Marketer's Toolkit 2023: A new pattern for global advertising investment?
Media & communications budgetsGlobalChannel planning, media mix selection
The coming 12 months will potentially usher in a new pattern for global advertising investment as digital investment growth slows, media planning is re-assessed and pressures for industry reform continue to grow, according to the latest instalment of WARC’s Marketer’s Toolkit 2023.
Why it matters
Against a backdrop of economic crises, geopolitical complexity, spiralling inflation, supply chain disruption, and structural technology shifts, marketers are re-evaluating their approach. Ad spend is growing but at a slower pace.
WARC’s latest forecast anticipates a $90bn reduction in global ad market growth for 2022 and 2023, meaning digital media owners are likely to fight harder for ad revenue growth – and, increasingly, will compete with one another for ad dollars.
Meta’s first-ever year-on-year quarterly revenue decline – announced last July – may one day be seen as the moment the digital advertising industry tipped into a new, less expansive phase.
The Future of Media report, part of WARC’s annual Marketer’s Toolkit, highlights key trends in three vital areas: advertising investment, media planning, and industry reform.
Digital investment reaches the top of the ‘S’ curve
Nearly a third of WARC’s Marketer’s Toolkit respondents expect 2023 marketing budgets to be lower than 2022. WARC has downgraded its global advertising investment forecast to $880.9bn, removing $90bn of growth potential for 2022 and 2023.
Retail media is increasingly favoured by advertisers, and is now the fourth-largest medium by ad spend, with global investment totalling $110.7bn in 2022 and forecast to reach $121.9bn in 2023.
Marketers are rebalancing their ad budgets, decreasing investment in offline channels and increasing spend in online video, social media and gaming. TikTok ranked top for increased investment in 2023 by 76% of marketers, according to WARC’s Toolkit survey.
Fragmentation calls for more fluid media planning
More than a third (34%) of survey respondents identified media and audience fragmentation as one of their biggest causes for concern when drawing up plans for 2023. The situation calls for advertisers to adopt a more fluid approach to media planning and branding, and one that emphasises the importance of communities over basic demographics in segmentation.
While over half (52%) of survey participants expect to increase investment with social media influencers and creators as a whole, two-thirds (65%) are planning to work with content creators to connect with communities “aligned with specific interests authentically tied to the brand”.
Fixing the media ecosystem
More than half (54%) of US respondents to the Marketer’s Toolkit survey said that media planning recommendations in 2023 will include more diverse publishers, reflecting the importance of minority audiences in that market.
However, with only a third (34%) of advertisers planning to include more low-carbon alternatives in their media plans in 2023, it is clear more work must be done to persuade marketers of their role in combating climate change.
“While the breakneck speed of growth in ad investment witnessed in 2021 could never have been maintained, media owners like Meta, alongside brands and agencies, are also challenged by other fundamental issues – from cleansing the ecosystem of misinformation, using ad dollars to promote greater diversity and inclusion, attracting and retaining the right talent, to saving the planet from catastrophic climate change” – Alex Brownsell, Head of Content, WARC Media.
The Future of Media is the third in a series of four reports that make up The Marketer’s Toolkit 2023. Based on exclusive data from WARC Media, findings from a global survey of 1,700+ marketers, and interviews with with senior marketing leaders, the report is a guide to help brands focus, survive and thrive in 2023 and beyond. A complimentary sample of this report is available here. WARC clients can read the full report.
Amazon, the e-commerce and cloud-computing firm, posted solid revenue growth, with the company’s advertising business a key performer, even as once fast-growing aspects of the business have slowed.
Why it matters
Amazon’s results arrive amid a disappointing round of earnings calls among its big tech rivals, largely down to a slowdown in advertising spending as brands consider their investments in a volatile environment. Amazon’s Q4 sales grew 9% year on year, ahead of analysts’ estimates, but it has struggled – like its peers – to sustain the growth of online sales and digital services during the pandemic, topping off its slowest year of growth since it listed on the stock market.
