalies. Despite progress being seemingly everything digital, linear TV is, he says “hanging in there”. This is predominantly down to sports but, he does add that CTV is the future. “It’s growing consumer habits such that they want everything streamed. This is why Amazon, Apple and Google have all made substantial investment in sports.” It will, he predicts, “break the back of the cable bundle”. It will, he adds, “democratise TV ad spend. The reality is, with targeting, you can go to the torso and the tail of thousands of advertisers and build a much better business model.”
Of course, if you’re going to talk about targeting at speed and at scale across multi-platform, involving myriad different data sources and types, you can’t avoid the AI discussion. It’s not so much the elephant in the room as it IS the room.
“There’s a lot of hype, whether it’s start-up activity, funding and certainly media coverage. The reality is, it’s coming. Value creation exists and potentially a paradigm shift. But there is a gap between hype and reality,” Kawaja warns. “We’ve seen this before with other trends that didn’t quite manifest.” The difference is, he adds, we’ll see its monetisation.
He notes that we may have passed the peak of inflated expectations and yet to plummet to the trough of disillusionment. “Visitation on sites like ChatGPT have plummeted. I don’t know what this is but it’s a trend I’m going to keep my eye on it. If the consumer doesn’t do it, it will have limited application.”
Kawaja remains positive. “There’s so much opportunity to improve the outcome [of ad performance]. We’re not talking 10%, we’re talking 10 times. AI could fundamentally redo search, because you’re getting answers instead of questions. We’re in for some interesting times.”
