4 Emerging Trends in Digital Advertising: A 2022 Retrospective

2022 was an eventful year for digital advertising. Four trends emerged that are likely to be consequential for the industry in 2023 and beyond. Here they are:

1. The Arrival of Ad-supported Streaming Plans

In 2022, leading streaming platforms - Netflix, Disney+, and HBO Max launched ad supported pricing plans. HBO Max (part of WarnerMedia) kicked things off by launching an ad-supported plan earlier in the year. Netflix, reluctant to introduce ads for a long time, finally launched a $6.99 / month ad-supported plan. Disney followed suit shortly after with a $7.99 / month plan. Ad-supported plans offer subscribers a lower entry point to their favorite streaming platforms with a slightly diluted viewing experience involving ad breaks, lower resolution video, and limited downloads.?

2022 was a tough year for streaming platforms in which they were plagued with slowing subscriber growth (after pandemic-driven highs), high content costs and inflation. Netflix lost subscribers in Q1 2022 and Disney Plus faced profitability pressure after three years of growth. Ad supported plans offered relief from these headwinds as they enabled platforms to sign up (and retain) price-sensitive subscribers and increase profitability (ads are a high margin revenue stream).

What to look for in 2023: Will ad-supported tiers drive incremental subscriptions or cannibalize higher-priced ad-free subscriptions? How will these plans impact net subscribers and ARPU (Average Revenue per User)?

2. Commerce Platforms Venturing Up the Funnel

Amazon and Walmart are popular destinations for shoppers with high shopping intent to make a purchase (i.e. the "lower funnel" part of the shopping journey). In 2022, both platforms made a push to own the discovery experience for shoppers (the "upper funnel" part of the shopping journey"). Walmart launched its?Creator Affiliate Program?where influencers feature items from Walmart in their social media posts. These posts have affiliate links so that interested viewers are re-directed to Walmart to explore featured products. Amazon, which already has a thriving first-party ads business, launched a?new discovery experience?to encourage people to start their shopping journeys on Amazon (vs. TikTok or YouTube).

What to look for in 2023: Today, users seek inspiration for new products on IG, YouTube or TikTok. IG and TikTok have attempted to own the purchase or "lower funnel" experience by creating commerce experiences. Walmart and Amazon are looking to go the other way i.e. upwards. An interesting dynamic is playing out as tech giants look to own the "full-funnel" shopping journey and are approaching this from different vantage points in the funnel.

3. The Rise of Retail Media Networks (RMNs)?

“Retail Media Networks (RMNs)” are online retailers that sell ad inventory directly to brands and agencies. In 2022, we saw existing RMNs like Amazon, Walmart and Target grow their advertising businesses and retailers such as Michales, Sam’s club and Ulta launch their own advertising arms. Online retailers have realized that they sit on a treasure trove of transactional data that can be used for advertising and that a well-executed advertising business can deliver incremental, high-margin revenue. Retail Media Networks have become fastest growing advertising channel in digital advertising; eMarketer predicts that RMNs will be a $60B market, representing ~20% of overall digital advertising spend in 2024. Two main factors have contributed to the Retail Media Network zeitgeist:???

• Sticky post-Covid Online Shopping. Although online shopping behavior peaked during the pandemic, this behavior has persisted post-pandemic; more customers are shopping online than they did pre-pandemic.
• Owning the purchase experience (and transactional data). Shoppers search for products and complete purchases on retail properties; this transactional data enables retailers to understand user preferences and create targeting profiles for advertising.

What to look for in 2023: Outside the big 2 (Amazon and Walmart) we are likely to see a fragmented retail media publisher market. Advertisers will seek a consolidated buying experience to manage campaigns across retail media publishers. Will this open an opportunity for new players in the ecosystem?

4. Apple Continued to Shake Up the Ecosystem

In 2022, marketers and social platforms continued to reel from Apple’s ATT (App Tracking Transparency) punch in 2021. Meta (formerly Facebook), whose advertising platforms became less effective as a consequence of these changes, is expected to lose $10B in advertising revenue in 2022. DTC (direct-to-consumer) marketers that relied on Meta for new customer acquisition saw their customer acquisitions costs (CACs) rise; they responded with adjustments such as mix-shifts (e.g. more allocation to TikTok), using influencers, focusing on customer life-time value, etc. In October 2022, Apple announced that its payment fee of 30% was now applicable to boosted posts; this move will impact advertising revenue of social networks such as TikTok, Instagram etc. that allow creators to promote their content with their apps.

What to look for in 2023: Apple's moves are looking increasingly anti-competitive while it continues to grow its Ads business.? Will the regulators intervene?

Wrapping Up

Other events that unfolded last year and are likely to shape 2023 include: uncertainty around regulatory action with TikTok, the unraveling of Twitter and the arrival of ChatGPT (and the hype of it being a potential Google killer). What themes did I miss from 2022? What are you looking forward to in 2023?