Advertising’s inevitable decline turned out to be evitable

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Advertising’s inevitable decline turned out to be evitable

A couple years ago, it seemed like the floor was going to fall out of the ad industry, the revenue engine on which much of the internet is built. Indeed, even the big tech companies, which gobbled up the lion’s share of ad spending online, were sounding the alarm.

“We seem to have entered an economic downturn that will have a broad impact on the digital-advertising business,” Meta CEO Mark Zuckerberg said during its summer earnings call in 2022, when the company reported its first revenue dip — of 1% — since its IPO. “It’s always hard to predict how deep or how long these cycles will be, but I’d say that the situation seems worse than it did a quarter ago.”

Meta, Alphabet, Apple, Snap, and Microsoft all reported softening ad budgets as ad sales plummeted. As a result, some tech companies like Meta conducted their first-ever layoffs.

What a difference two years makes.

In the latest round of earnings, the biggest tech companies — most of whom get a substantial share of their revenue from advertising — all reported excellent ad-sales growth. Microsoft’s search and ad revenue was up 18%. Meta’s ad revenue grew 19%, as did Amazon’s. Both Snap and Google’s ad revenue increased 10%. Reddit’s grew a whopping 56%, albeit from a much smaller base.

Part of the story is the macroeconomic situation. Fed rate increases didn’t cause an oft-predicted recession and now rates are on their way down. The country’s economic situation remained much stronger than people anticipated.

Others were structural: changes to Apple’s iOS in 2021 made it harder to track people across the web, but brands found other ways and places to spend their money. “They still had products they needed to sell,” Kate Scott-Dawkins, global president of business intelligence at GroupM, said. “They still had advertising budgets to go out and talk to consumers about their products.”

The narrative tech companies were telling might not have been accurate to begin with. While ad budgets were temporarily slower growing or flat, that was only because it was on the heels of such mammoth growth during the earlier parts of the pandemic, said Brian Wieser, CEO at Madison and Wall, a consultancy and data-services provider.

“Sometimes they were saying these things and they were completely incorrect,” Wieser said. “The ad market was actually growing quite nicely.”

If you smooth out the enormous growth in 2021, 2022 and beyond look like business as usual, with consistent single-digit growth. (This data scrapes out political advertising, which would have made things even rosier this year.)

Ad sectors that were struggling, like newspapers and TV, are still struggling. And the big digital companies that have long been winning continue to win.

Additionally, the advent of generative AI is helping big tech companies supercharge their already flourishing ad businesses, according to Jacqueline Barrett, founder and CEO of economics and data-strategy consulting firm The Bright Arc.

“They have new features with generative AI that make it much easier for advertisers to create content, and those are more appealing to their demographics,” she said. “Theyre converting at a higher rate than some of the ads that they were coming up with on their own.”

And generative AI is better at understanding both what customers are looking for as well as ad content, she said, so customers are better matched with relevant advertising.

Of course, that doesn’t necessarily mean that things will continue up and to the right for digital advertising. Regulators have set their sights on the biggest tech companies. It’s possible they could come after Google, Meta, or Apple’s ad businesses. But for now, digital advertising’s future still looks very bright.

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