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Reshape Digital #5: Life After Ads
How overinflated expectations for digital advertising are misleading digital marketers, why some companies are divesting from digital advertising, and what to expect after the digital advertising bubble pops.

This is a companion piece to this week's episode Reshape Digital. Click here to listen!

 

Is digital advertising dead?

“Obviously not, it’s never been bigger. 2019 is the first year digital advertising investment will outpace traditional advertising.”

This is true. It is also true that Amazon is expected to grow its ad business by 50% this year, taking third place behind digital ad giants Google and Facebook.

That being said, the answer to the previous question is not as simple as it seems. The assumption that the growth of digital advertising will continue at this rate indefinitely is fundamentally flawed. The belief that ad targeting will become so advanced in the future that every ad shown is almost certain to result in a purchase is an example of the slippery slope fallacy.

The reality of digital advertising may be a lot gloomier than many digital marketers care to recognize or admit.

Here’s why.

Growing Uncertainty

The first sign that something is amiss is the uncertainty felt by marketers engaged in digital advertising in the first place. According to Nielsen’s CMO Report in 2018, 82% of marketers plan to increase their digital ad spend, but only 26% are confident in the return on investment.

Furthermore, a recent CMO Council study found that 21% of marketers are pulling backdigital ad spending altogether, citing poor campaign performance as the reason.

Something is clearly going on here, and whether this uncertainty stems from a lack of confidence in advertising platforms or in digital advertising itself remains to be determined. Like many things, I think the answer is somewhere in between.

Out-of-control advertising platforms

Let’s begin with the major advertising platforms: Facebook and Google. We start here because these two firms alone control 70% of the digital ad market. Advertising also accounts for 98% of Facebook’s revenue, and 86% of Google’s. Let’s see how they’ve been doing.

Although ad spending on Facebook has bounced back up from the slump following the Cambridge Analytica scandal, ROI never truly recovered to where it was previously. Facebook alienated a significant portion of its userbase following this privacy breach, decreasing its value as an advertising platform.

Facebook’s dishonesty around video ad metrics has also plagued the company’s reputation as an advertising platform. Publicis Media found that Facebook overestimated the amount of time spent watching videos by between 60% and 80%. This suggests that marketers have been making budgetary and strategic decisions around the social network based on faulty data.

Google and YouTube, on the other hand, ran into issues involving brand safety. The companies lost a large number of prominent advertisers, such as the Guardian and the UK government, due to concerns over their advertisements being shown alongside material they deemed inappropriate and not in line with their brand’s values.

Another issue with these companies controlling such a vast portion of the digital ad market is that all marketers and advertisers involved are subject to the whims of these companies and must adjust their strategies accordingly. This can prove costly. For example, when Google introduced Enhanced Campaigns, the company eliminated the possibility to segment by device. The change was only temporary as a result of an outcry from Google’s advertisers. This example illustrates the danger of investing too heavily in a single platform or putting all of your eggs in one basket. This classic investing advice is as applicable to marketing as it is to buying stocks.

The bottom line with the major advertising platforms is that advertisers are rapidly losing trust in them. Due to overwhelming market share, this presents significant implications for digital advertising in general.

The digital advertising bubble

Let’s give the advertising platforms a break for now and focus on digital advertising itself.

While far from the conventional wisdom, you’ll find there are a number of commentators arguing we’re actually at the height of a digital ad bubble. Generally, whenever there’s any sort of financial bubble, the conventional wisdom (and Facebook’s skewed ad metrics) serves to inflate it. Let’s look at why this might be the case.

There is a growing fear that increased investment in ads will be lost to bots. There is truth to this. In fact, there is a $19 billion dollar industry based on digital advertising fraud. Moreover, one in five ad clicks in 2017 were fraudulent. Improvements in artificial intelligence tend to offset this cost to advertisers, however, it will always be a constant struggle requiring more advanced and more frequently updated algorithms than the fraudsters themselves can provide. Ad fraud can be fought, as it should be, but like crime in big cities, it will always be a problem for digital advertising.

Ad fraud is problematic, so companies like Google and Facebook are investing heavily in fighting it. But who watches the watchers?* As mentioned previously, Facebook’s feet were held to the fire after it was revealed the company was artificially inflating video ad metrics.

A lack of precision in digital advertising has also led to a loss of confidence in the channel. An Accenture study found that fewer than 20% of the audiences reached by the chief marketing officers studied were actually the right customers for the product being advertised. While it is expected that marketing campaigns will never be completely precise, the reality of digital advertising is far from the hyper-targeted, personalized dream that digital advertising is supposed to be. In other words, the value of digital advertising has been grossly overestimated, further inflating the bubble.

*I suppose the US government does. There’s serious talk about regulators breaking up the “Big Four”: Google, Facebook, Amazon, and Microsoft. The first three make up the bulk of the digital advertising market. The possible implications of this are beyond the scope of this piece, but still worth noting.

People and ads

Another thing to note is how people (real people, not bots) interact with digital ads. The increased popularity of ad blockers is expected to cost ad platforms $40 billion in lost revenue by 2020. Apple exacerbated the problem by controversially supporting ad blocking technology in iOS 9. Furthermore, over one-quarter of desktop users use ad blocking software.

When people aren’t using ad blocking software, research indicates they’ll resort to other means: skipping or muting ads, doing something else, or physically turning from the screen to avoid them. As for static ads, 45% of people don’t even notice them anymore, indicating that digital ads are so abundant they are largely just noise.