“In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon,” said CEO Andy Jassy on a call with investors.
What’s interesting about Amazon’s Q4 results is that the softness in the advertising market was reflected less in the ad segment and more in the performance of AWS, the company’s cloud computing division, which has seen a drop in computing from advertising companies, perhaps signaling a deeper concern in the industry.
Advertising in focus
Advertising revenues grew 19% (23% adjusted for currency fluctuations) to $11.56bn – ahead of the $11.38bn expected by analysts. The segment grew ahead of the overall company, but slower than its Q3 YOY growth of 30%.
Some observers noted that its Prime Day shopping holiday fell in the quarter, a factor that may have flattened its performance. On a call with investors, Amazon executives rarely mentioned advertising services as analysts probed other areas of performance, apparently satisfied.
It’s worth noting that in Q3, Walmart – a direct rival in retail media – also saw 30% YOY growth in its ad business. Its Q4 results, to be announced later this month, will be very closely watched.
A key announcement in the quarter that could bolster ad spending on the platform was the AWS Clean Rooms, part of an emerging group of advertising technologies that help advertisers blend their data with that of a platform in a manner that protects the users’ privacy.
Amazon’s strategy is always to make its customers members and then sell more services off the back of that relationship, whether to consumers or to business customers. It sees this as a key area of growth among advertisers who are also cloud users.
Subscription services – key among them, its Prime membership – grew 13% year on year to $9.19bn, fuelled by major investments in TV content, such as its Lord of the Rings TV series and Thursday Night Football, which both drew “record sign-ups” for membership, said CFO Brian Oslavsky.
“We see a direct link between that type of engagement and higher purchases of everyday products on our Amazon website.”
Cloud computing and the ad slowdown
Talking about the company’s investment approach, CEO Andy Jassy pointed to the importance of AWS to what the company is today: “Think about how different a company Amazon would be today if we hadn't invested in AWS.”
It helps to contextualise the 20% year-on-year growth that the division saw in the quarter, which was down on Q3’s 27.5% growth, and down from the 40% YOY growth posted in Q4 ‘21.
“Starting back in the middle of the third quarter of 2022, we saw our year-over-year growth rates slow as enterprises of all sizes evaluated ways to optimize their cloud spending in response to the tough macroeconomic conditions,” Oslavsky explained.
Certain industries like financial services and crypto diminished their usage, but so did many companies tied to advertising: “as there's lower advertising spend, there's less analytics and compute on advertising spend as well.”
The company, however, is confident that this reduction – which is a critical selling point of cloud computing – will help to bear fruit in the long term, and helps strengthen “a set of relationships in business that outlast all of us”, as Jassy put it.
Ad revenues took a hit across the board at Alphabet last year and the tech firm is laying off thousands of staff, but it is also promising significant advancements in AI in coming months.
Headline ad figures
Advertising revenue at Alphabet was down 3.6% in 2022, knocking $2.2bn off the previous year’s total.
Google Search was down 1.6% to $42.6bn
YouTube advertising was down 7.7% to $8.0bn
Google Network was down 8.9% to $8.5bn
The AI future of ads
The challenging macroeconomic environment filtered through in Q4, especially when there was “ a broadening of pullbacks in advertiser spend”, chief business officer Philipp Schindler, told an earnings call. But he is optimistic about the future, seeing opportunities in applying Google AI to the ad business.
Already, smart bidding uses AI to predict future ad conversions and their value, he noted, “helping businesses stay agile and responsive to rapid shifts in demand”.
Specifically, an understanding of intent in language, combined with advances in bidding prediction, “are why businesses can see an average of 35% more conversions when they upgrade exact-match keywords to broad match in campaigns that use a target CPA”.
“Google AI also underlies our creative products like tech suggestions in Google ads and creative optimization and responsive search ads,” Schindler added.
