How the Rise of D-to-C Brands Is Helping Digital Ad Spend Defy Gravity

Advertisers invested more than ever in digital during H1

Digital native brands are helping to propel the growth of online ad spend. Getty Images
Headshot of Ronan Shields

Despite concerns over inventory quality and questions over trading practices, advertisers spent a record amount on digital media in the first half of 2018, with the rise of direct-to-consumer (d-to-c) brands and mobile commerce helping to spur spend to $49.5 billion.

Advertiser spend on digital rose 23 percent from a year earlier and grew from almost $48 billion in the second half of 2017, marking the largest sequential rise between consecutive second-half and first-half periods in the 23-year history of the IAB and PwC study.

The findings, based on data provided by media buyers and sellers with an additional element of qualitative research, is seen by many as a bellwether for the industry. Some of the largest advertisers in the business have threatened to pull their budgets from digital, but report authors maintain that sustained spend from heritage brands plus rising investment from d-to-c marketers mean the sector is thriving. (It’s unclear whether Google and Facebook’s ad revenue is included in the IAB report.)

The IAB has also noted that mobile ads accounted for 63 percent of all spend, up from 54 percent the previous year, primarily due to investment from advertisers whose revenue streams are extremely dependent on mobile commerce.

Brands continue to spend

Blue-chip advertisers have voiced their concerns over the complications associated with the increasing influence of automated, or programmatic, ad tech in several high-profile incidents over the last two years. This was crystalized by Procter & Gamble’s marketing chief Marc Pritchard infamously describing the sector as full of “crap” in his landmark 2017 IAB Leadership Summit address. In fact, unease over the lack of transparency posed by programmatic trading recently prompted several companies in the sector to publicly pledge to clean up the space in the guise of a multilateral action to be overseen by the IAB-affiliated Trustworthy Accountability Group (TAG).

Speaking with Adweek, Sue Hogan, svp research and measurement, IAB, noted that social media spend rose by 38 percent year-on-year to $13.1 billion, despite ongoing unease caused by negative headlines over the vulnerabilities of some of the largest platforms in the space in 2018 and earlier.

“One thing that’s kind of important to highlight is that we’re seeing brand spend continue to rise on audio [$935 million], video [$7 billion] and banner ads [$15.7 billion] substantially,” she explained. “Audio is up 31 [percent] and video is up 35 [percent] and banner ads are up 27 [percent]. So, across all of that, the revenue is looking really great for the first half of 2018.”

Meanwhile, search also continues to grow, with spend up by 19 percent year-over-year to $22.8 billion in the first half of the year–mobile accounts for 59 percent of this figure–and display was also up by 27 percent to $15.7 billion, with mobile ads generating 74 percent of this total.

Hogan went on to describe video as an emerging hero category, adding that its share of spend continues to grow substantially, up by 35 percent year-on-year to $7 billion.

“Part of that, of course, is mobile video being up by very high numbers [61 percent] … as a whole, it’s now 14 percent of all digital ad revenue growth,” she added.

The growing influence of the long-tail and d-to-c advertising dollar

David Silverman, a partner at PwC, U.S., echoed Hogan’s assertion over sustained brand spend on digital, but added that the numbers were also likely bolstered by the continued flow of long-tail ad dollars–such as those generated by smaller regional businesses–into digital.

“You’ve got national brands, but you also have local companies that are using the media in a way that hadn’t previously been as efficient,” he told Adweek. “So you’ve got self-service categories [of ad offerings] catering to the smaller companies that make it more efficient for them to promote their business.”

Many d-to-c brands are applying the same logic to their advertising strategies (such as Dollar Shave Club in the men’s grooming sector) as they seek to disrupt incumbents in their market verticals.

“The direct-to-consumer companies often are selling online, and the best way to reach their consumer is also online at the point of decision making,” he added. “So, the digital ad is perfect … because the smarter the algorithms become [at targeting], the more efficient it is for these companies to identify and actually acquire a customer.”

Such an econometric methodology is increasingly the underpinning of how larger marketers also inform and execute their strategies, with the most recent Gartner CMO Spend Survey finding that while most budgets were flat overall, investments in technology continue to rise.

Respondents in the survey indicated that almost 29 percent of budgets are now invested in mar tech, compared to 24 percent on labor and 23 percent on paid-for media and agencies, respectively. According Ewan McIntyre, Gartner’s lead analyst on the study, the findings represent a shift in the way organizations deal with both suppliers and internal talent, as well as how they assess media procurement.

@ronan_shields Ronan Shields is a programmatic reporter at Adweek, focusing on ad-tech.