Month: December 2022

A cursory glance at the big headlines over the last year paint a picture of ad spending dragged down by all that ails the economy. Dig a bit deeper, though, and that’s not it all. On the contrary, this ad slowdown is thanks to more structural issues like the DTC craze running out of steam and perhaps more importantly a covid hangover. The intense boost ad spending got on the back of how the pandemic and subsequent lockdowns refined the way people consume media was always going to run out of steam. 

“Economic headwinds are a small factor in the ad slowdown and should not be used as an excuse to justify any performance slowdowns that companies haven’t resolved,” said IAB Europe chief economist Daniel Knapp.

Advertising is decoupled from the economy

To be fair, advertising is decoupled (ish) from the economy. The fact that spending has grown in spite of rising interest rates and amid rampant inflation is a testament to that. But this isn’t a complete divorce. Like all capricious relationships there’s always a chance for reconciliation — now, more than ever given how precarious the economy looks next year. 

On the one hand, central banks could go the hawkish route and put further financial pressure on people. On the other hand, they could ease up if inflation shows signs of responding to the hardest-hitting hikes since the 1980s. 

Either way, marketers are wary. After all, when business dries up CEOs go into savings mode and ad dollars are among the first to get saved because they’re fungible in a way others aren’t. No amount of Harvard Business Review articles will change that. That was clear coming out of the last earnings window when some of the largest advertisers including Procter & Gamble, Unilever and Coca-Cola painted a cautious but not pessimistic picture of their ad outlook for next year.

“When I talk to our clients they’re certainly preparing to pull money,” said Eric Schmitt, senior director analyst at Gartner. “The questions we get asked revolve around things like ‘what would be the triggers for money back’, ‘where would i redirect it’, and ‘what are the best practices for advertising in a recession’. That said, my sense is that Q4 has been pretty solid so far, and depending on how the year wraps up will determine (to a degree) how ad spending shapes up for next year.”

TikTok will be one of the biggest beneficiaries coming out of this downturn

Don’t be so sure. From a certain point of view, it’s clear that TikTok will emerge from the downturn with more ad dollars than it had going into it. But that shouldn’t really be a surprise. Of course, one of the most popular apps in the world is going to attract more ad dollars at a time when spending is being rationalized. The real litmus test for TikTok’s status as a big beneficiary of the current turmoil is whether it can get closer to convincing marketers to make it a permanent feature on media plans. That’s not so clear so far. 

For starters, agencies are still trying to get their heads around TikTok. Look at trading deals, or to be more precise the lack thereof for proof. These deals are a good gauge of how committed agencies are to spending with any platform, and there aren’t many for TikTok.

Then there’s the fact that TikTok is still the preserve of a marketer’s brand dollars — the ad dollars that get squeezed most during a downturn. To say nothing of the brand safety concerns that cast a long shadow of advertising there. Not to mention the geopolitical concerns that while in the background of a lot of conversations over advertising on the app now, increasingly threaten to spill over to the forefront. That’s a lot of reasons not to spend ad dollars freely. 

“We haven’t seen massive growth when it comes to client spending there,” said Will Jennings, head of paid media at ROAST. “As we’re more of a performance agency, we’re focused on driving the best, tangible result for our clients, while TikTok sits slightly outside of that. It’s on a plan when a client wants it to be on a plan, but we wouldn’t always recommend it because it hasn’t always driven the best performance typically and we see much greater results from other platforms. It’s more of a brand favorite than an agency one right now.”

Sustainability for the win in ad tech

Environmental, societal and governance issues are all the rage in ad tech circles these days. Everyone seems to have a view on it, and increasingly a plan for it too. But not all plans are created equal. Buying green data centers is a start, of course. And there are many ad tech vendors that have done exactly that. But it doesn’t stop the carbon emissions from getting into the atmosphere in the first place. For this to happen, ad tech companies and the industry they power need to be rewired completely so that there’s less wastage, fraud and unviewable inventory traded. Perhaps, then there would be less cynicism than there currently is around the topic of sustainability in ad tech. 

“On the subject of mythbusting, I think sustainability has replaced supply chain transparency,” said one ad tech executive on condition of anonymity. “Can we really trust all ad players who are jumping on this bandwagon to be genuinely concerned about something sustainable when they were creating and self-perpetuating a hyper complex ecosystem a few months ago.”  