The AI future of shopping
Google continues to explore how it can become a more central part of shopping journeys and a valuable place for merchants to connect with users.
An improved consumer experience will include more visual, immersive, browsable search; at the same time more merchants will be able to take advantage of free listings and ad experiences.
AI-powered campaigns like PMax are helping retailers better hit goals and connect with customers: “advertisers on average see a 12% uplift from SSE to PMax,” Schindler reported.
“Very soon, people will be able to interact directly with our newest, most powerful language models as a companion to Search in experimental and innovative ways. Stay tuned” – Sundar Pichai, CEO, Alphabet.
Businesses and brands frequently make all the right noises about sustainability, but if you want to know how committed they really are, ask whose responsibility it is – and if it’s not the CEO it’s perhaps justifiable to feel sceptical about their claims.
Leaders and laggards
Global research* from experience innovation consultancy Designit finds a gap between businesses spearheading positive change and those stalling for time. A ‘leaders’ group is far more likely to have made the CEO responsible for sustainable practices, while a ‘lagDesignitgards’ group tends to leave these matters to a CSR role.
Leaders constantly review their strategies, with 78% always including it on their quarterly boardroom agendas.
Laggards consider sustainability at this level infrequently – 11% do so only once a year.
Why it matters
Sustainability is about more than just marketing: leaders in sustainability practices experience more benefits for their efforts, according to Designit – and they reference profitability as a driver for sustainability almost twice as much as the least advanced businesses (70% and 38%, respectively).
Barriers to progress
Half (49%) of all businesses state that having too much data to make sense of, or not having the right data, is the biggest single barrier to sustainability.
More than half (54%) of all businesses have difficulty integrating sustainability innovation into products – and on average they spend only 4% of their revenue on sustainability.
The majority of companies (63%) state that rising costs are the biggest external barrier to sustainability, but unclear government guidelines are also a challenging roadblock (47%), alongside geopolitical instability (43%), and technological constraints (42%).
“What really sets the most advanced businesses apart is an innovative approach to sustainability. They are intent on consistently and holistically applying strategic design innovation until it forms part of the organisation’s DNA and extends into its wider value chain” – Miguel Sabel Pereira, Designit’s European Head of Sustainability.
*Findings are based on responses from 1,000 sustainability professionals with an influence on or responsibility/accountability for sustainability, ESG or corporate responsibility within large organisations.
A UK-wide pilot into ‘micro-upskilling’ has found that this approach offers additional learner benefits compared to traditional training methods.
What is micro-upskilling
As advocated by the DMA, an industry organisation, micro-upskilling sees learners commit as little as one hour a week to flexible, bite-sized e-learning and professional development. The aim is to reduce skills gaps and talent shortages through continuous staff development.
Why it matters
The marketing industry faces challenges around talent and skills. Last month’s LEAD conference, organised by AA, IPA and ISBA, reiterated the problems, which are across the board, from attracting people in the first place through recruitment, development and retention.
The DMA found that, for many people, it’s difficult to find the time among competing priorities to upskill. Its pilot highlights the potential benefits of taking a different approach to training and development, although it also emphasises that it must be spearheaded from the very top to reach its full potential.
Micro-upskilling drives employee engagement
The pilot project found that:
52% of learners felt more engaged with upskilling.
46% acquired new skills through micro-upskilling that they previously wouldn’t have been able to develop.
39% of learners said they found micro-upskilling better than their previous learning experiences.
67% believe micro-upskilling has made their organisation more engaged with their skills development.
63% would feel more confident and positive about their career if micro-upskilling was permanent at their organisation – and 33% would be more likely to stay with them.
“The fact that the majority of participating talent mentioned that if micro-upskilling became permanent it would boost their career confidence as well as their organisational loyalty, suggests it has a huge role to play as an alternative learning method in our industry, supporting traditional approaches such as training days” – Rachel Aldighieri, MD of the DMA.