Why Ad Spend Growth Will Likely Decline in 2023
Ad spend growth is likely to decline in 2023. That’s partly due to the looming recession, but macroeconomic factors are hardly the only ones in play.
Data.ai wraps some numbers and projections around this notion, pegging global ad revenue at $362 billion in 2023, a 7.5 percent year-over-year growth rate. Though this is positive growth, it’s a decelerated rate considering the category grew 14 percent in 2022 and 22.9 percent in 2021.
Of course, growth rates are supposed to decline as base figures get larger over time, but the above represents a drop that goes beyond mathematical principles. There are well-known headwinds in the ad world. Beyond macroeconomic factors, we have privacy reform and a fragmenting market.
Taking those factors one at a time, one of the most impactful trends on aggregate ad revenue decline is the age of privacy reform. There’s a perfect storm as public and private sector measures bear down. The former includes privacy legislation while the latter (more impactful) includes platform-level restrictions.
The most prevalent and impactful of these restrictions is Apple’s app tracking transparency (ATT), which gives users more visibility into the apps that are tracking sensitive signals (e.g. “This app is tracking your location)”. Beyond visibility, Apple makes it easy for users to opt out through periodic push notifications.
We’re also seeing the slow death of the third-party cookie and other measures (some legislative) that crack down on third-party tracking. So a given app or website can’t see the other sites you’ve visited then behaviorally target ads accordingly. This framework puts a lot more value on first-party data.
Making matters more challenging on ad-supported media players, the landscape is fragmenting. That boils down to more competition for already-strained ad budgets. A fixed pie of brands is now being pitched by ad-world entrants such as Netflix and TikTok. It’s hard out there for a media company.
This fragmented media landscape doesn’t necessarily shrink aggregate spending – and the figures cited above – but it does make things harder for any single ad-supported player. And all of the above reasons contribute to the tough times and valuation declines for social media players like Meta and Snap.
Winners and Losers
So who fares well in such environments? Emerging and performant media tend to get the favorable end of ad budget shifts while legacy media suffers. In other words, ad budgets not only shrink but they’re reallocated. These are periods where media buyers are pressured to rethink their media mix.
When doing so, clearer ROI tends to rise to the top. That mostly includes performance-based advertising like search. That often translates to “Google,” however watch out for Amazon as its rapid growth in ad revenue mostly involves search-based advertising (and driven by first-party data, per the above point).
Back to the part about “emerging” formats, those also fare well in downturns. There’s more openness to experiment as everything is sort of shaken up. We saw this happen with the rise of search advertising following the dot-com boom/bust and the rise of social advertising following the financial crisis.
So, what are today’s emerging formats that could ride that wave? They most notably include TikTok. For consumer brands, especially in fashion, it also includes dimensional AR product try-ons. These check the “performance” box as well, as they exist in lower-funnel product consideration stages.
As the overall pie shrinks (or at least decelerates), expect the more interesting story to lie in spending share shifts. Digital and performance-based ads will benefit while legacy media’s decline is accelerated. The operative term is “accelerated,” as these are existing trends that could amplify in a downturn.