The intense targeting and reach that makes digital advertising so popular has also proven to be a double-edged sword. According to Hubspot Research, 91% of people say ads are more intrusive today than they were 2-3 years ago, while 87% believe intrusive ads give them a poor opinion of the brands being advertised.

We talked about bots creating fraudulent clicks. Real humans are doing the same, only by accident. Research shows that a sizeable chunk of ad clicks are accidental (and up to 60%on mobile due to “fat fingers”. I suffer from this personally, and can’t click an “X” to save my life). To their credit, Facebook and Google have implemented strategies to reduce accidental clicks. Regardless, accidental clicks have grossly inflated expectations for digital ads over several years.

With these shifts in digital advertising, it’s no wonder companies are starting to worry about declining ROI. Consequently, many assume they need to double down on digital advertising or hire a consultant to accomplish objectives. Unfortunately, these companies are missing the opportunity to rethink digital advertising in general.

What does “life after ads” look like?

A number of companies have already identified the issues plaguing digital advertising, the most notable being Procter & Gamble.

The firm made headlines last year when they cut their digital marketing spend by $200 million due to concerns over a lack of precision and brand safety. By reinvesting in other channels, P&G actually increased their reach by 10%, concluding that the ads they stopped investing in were largely ineffective to their business goals.

If a multinational corporation like Procter & Gamble can’t determine an effective ROI from digital ads, what makes small to medium-sized companies think they can?

Sometimes it’s good to go against the grain, as P&G did. Here are five strategies that will play a more significant role in a “life after ads”.

Avoiding Ad Platform Inflation

“Life after ads” is admittedly a misnomer - I don’t advocate writing off advertising altogether. A problem with digital advertising is rising costs due to swollen platforms like Facebook and Google (this is due to increasingly expensive keyword auctions and competition over time).

Instead of investing in extensive research and keyword auctions for the major, troubled ad platforms, a more prudent strategy would be to invest in arbitrage opportunities: discovering newer advertising platforms that still target your audience but are less expensive for early adopters.

This approach also takes the focus off of attempting to master a particular platform. It’s about cultivating flexibility and a broader view of the advertising market in digital marketing teams.

Better Native Content

The New York Times set a new standard for content publishers by removing more traditional banner ads from their website and replacing them with more compelling native content. While native content gets a bad rap, research indicates it’s received more warmly by visitors than display ads. Furthermore, the quality of native content will go up as more marketers commit to it. In fact, for the New York Times, native content often performs as well as their editorial content.

Creating real demand

The point of targeted ads is to capture existing demand from people with a high probability of buying. This is all well and good, but digital marketers run into a couple of problems. First, as discussed previously, the accuracy of the targeting itself is questionable. Second, and more importantly, digital marketers often neglect an important duty of marketers in general: to generate new demand.

There are missed opportunities and unseen costs of focusing on capturing existing demand through in-depth keyword analysis and hypersegmentation. Capturing demand is only a part of what should be a far broader marketing strategy.

An end to obsessive campaign management

In life after digital ads, obsessive micromanagement will likely come to an end. Ad performance analysis is, by design, just as habit-forming and addictive as social media can be. It’s gamified through beautiful visual representations of data and benchmarks, leading many well-meaning marketing managers to interrogate their team when clickthroughs drop .5%.

Many marketers then draw conclusions based on digital campaign results and in-depth analysis of user behaviour. When decisions are based on razor-thin margins, the likeliness of getting things wrong goes up.

In the past, to understand “user behaviour”, marketers would conduct product testing, interviews, and surveys. In life after ads, market research may one day involve real people again.

Creativity over technology

Finally, the greatest advancement in digital marketing in life after ads is a return to genuine creativity over technology. The dependence on major ad platforms has spurred an additional dependence on a multitude of technologies to analyze data, consolidate campaigns, and discover audiences. As a result, the “marketing technologist” has emerged as a new role to bridge the gap between traditional marketing skills and the need to leverage the technology.

As the research has shown, a lot of digital ads are unwelcome noise to users. The same research shows that most people actually don't mind ads as long as they are interesting and unintrusive. The solution to this problem will require creativity, not a flashy new tool.

Takeaway

It’s not all doom and gloom: Facebook and Google, along with 21 other ad platforms, signed a commitment to adhere to proposed “Gold Standards” in digital advertising. Google recently introduced its own ad-blocking software in the Chrome browser to punish advertisers for intrusive ads. Whether this shift has occurred too late has yet to be determined. It’s a good sign, but it also doesn’t resolve other issues such as overinflated expectations for digital advertising.

It should be stressed that digital advertising, like every other channel, has its downsides, but shouldn’t be written off entirely. It’s still a great way to reach audiences. My hope in writing this piece is to deflate expectations for this particular channel and encourage businesses to diversify their marketing portfolio as much as possible.

When the digital advertising bubble pops, digital marketers won’t revert to traditional media, but a traditional method. Genuine creativity will become more important than knowing how to manage a PPC campaign.

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Chris is OPIN's resident marketing scientist. Obsessed with testing and tweaking, he is constantly uncovering new patterns. His obsession with testing helps the agency gain insights for internal marketing campaigns and client projects. His unconventional methods help our readers look at business and marketing concepts in new ways.