Digital Ad Spend 2020: what the turmoil means for eCommerce Retailers
Brendan Hughes
CCO | eDesk | Strategic Operations & Growth Leader | Scaling Teams and Transforming Business Strategy | Driving Revenue and Operational Excellence
For the first time in its history Google is reporting declines in advertising revenue. Meanwhile ad spend on relative newbies such as Amazon, Snap and TikTok is reaching record highs.
What does all this mean for e-commerce retailers as they plan out their digital ad strategies for the peak online shopping months of 2020? Let’s take a look at the shifting sands in the digital ads ecosystem and see how marketing teams might benefit from these changes.
Of the major ad platforms available to digital marketers, Amazon, Snap, Facebook, YouTube and Pinterest all reported year on year increases in revenue in the quarter to June 2020. Meanwhile, Google, Microsoft and Twitter all reported year on year declines in ad revenue.
The impact of the Covid-19 pandemic on marketing teams globally has been unprecedented. While April 2020 will probably be recorded as the single greatest month on month decline in advertising spend, many categories bounced back quickly thereafter. Most notably, many e-commerce retailers that effectively met the need of housebound consumers reported stellar year on year growth in digital sales. Investing intelligently in effective advertising strategies was the fuel for that growth.
Amazon Ads (+41% YoY)
Amazon is the newest kid on the advertising block having only introduced a comprehensive advertising option as late as September 2019 with the launch if it’s self-service display ads offering to complement its pay-per-click offering. With this solution, e-commerce retailers can address Amazon users with ads promoting listings both on and off the Amazon site. Amazon reported a whopping 41% increase in advertising revenue in the quarter directly within the eye of the Covid-19 storm.
Given Amazon’s position as the leading e-commerce platform in the western world, it is no surprise that e-commerce advertisers doubled down on their investment in this platform during the peak of the lockdown. While many e-commerce brands do not list their products on the Amazon platform, the capability to leverage their display ad format to attract in-market consumers to your own website is a key benefit to advertising on this platform.
Snap Ads (+17% YoY)
Snap reported growth in advertising revenues in line with the growth of its user base at +17% year on year. The rapidly growing Snap has continually attempted to differentiate its ad offering in a cluttered marketplace for advertisers. In mid-2019 Snap introduced dynamic product ads with retail and direct to consumer (DTC) advertisers in their cross hairs. Combined with the Snap pixel which could be installed on e-commerce sites, advertisers have been able to dynamically market their product catalogues to in-market consumers. This feature became available outside of the US in June 2020 which is likely to drive greater adoption.
Snap is trialing a number of advertiser-focused initiatives in order to capture a greater share of ad spend. Their so-called Brand Profiles offer a permanent home for brands on Snapchat allowing users to subscribe for updates. The First Commercial feature gives advertisers a way to reserve the initial commercial a Snapchatter sees that day in their first Snapchat show session. Brands can now also target their ads within popular verticals like ‘Sports’, ‘Entertainment’, and ‘News’ in the Discover feature. Given Snap’s dominance in the 17–24 year-old age category, it will become increasingly important for a range of e-commerce brands.
Facebook & Instagram Ads (+10% YoY)
Facebook has been leading the charge into e-commerce for longer than most and this investment seems to have paid off during the recent crisis. In the immediate aftermath of the global lockdown, Facebook was initially reporting declines in ad revenue. However, it quickly bounced back and by the end of June was reporting 10% year on year growth for the quarter. There are some interesting dynamics within the Facebook world that add some colour to this picture. Not surprisingly the pandemic drove greater daily active engagement by up to 15%. This meant that yield per person probably declined during the period and certainly for a period we could see that there was increased advertising value to be had on Facebook by advertisers.
The other big story here is that Instagram growth has been exceeding Facebook growth for quite some time. Whilst Facebook doesn’t break out the revenues between Facebook and Instagram, it is likely that much if not all of the growth experienced by Facebook Inc in the period was delivered from Instagram placements. Instagram is leading the innovation in the network with formats such as Stories and IGTV driving deep engagement for brands. Integrating shopping and product catalogues into these rich format environments has been a real winner for Instagram with e-commerce retailers. Features such as dynamic product video ads are destined to continue to see Instagram as critical for transactional commerce marketing teams.
YouTube Ads (+6% YoY)
Alphabet Inc only recently started to break out ad revenues for YouTube. YouTube ad revenues grew by a modest 6% in the quarter which is a great result for Alphabet Inc when compared with the dominant search platform’s results. However, when compared with Q1 growth of around 25% YoY, it is clear that YouTube did not manage to capitalise on the bounce in e-commerce activity globally. This is probably not surprising to most in e-commerce given the comparative lack of innovation on the platform supporting transactional advertisers.
Whilst engaging and compelling video ads can deliver great returns for e-commerce retailers, YouTube has not yet become the go-to destination for most. Why is this? The lack of a meaningly “shoppable” experience with the platform has meant that YouTube has been a laggard in the industry. YouTube is only now “experimenting” with shoppable ad formats; perhaps driven by recognition that “Prolonged store closures have forced brands around the world to recalibrate their media campaigns to focus on driving online sales. With this shift to digital, it’s become even clearer that every advertiser is a performance advertiser.”
