Month: July 2022

“TikTok unlocked a whole new world for us,” said founder Ty Hiss, adding that the company’s customers often post unboxing content when they receive their flowers and that user-generated content has been successful for the brand. “We got a ton of site traffic from a TikTok where someone got a Fresh Sends and they wanted to share their unboxing experience. Now, we have seven million views of people unboxing their Fresh Sends on TikTok. People love to share about what they received.” 

The in-house creative team will add a content strategist as well as an influencer marketing team member to work alongside the company’s chief creative officer. Hiss envisions the in-house creative team growing to between 5-6 members in the next 12-18 months. All of the company’s advertising has been made in-house; adding to the team will help bolster its capabilities. Currently, Fresh Sends has 20 total team members working out of a 6,000-square-foot warehouse in Denver, Colorado.

During the company’s first year, it generated half a million in sales and generated roughly two million in sales with a growth rate of 300% in its second year, per Hiss, who added that the company is on track to grow at a similar rate this year.

When it comes to ad spending, Fresh Sends dedicates roughly 50% of its ad dollars toward Instagram and roughly 15% to TikTok with the rest of the budget dedicated to Pinterest, Facebook and influencer marketing. It’s unclear exactly what Fresh Sends spends on advertising as Hiss did not share those figures. Per Pathmatics data, the company has spent $10,800 so far this year on advertising, $24,900 on advertising in 2021 and $101,500 on advertising in 2020.

That said, the “ad spend isn’t getting as good of a return on investment as it was maybe 8-10 months ago,” said Hiss, adding that as part of the reasoning for its internal creative team investment. “We’re pivoting toward increasing our in-house resources and creating organic content.” 

When it comes to creating content, the company looks to that of brands like Glossier or Outdoor Voices, brands that have “done a good job of making customers see themselves via [their ads] in their Instagram feeds,” per Hiss. Finding a way to make ads have a user-generated content feel as well as using UGC content — which has been “one of the best converters,” said Hiss — is part of the strategy for organic content going forward.

“UGC can work for sure,” said Duane Brown, founder of performance marketing agency Take Some Risk, a shop that has worked with a number of DTC brands, when asked about the strategy. “Though it’s not the silver bullet that a brand should only be making UGC to grow.” 

Brown continued: “Different pieces of ad types appeal to different types of customers. No brand has just one type of customer. It’s important for a brand to think about who they are trying to attract and what type of ad content will appeal to them.” 

Fresh Sends is also looking to explore ways to meet customers in-person with marketing and advertising tactics going forward to diversify its marketing approach. What that will be — experiential or a pop-up or something else — is yet to be determined.

The exact nature of Microsoft and Netflix’s partnership remains ambiguous with Netflix COO Greg Peters noting that ads served on Netflix will be exclusively available through the Microsoft platform and lauding his partner’s “flexibility to innovate over time on both the technology and sales side.”

Sources told Digiday that they were, in part, surprised at Microsoft’s selection as Xandr, formerly known as AppNexus, doesn’t have as much traction among streaming and digital video advertisers.

Compared this to the vast experience of Comcast and Google, the two hotly-tipped contenders for the contract to operate Netflix’s advertising ad stack in the run-up to last week’s announcement.

It was the neutrality, stupid …

Some speculated the advertising tie-up may be a precursor to a lucrative cloud services contract that would involve Netflix migrating from Amazon Web Services to Microsoft’s Azure.

Although multiple sources, all of whom requested anonymity due to the sensitive nature of the discussions, told Digiday it was Microsoft’s lack of a competing streaming service (unlike Comcast’s Peacock or Google’s YouTube) that ultimately saw it emerge victorious during the request for proposal.

Earlier this year Microsoft Advertising chief Rob Wilk explained how CTV would play a key role in the company’s advertising ambitions and that offering cross-screen attribution capabilities would also play a key role in its go-to-market strategy.

Microsoft declined Digiday’s request for clarifications over what aspects of its platform will be made available to ad buyers at launch. Although since those inquiries, certain details have emerged with Insider reporting that revenue guarantees — these usually played a key role in winning RFPs during the early days of ad tech — from rival contenders were “underwhelming” (Google’s included), a sign that Netflix wants revenue, and fast.

