The Economist October 30th, 2021 pp72 |Schumpeter|Mad Men v machines|”The three unknowns of the modern advertising age”
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“It was never quite clear whether the adman was artist, scientist, strong-livered smoozer or con man.” Those in the know tend to suggest that the economic cycle, read GDP, has more to do with advertising than “all the wit and wiliness on Madison Avenue.” In 1904, the Atlantic commented “75% of advertisements did not pay: yet the other 25% paid so well ‘there is scarcely a businessman who is prepared to stand idly by.’”
Of course, we have been and are in the rising era of digital advertising which has grown from 27% of spend to 52% while TV, the second biggest outlet for advertising, has fallen from 42% to 33%.
Who's spending on digital advertising?
Short answer, there's very little data. It is estimated that Facebook’s ad spend includes $10bn from Chinese manufacturers. Similarly, 40% of Amazon’s “marketplace sellers are from China.” Beyond that, nobody can point to data quantifying “the number of small versus large advertisers, and whether they are paying for brand-related advertising or for direct sales.”
The pandemic changed a longstanding correlation between economic activity and spending on advertising
With the pandemic, the linkage between GDP and ad growth departed from direct correlation but that spending did correlate directly with the rise of e-commerce. As their are reports of some economic slowing some wonder whether the rate of new e-commerce start-ups will beging to wane. For sure, experts trust that ad spend will again correlate with GDP as we move away from the pandemic.
What's the impact of Apple's new privacy rules?
Recently, Apple created new privacy rules for third-party but not their own advertising. Only “one in five app users have opted in to being tracked since Apple’s iOS 14.5 launch in April [which] gave them the option to choose.” Seems users agree with Apple’s stance on privacy. So while ad revenues are reportedly slightly down, in the face of Apple's new rules, for Snap and Facebook, Apple’s advertising revenues are reportedly booming. Google’s (Alphabet) too recorded “its highest sales growth in more than a decade in the third quarter; its search engine, source of almost all of its ad revenue, seems immune to Apple’s changes. Facebook is, coincidently or not, partly circumventing Apple's rules by moving more into “virtual-reality headsets and 3D digital worlds it calls metaverse...”