The future is bleak

Mass layoffs. Structural upheaval. Economies on the brink of recessions. No, this isn’t a rundown of all that ails the ad economy today. It’s a flashback to 2008 when the industry was swept in a wider economic crash that saw ad dollars shrivel up, and agencies shut shop. In many ways, it was a turning point. The first phase of online advertising was replaced by a second one. Enter Google, Facebook as well as ad tech. The rest is history, as they say. 

Over a decade later and the ad industry is at another inflection point, caught between a structural reset and an economic reckoning. It’s a curveball that won’t necessarily cause every ads business to backslide. It will, however, mean ad execs need to have a more informed plan to chart a course through all the challenges to get to the opportunities successfully. That’s especially true for execs in retail media and CTV — two of the fastest growing areas of ad spending up to this point in the slowdown. 

As Kate Scott-Dawkins, global director of business intelligence at GroupM, explained: “We expect retail media to grow faster on average than both digital ad spending as well as overall ad market, while CTV continues to grow double digits on the back of new players and as a result of people continuing to shift their mode of viewing from linear TV to ewing services.”

The e-commerce slowdown is bad for retail media 

By now, it’s clear the e-commerce sales boom is slowing down. The pandemic boost that accelerated the shift to online shopping by five years, according to some estimates, is fading. The hot take doing the rounds is this means bad news for retail media, which has grown exponentially in the slipstream of those sales. The logic here is simple enough: more online sales means more inventory for retail ads. True as this is, it won’t mean a net loss for retail media — quite the opposite, in fact. Keep in mind that all the money that’s come into the space on the back of the e-commerce boom has funded infrastructure, talent and technology that wouldn’t have otherwise been possible.

The risk for retail media is whether retailers can really deliver on its promise. For starters. Inventory on retailer sites and apps is limited. Not everyone will want to increase the ad load on their media like Amazon has done and subsequently turned ads into a tax for companies looking to sell from its marketplace.

Kelley, who has decades of experience in both holding companies and major media firms (including Bloomberg and Yahoo), took the promotion in stride, attributing it in part to the fact that a majority of those clients are headquartered in the U.S., which is under her control.

Still, challenges and opportunities lie ahead, and Kelley shared her thoughts on some of them with Digiday. 

The following conversation has been edited for clarity and space.  

What were the highlights and lowlights of 2022 for you at Dentsu? 

Our largest clients continue to grow. In my case, eight of our top 20 clients grew double digits just in the last quarter, and it’s across other capabilities. Our fundamental belief is, clients want fewer agencies solving much bigger problems. And we see this in the consolidation reviews that are going on — the desire to reduce complexity. So we have really retooled ourselves to deliver on that. And when we see our largest clients growing across capability, that is a really strong indicator for us. So that was that’s a point of pride. If you look at our top 100 [clients] globally, more than 85% of those work with us across at least two of our service lines.

Does that approach limit you to only larger clients who can afford such wide capabilities? 

Dentsu is so different and distinct because it’s been built through acquisition since 2011. We might be the oldest [holding company] formed in 1901 In Japan, but internationally we are in our teen years, and barely. You could argue we’re an adolescent.

The last three years have been focused on completely changing the plumbing of how we work. I think that is fundamentally different — and I think I have credibility saying that, because I’ve worked with every other holding company as a media owner, and I’ve been inside one of them [IPG, as North American CEO of Mediabrands until 2014]. We welcome all sizes of clients. Candidly, some of the smaller clients need even more of this level of integration, because they simply don’t have teams on their side that are helping to drive that. So our ability to really be an extension of them across an end-to-end capability is just as needed as it is on some of these bigger clients.

How has the restructure Dentsu announced in November affected you?

There’s a real knowledge [among Dentsu’s competition] of the strength of our Japan operation. And I’ve had many people say, “If you guys figure that out, it’s going to be super compelling.” I am thrilled that we are figuring that out. Igarashi-san is now across the full organization. He was before, but we’ve fully integrated under these four regions [Japan, the rest of APAC, the Americas, EMEA]. Japan is a region versus its own separate organization. We’ve integrated our functions so that when I talk about changing the plumbing, the hard work we’ve done to integrate how we operate, that now will be fully integrated across Japan. A lot of that is back office stuff, but it really drives real value to our clients, when we think about how we can get more cost efficient for them, and how we can make those divisions work harder for them.