Multiple Xandr sources contacted by Digiday claimed negotiations with Netflix were led by Microsoft’s team with few staffers there claiming knowledge of just what ad tech capabilities would look like at launch.

Open or closed?

One key question that many still ask is what the word “exclusively,” used by Microsoft in its announcement will mean in actuality — and whether it will primarily revolve around the Xandr ad server or the entirety of its stack, including its demand-side platform?

Popular opinion remains divided with some noting a fully exclusive, or “walled garden,” approach would represent a complete U-turn compared to the AppNexus messaging of a decade ago, while others claimed rival DSPs, such as The Trade Desk, still harbor ambitions of access to Netflix inventory.

One senior source at an agency holding group, who requested anonymity due to their employer’s PR policy, also noted how Microsoft (and Xandr) reps have had few details when colleagues inquired for further details in the last week.

Although, the source noted how any revenue guarantees made to Netflix are likely to be carried over when it comes to how sales reps are likely to lobby Madison Avenue.

“They’ll want to make sure it lands with agency holding groups really well, as they (ultimately) know that Netflix needs money, so they’re undoubtedly going to be going out there asking for huge commitments,” said the source. “They’ll be asking things like, ‘How much are you going to commit to us this year or spend over three years?’ that’s almost certainly going to happen.”

Suzane Mokbel, director of marketing tech & data at Madison Alley, said that while the technical details of the partnership have yet to be made public, the “exclusive” wording in the announcement most likely referred to Xandr’s ad server.

“Xandr can enable other DSPs to buy through to Netflix,” she wrote in an emailed statement, adding that programmatic buys are likely to be on offer when it launches next year.

“We believe the most efficient way to buy Netflix inventory from Xandr is through PMPs [private marketplaces] … Those deals can be created directly (with Netflix) by programmatic media buying agencies or platforms. Those that can bring in scaled demand, have the proper targeting technology, data infrastructure, and seamless integration will be the first to help Netflix monetize its inventory.” 

Separately, the agency holding group source, remarked how the availability of Netflix inventory could amount to a make-or-break proposition for Microsoft’s ad tech ambitions. “Both Microsoft and Xandr know this is a huge ticket which could bring them from irrelevancy back into the forefront of DSP choices.”

Meanwhile, Paul Coggins CEO of Adludio, an ad tech company that partners with Xandr to use its sell-side product Curate, noted how the potential for audience overlay is likely to command a premium.

“For an advertiser, the potential to overlay Netflix data with [Microsoft] Xbox data would be incredibly powerful,” he added. “This is just an assumption but you have to think that this would be one of the roots of success.”

As fears of a mounting recession percolate through the industry, some esports executives believe private ownership remains the safest way forward, in light of the middling performance of other recent SPAC deals in media and entertainment.

“Our belief is that going public is a massive undertaking; I think the public markets are a challenging place for any company that isn’t profitable and doesn’t have a clear pathway to profitability,” said Adam Rymer, CEO of the prominent private-equity-backed esports org OpTic Gaming. “In terms of access to capital, it’s very hard to tell your story to a public market in a way that you can raise enough at the right price point.”

Indeed, although many investors entered esports in search of a quick buck, it’s becoming increasingly clear that most esports companies are still in the pre-product stage — they have significant brand recognition and hype, but few tangible products to actually sell to consumers. Esports executives are deeply familiar with the passionate fandom generated by gaming and esports and confident that this passion can be turned into a profit, but this is a long-term vision that requires patience and careful shepherding.

That’s not to say that private ownership in esports is all upside. Public companies can more easily raise new capital by selling stock into the market, though plummeting stock prices might put a damper on this activity. On the other hand, venture-funded private esports orgs rely on the whims of institutional investors that could be scared off if more difficult market conditions emerge. Privately held esports companies that desperately need funding may be forced to do a down round, further eroding investors’ confidence in them.