Pinterest Ads (+4% YoY)
Whilst Pinterest achieves less than one tenth the revenue from advertising compared to YouTube, it remains an interesting option for many e-commerce retailers. Pinterest has grown its active monthly users by 39% to over 400 million per month globally, but ad revenues only increased by 4% in the same period. The platform which many consumers now use for inspiration around lifestyle purchases has clearly struggled to maximise the yield it achieves from its highly engaged audience. This is good news for advertisers as it means that the dynamics of the ad auction are in their favour; meaning more eyeballs for less.
The consumer dynamics are all positive for e-commerce advertisers on the Pinterest platform. According to Pinterest, 89% of their users actively engage with the platform on their path to purchase and 83% of their weekly active users have made a purchase based on seeing pins from brands. The formats available to advertisers are native to the platform (promoted carousels, pins, video pins and app pins) meaning that the level of engagement should be maximal. With some e-commerce brands are reporting 70% lower CPAs when using Pinterest, then perhaps this is one under-utilised platform worth experimenting with this holiday season.
Google Search Ads (-10% YoY)
Google’s search ad revenue declined by an eye watering 9.8% year on year in the quarter ended June 2020. Overall ad revenue for Google including advertising generated from its display network and YouTube declined by 8.1% year on year. Much of the decline has been attributed to the disappearance of travel advertising from the search engines. Travel reportedly accounted for 11% of Google search ad revenue in 2020. In addition, Amazon probably one of the single biggest spenders on Google reportedly cut-back its spend due to reaching capacity on its own platform. Will Google bounce back like many of the other platforms? Apparently not, as eMarketer is predicting a total 5.3% decline in a spend on Google for the year.
Does any of this create opportunity for eCommerce retailers? Everyone has long understood that Google is the king of the lower funnel. Much of that ground is now being taken by many other platforms which are consistently demonstrating they can deliver high value customers at low costs. Amazon is perhaps the biggest threat to Google having in 2018 passed out Microsoft for the number 2 spot in the US ranking for search ad revenue. Leveraging the connection between Google custom intent audiences and the YouTube platform is one great way for eCommerce brands to address in-market audiences outside of the clutter of the search ad auctions.
Microsoft Search Ads (-17% YoY)
Microsoft reported a whopping -17% decline in search ad revenue in the quarter to June 2020. This was compensated somewhat by an increase in revenue of 11% YoY from LinkedIn during the same period. One of the factors insiders report having a major impact on Microsoft search activity is its reliance on desktop users. In lockdown scenarios where other devices are more prevalent, Microsoft browsers and properties suffer. It is perhaps no surprise then that Microsoft Inc has such an interest in the newest kid on the block — TikTok, but more of that later.
While Microsoft search might be suffering more than others right now, it is not one to be ignored. It still retains between 5–10% of the search engine market in key territories such as the UK and US. It provides access to potentially valuable audiences and by Microsoft’s own claim (and our experience) very often at lower costs per action than Google. For those who have not yet dug into the world of Microsoft ads but who are using Google, you’ll be happy to hear that the features and functions are similar. You can even import your existing Google Ads into the Microsoft platform to save you duplicating effort.
Twitter Ads (-23% YoY)
Twitter is not often near the top of the list for eCommerce advertisers and it is therefore not a surprise that its ad revenue during Covid-19 has declined by nearly a quarter at -23%. This is particularly tough given its stellar growth in its “monetisable” active user base by 34% in the quarter. Twitter’s current advertising offering lends itself to higher funnel engagement generating brand and product awareness, but the lack of features and formats specifically for eCommerce significantly reduces its appeal as a place to invest ad spend. Neither does Twitter doesn’t appear to be focused on getting on the radar of eCommerce brands, instead developing solutions around “live events and product launches” where they hope to enable brands to connect with consumers.
TikTok — (Honourable Mention)
2020 is the year when many new words came into everyone’s vocabulary. Thanks to a combination of under 12s entertaining themselves during lockdown and Donald Trump, TikTok is now something that probably every adult in the western world has heard off even if they’ve never seen it. TikTok’s owner ByteDance already surpassed YouTube in revenue in 2019 at $17bn globally. In 2020 in the US alone, TikTok is slated to grow to $1bn in revenue from its reported 100m users. Assuming that the platform survives the pressure from the US administration and is acquired, this will be a platform to pay attention to during the upcoming holiday season. If you’re not already convinced, ask Mark Zukerberg who is so worried about TikTok he rapidly pushed through the Reels feature within Instagram — a direct “copycat” and “clone” of TikTok.
TikTok has eCommerce and retail very much in its crosshairs. With a range of engaging formats and conversion optimisation options geared specifically towards eCommerce. While the ad platform is comparatively new, it replicates many of the capabilities that advertisers will be used to across other ad channels. eCommerce optimisation requires installation of the TikTok pixel which is relatively straight-forward for Shopify and other eCommerce platforms. If you’re looking for inspiration about how TikTok could help you drive results this holiday season, check out their range of customer success stories.
In a year that for some of the biggest ad platforms will be torrid, there is a ridiculous amount of fresh opportunities for eCommerce retailers. Reducing yield per active user is a negative for the publishers, but a boon for advertisers providing for lower costs per engagement. The plethora of options to engage with audiences both higher and lower down the funnel puts brands back in charge. Now is the time to get to grips with your ad strategy to ensure you achieve the highest effectiveness for Q4 sales peaks.