We created this client platform [with] a real commitment to investing in the best integrated client leads that can help drive ambition of being the most integrated network. It’s a really exciting time for our organization. And, you know, many of the employees in the international division are they’re intrigued with the capability that sits within Japan and we’re excited to define areas of that that can can further be exported.

What will you bring to the new chief client officer role?

There’s a disproportionate amount of global clients headquartered in the U.S., so by virtue of that, I’m already working with with many of [them]. And even those that aren’t headquartered here, the U.S. is such an important market that I’m already working with a majority of them. Having spent more time on the media owner side of our industry, I’m a client service person to start with. I get real joy in understanding a client’s business problems and then deciding how we can best solve those problems. And so I think I was selected because of that orientation. But ultimately, we need really ambidextrous talent. Being able to have a network where I can help identify and bring in that type of talent, or equally and probably more important, continue to hone and train that talent here, is a key priority to this role.

What different approaches will you take with clients?

We’ve taken a very clear view that we will have fewer [brands internally] — we’ve gone from 160 brands down to the five major ones [Dentsu Creative, Carat, Dentsu X, iProspect and Merkle]. Because we believe clients care about the capability on the other side of that brand, they don’t care about the complexity that’s created with the silos inside these holding companies. We have worked really hard to ensure that every client we have — managing conflict appropriately — can have seamless access to the best talent against the best task. And the broadest scope of work in our single P&L structure on that client allows us to do that very, very easily. My job is to create the conditions in the chief client officer role where that is even more scaled, and done more easily for a larger number of clients.

What’s your expectation for 2023 given the headwinds the industry faces?

There are economic indicators that 2023 may be challenging, but I would argue there’s just as many indicators that it won’t. In North America, CMOs largely told us that there they expect budgets to increase despite the economic environment. I think that’s because they’re prioritizing the investment into media, recognizing there’s absolutely a growth driver for their businesses when they need it most.

We will manage our clients, and we will manage our own business with some level of caution, simply to be prepared for whatever comes. But we’re leading into really believing that this is a moment to accelerate growth for our clients.

We’re able to connect our abilities in identity to personalization at scale, and some of the things that are so important for performance media and performance marketing. Our ability to to really deliver on that capability for a client can help them justify more media spend because it’s driving the revenue on their side. And we’ve gotten so good and so tight at being able to draw a clear ROI between a dollar spent and what the return is for the client that I think you can spend into that with far more confidence than you might have been able to in prior economic issues. 

A Digiday+ Research survey of 73 agency professionals this month revealed that the optimism agencies carried into 2022 came to fruition in the form of revenue increases this year. And they will continue that optimism into 2023 — albeit with a slightly different look.

Last year, Digiday’s survey found that agencies were optimistic heading into 2022. And this year’s survey revealed that it was with good reason. It turns out that agency pros were almost spot-on with their revenue predictions for 2022: 81% of respondents to Digiday’s survey last year said they thought their companies’ revenues would go up in 2022 compared with 2021 — just 2 percentage points over the actual number of agency pros who said their revenues did increase this year. And most agencies predicted the rise would be significant. More than half (52%) said last year they thought 2022 revenues would increase by more than 10%.

So how much did agency revenues end up increasing this year?

Digiday’s survey found that the vast majority of agencies (79%) saw revenues rise in 2022 over 2021, with more than a third (36%) seeing increases between 11% and 25%. Twenty-one percent of agency pros said their companies’ revenues increased significantly by more than 25% this year, and 22% said they saw increases of between 1% and 10%. Only 17% of agencies saw revenues decrease this year.

Agencies’ optimism will carry over into 2023, Digiday’s survey found. More than two-thirds of agency pros (68%) said they think their companies’ 2023 revenues will increase over their 2022 revenues. But agencies’ confidence looks to be much more tempered heading into 2023 than it was a year ago: More than a third (36%) of respondents said they think their revenues will increase between 1% and 10% next year — meaning the majority of agency pros who think revenues will increase next year think they will increase only slightly.

And while the percentage of agency pros who think revenues will actually decrease slightly next year is still small at 11%, it’s a big jump from last year when only 2% of respondents said 2022 revenues would decrease between 1% and 10%. Overall, 19% of agency pros told Digiday they think their companies’ revenues will decrease in 2023, compared with 8% last year. And 13% said they expect revenues to remain the same into 2023, compared with 11% last year.