Fortunately for FaZe Clan, the company has made a noticeable effort to develop more tangible revenue streams in the lead-up to its public offering. In recent years, the company has consciously expanded from competitive gaming into the broader entertainment world, producing high-production-value streamed shows, podcasts and other homegrown intellectual properties to act as fodder for lucrative brand partnerships. The organization plans to secure further revenue streams in the near future, with CEO Lee Trink telling The Washington Post that the company is exploring the gambling and dining sectors, as well as the Web3 space.

“When I think of FaZe Clan, I think of Interscope Records, the label that had Eminem and Dr. Dre. That’s the feel I get, where you’re jumping into lifestyle, apparel, video content, selling products,” said Mark Elfenbein, CEO of the publicly traded gaming and esports company X1 Esports and Entertainment. “So I think they are relatively diverse already, with regards to some of those things — ahead of the other organizations. They’re already moving in those types of directions.” 

The diversity of FaZe’s revenue streams could help raise the morale of skeptical investors, but its greatest challenge in entering the public market could be the inherent volatility that comes with its crass, gamer-fueled ethos, which some critics have described as toxic or offensive. Last year, the company suspended three members after they were accused of scamming their fans with a crypto rug-pull; the organization still hasn’t made a public response addressing a homophobic tweet posted and deleted by team member Talal “Virus” Almalki on June 1. For now, the bulk of FaZe’s revenues come from brand partnerships, and the company could be in for an investor-spooking reckoning once non-endemic brands become more aware of these questionable activities.

“The uncertain, in some ways intangible nature of their brand means that having an associated share price — which becomes paramount when a company goes public — is a massive risk. You’ve also got to consider the reduced number of SPACs recently, crazy inflation all over the world, an uncertain geopolitical climate,” said Billy Studholme, an industry observer and former editor at Esports Insider. “It’s a huge risk for a company like FaZe to go public now. And whatever happens will ripple through the content industry.”

Tejas Dessai, research analyst at Global X ETFs, said that while consumer growth is unpredictable, the esports industry may hold steady despite poor macroeconomic conditions:

“We’re in a twisted macro environment, with rising interest rates and high inflation, and that is certainly hurting the narrative around consumer growth, including areas such as gaming and esports.

However, we believe gaming and esports could in fact be relatively much more resilient to macro conditions than some of the other pockets of consumer technology. Firstly, gaming companies have a strong balance sheet with relatively low debt and plenty of cash on hand. Those that find themselves in a softer competitive position have been exploring [mergers and acquisitions] for a while. Regardless, staying true on commitments and previously made sponsorship deals shouldn’t be a problem. 

Secondly, if we look at previous bouts of major recession, be it 2000 or 2008, we can see ample evidence that spending on gaming worldwide has been relatively resilient and inelastic to macro weakness — even expanding healthy through periods when the broad economy appeared shaky. One of the reasons this could be true is because gaming is primarily a hobbyist activity, something that doesn’t exactly cost extra money to engage in, other than the users’ time. You likely already have a console or a smartphone or a PC setup to play. And gamers tend to have strong loyalty, with hardcore players having so much of their social lives and entertainment structured around gameplay.”

What makes esports unique amid the recession?

Jeffery Levine, assistant clinical professor at Drexel University, said diversification might be the key to esports staying afloat during a downturn:

“Esports is a nimble and continuously evolving industry. The emerging trend in esports is revenue diversification. If esports stakeholders can cultivate a variety of commercial rights beyond sponsorship and broadcast deals, such as intangible products, traditional products/merchandise, experiential products, content creation and other brand extensions that are derivative from its intellectual property rights, that will go a ways to fortify them from recession. Esports consumers are intensely loyal, so there is likely a market for these products. These diversity of revenue streams may help backstop some stakeholders through a recession, and perhaps lend credence to recent organization valuations.”

How can the last recession inform how the upcoming one will impact esports this time around?  

Jordan Edelson, founder and CEO at TradeZing, is more confident in esports’ ability to combat the upcoming recession than the 2008 market crash, due in part to the validity that gaming now has as a “real sport”:

“The esports industry is better positioned for the current economic downturn than the last one that we saw in 2008-2009. There has been tremendous growth and validation in the sector, evidenced by the successes of merchandising teams and the acceptance of these games as a real sport. Esports is no longer viewed as experiential marketing, but rather a successful business with proven, impactful and measurable results for brands, well positioning the industry to weather the impending recession. 

