Why Do Advertisers Keep Spending More and More With the Walled Gardens?

For one, name recognition is a factor

Some platforms have very different budgets than others.
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The latest IAB ad spend figures came out earlier this week, painting a pretty rosy picture. Top-line numbers appear to show times are good: U.S. digital advertising revenues rose 22 percent year over year to $26.2 billion in the third quarter of 2018, according to the latest numbers from the trade body, compiled by PwC, with total spend throughout the first three quarters of last year totaling $75.8 billion.

However, pull back the curtain a little and a darker, more Darwinian plot line appears to be forming, with spend consolidating into fewer and fewer hands, resulting in consequences that reverberate far and wide.

The numbers, based on interviews with the largest companies in the sector and then further modeled out, have Sue Hogan, svp, research and measurement at the IAB, describing 2018 as a “landmark year” for the sector.

David Silverman, PwC, partner, U.S., went on to say, “It’s no surprise that advertisers are following their target customers to whatever screen they are on, and that screen is more likely to be a digital one.”

However, with a separate study by eMarketer forecasting that Amazon, Facebook and Google will collectively rake in 63 cents of every U.S. ad dollar spent by 2020, it would appear the flow of ad dollars is flowing in ever fewer directions.

Although it is hard to make a direct comparison and determine cause and effect as to the dynamics in the market, the multiple rounds of layoffs at high-profile premium media outlets, such as BuzzFeed, Gannett and Vice, are in stark contrast to the buoyant numbers posted by such platform providers.

During the latest earnings call season, Google-owner Alphabet posted almost $40 billion in revenue for the three months to Dec. 31, 2018 representing a 22 percent year-over-year increase.

Similarly, Facebook posted a 30 percent boost in ad spend for the same period with total revenues nearing $17 billion in Q4 2018. Meanwhile, Amazon’s ad business, or “other” category, grew 95 percent year over year in the last quarter to hit $10 billion during Q4 2018, according to its last quarterly filing.

It should be noted that the IAB and PwC did not publicly disclose where all that digital marketing revenue went, whether it was the Facebook/Google/Amazon triumvirate or the rest of the media landscape. Although, Adweek sources appear to back the widespread notion that advertisers are immune to public outcry over “brand safety scares” and inventory integrity.

Simply put, as long as spending with the duopoly, and increasingly Amazon, appears to make them look as though they are doing their job well, the status quo is unlikely to change any time soon.

Not without value

Ratko Vidakovic, founder of AdProfs, said the dominance of platform providers, when it comes to ad spend, comes simply down to name recognition in many instances. “People want to buy from the leading platforms because it’s perceived as less risky,” he added.

“That said, there many advertisers for whom outcomes matter more than proxy metrics and ad verification,” he said. “And if Facebook and Google and other walled gardens didn’t perform, advertisers would simply cut their losses and move on. So, there is definitely substance to these walled garden ad products.”

Short-termism is winning out over strategy

For Ana Milicevic, a founder and principal at consultancy Sparrow Advisers, the consolidation of spend within “the duopoly or triopoly” is helping to produce an unbalanced ecosystem.

“The long-term trend is that any increase in spending is just going to be split between the extreme high end—such as the top 10 media properties like The New York Times, Washington Post, et cetera, who are brand names in and of themselves,” she told Adweek.

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