However, when times are tough, sponsorships and advertising dollars might be dialed back or reallocated. Instead of renting out the expensive stadium for a live event, we may see companies begin to host events on YouTube or Twitch to cut costs. While there might be a slowdown in the shorter term during market declines, I am not concerned about it in the long run as brands now see the value of advertising in the esports and gamer industries.”

Will the role of sponsorships in esports change? 

Thamba Tharmalingam, chief operating officer of Enthusiast Gaming, gave insight into how the recession will impact partnerships and sponsorships in relation to esports:

“From an advertising perspective, Thamba sees myriad opportunities for advertisers to continue to tap into this segment and offer experiences that do not disrupt play but instead, contribute to the overall experience. Immersive ad experiences and a captive audience creates the perfect storm for brands to reach, interact with and influence the gamers. Currently, Enthusiast Gaming does not anticipate a slowdown in sponsorship opportunities or partnerships — they may actually experience an uptick as marketing and advertising dollars shift to focus on more efficient and justifiable ROAS (return on ad spend).”

David Leonard, The Switch’s director of sales, noted that the structure of sponsorships in esports might change given the new economic landscape:

“Despite concerns about the economy, esports is in a good position as growth and interest remain strong globally. Esports is unique in that it’s far more reliant on sponsorship deals than media rights, so any economic hit on the latter would have far less of an impact than it might on other sports. The only concern would be that the structure of sponsorships in the esports world is that many deals are agreed on a short-term, or event-by-event basis. A long-term deal in esports could be seen as a one-year contract, for example, whereas in other sports this would be considered short. This structure could adversely affect some esports organizations in an economic downturn — as it’s easy for a sponsor to decide to not renew for a season or a number of events as temporary cut-back. What esports organizations want to move towards is establishing long-running deals that cover a number of years as standard practice going forward. That will give them more protection through the ups and downs of the economic cycle. Overall, esports should withstand any economic turbulence without much difficulty. Its growing popularity, constant innovation and ability to give its fans the coverage they want feeds continual audience growth, helping to sustain leagues and event organizers through the good times and the bad.”

What makes esports successful in a climate of uncertainty?

Mike Vela, founder and CEO of World Champion Fantasy, said the nature of esports during the pandemic may be indicative of what’s to come, as esports continued with its success while other industries plummeted in the wake of restrictions. Vela said this is actually key to esports weathering the storm:

“No industry is recession-proof, but the fact that esports is something you can participate in without leaving your home helps tremendously in times of economic uncertainty. The esports industry will weather this storm. This was evident during the 2020 global pandemic when esports continued to grow. The esports industry is one of the fastest-growing industries in the world, so even a slight slowdown will not halt all of the progress made over the last 36 months. 

Esports viewership may actually go up, as the economic impact hits households. Revenue in general for anyone right now is going to take a hit, from big business that would advertise on our platform to individuals spending money on in game purchases. The hurdle will be providing value to consumers through engagement and enhancing the viewer experience. That is exactly what we are doing at World Champion Fantasy. Creating the next generation of fantasy sports, we will continue building regardless of external factors. 

As we all know, when the economy is good valuations skyrocket as we have seen in 2021, but economic downturns are when REAL businesses with value are built. The power of esports in our world today cannot be compared to anything in our history, because of global engagement, technology and accessibility.”

Although there is not yet a timeline for next steps, the landmark legislation still needs to gain the support of key members of the House and the U.S. Senate. However, industry groups said changes are needed while privacy advocates look to prevent the federal law or states’ equivalents from being watered down.

Key aspects of the ADPPA include requiring companies covered by the bill to only collect and use data that is “reasonably necessary, proportionate, and limited” for their business and also to let people turn off targeted ads. The bill would also ban targeted ads for children, limit companies from profiting from sensitive topics—including health, race, religion, finances, and precise location data—and give more enforcement powers to federal and state officials, while also giving consumers the right to sue companies over data privacy matters.

Since 2018, Democrat and Republican lawmakers have tried to pass data privacy legislation after the Cambridge Analytica scandal shed light on the range of ways consumers often unwittingly share their personal data. Until now, no bill has gained traction in Congress, prompting five states—California, Colorado, Utah, Connecticut and Virginia—to pass their own limits on data collection and usage. While privacy advocates have pushed for a U.S. law applied equally across the country, state-led initiatives have prompted companies and trade groups to push for ending what they describe as a “patchwork” approach to regulation.

Complexities lead lawmakers to differing paths

Despite the major milestone, there’s no guarantee the ADPPA will become law. Key members of the U.S. Senate have yet to express a willingness to support it and some House members that voted to move the bill forward said they wouldn’t necessarily approve it on the House floor. Issues that still need to be hashed out include whether to create regulations around forced arbitration and how federal law would pre-empt strong privacy laws in states such as California. (The two committee members that voted against the bill were both Democrats from California: U.S. Representatives Anna Eshoo and Nanette Barragan.)

Others expressed an urgency to pass national legislation during the current congressional session. In her remarks during the hearing, U.S. Rep. Jan Schakowsky said the legislation is “groundbreaking.” However, she added that it’s “not the bill I would have written in my perfect world, but we have a mandate to move forward.

“This legislation will for the first time in our history create fundamental digital privacy rights for all Americans,” Schakowsky said.

Consumer advocates said the ADPPA will help transfer the responsibility of data privacy from consumers to corporations while also requiring more transparency about companies’ practices across the online data ecosystem. Caitriona Fitzgerald, deputy director of the Electronic Privacy Information Center, said the ADPPA “is not a perfect bill,” but that it offers a number of new protections to consumers.

“Part of the big problem with online privacy these days is that the ecosystem is so complex that people can’t even truly grasp what happens with every little tiny bit of data our phones are generating about us, everyone online search is generating about us,” Fitzgerald said. “…There are so many third parties that the vast majority of Americans simply can’t grasp the impacts of that and the breadth of that.”

Advertising trade groups have been pushing for federal privacy legislation for years and have so far endorsed the direction of the ADPPA. However, some say updates made this week create new disagreements. Ahead of the hearing, the Interactive Advertising Bureau and other organizations sent a letter to lawmakers saying the way sensitive data is defined was “overly broad and poorly constructed.”

“If you lose the ability to reach people based on what they’re interested in, you end up getting billboard ads,” said Lartease Tiffith, executive vice president of public policy at the IAB.

Big Tech is drawing big scrutiny

Tech giants are facing increased pressure on a number of fronts. U.S. and European lawmakers are also considering new antitrust regulations while federal agencies are putting pressure in other ways. On Monday, Federal Communications Commission chairwoman Jessica Rosenworcel sent letters to 15 top mobile carriers including Verizon and AT&T requesting information about how they collect and protect location-based data.

Last week, the Federal Trade Commission said it is “committed to fully enforcing” laws related to the illegal use of sensitive data and warned the tech industry against deceptive claims about “anonymized data” that’s actually identifiable.

Other aspects of the ADPPA would create more transparency and restrictions around third-party data, especially for companies that are in the so-called category of “data brokers.” For example, brokers would be required to register their company on a public database as well as a “do not collect” registry similar to a “do not call” list used for avoiding robocalls.

Advertisers would still be able to largely use first-party data for ad-targeting under the proposed regulations. However, some ad industry execs think the bill could give more power to giants like Google, Facebook and Amazon. On the other hand, some privacy advocates are worried about loopholes related to regulating data brokers and enforcing regulations for telecommunications companies. Others with concerns include a group of 10 state attorneys general, who co-signed a letter calling on Congress to adopt privacy legislation that “sets a federal floor, not a ceiling.”

Privacy advocates say the changes shouldn’t be a surprise for the industry and might not affect companies already keeping up with compliance related to other data privacy legislation in the European Union and with state laws like California’s. However, some lawyers representing parts of the tech industry say there are still key differences.

“I see this as comparing apples and kiwis,” said Mark Brennan, an attorney leading the global tech and telecommunications practice at the law firm Hogan Lovells. “They’re in the same category of regulation but when you get down to it, they’re going to taste very different.”