The YouTube Ad-Pocalypse: Now that Q1 € results came in yesterday.

(This is an updated article reflecting yesterday's Google results but written two weeks ago by my colleague Richard Talbot, Head of Paid Search & Display Marketing (PPC) at Tinderpoint)

Back in March, the latest Google controversy made headlines around the world. What made this one slightly different to previous ones concerning more general data, security and privacy issues, or changes to the way ads are shown on search results, was that it was advertiser-lead, and could potentially impact Google’s revenue from YouTube and the Google Display Network (GDN).

A Brief Recap on The Issues

Simply put, the rise of programmatic advertising and bots to place advertiser’s ads on various content that is supposedly aligned with the relevant target audience, has created common situations where content may be shown next to objectionable or even extremist content. Content here refers to both websites on the GDN and YouTube.

Some examples of big brand ads appearing alongside extremist/offensive content included a L’Oréal ad running after a video of a UK-banned heat preacher’s speech and an RAF ad on a video with anti-Semitic themes. When the story broke in the global media, big brands including Johnson&Johnson, AT&T, Pepsi and the UK government freezing activity on YouTube and the GDN.

“We are deeply concerned that our ads may have appeared alongside YouTube content promoting terrorism and hate. Until Google can ensure this won’t happen again, we are removing our ads from Google’s non-search platforms.” –AT&T’s Statement

“It appears that technology has gotten ahead of the advertising industry’s checks-and-balances” – Enterprise Car Rental

Fallout in The Media

Google scrambled to react with advertising revenue at stake. Philipp Schindler, CBO at Google, hinted that the issue was being overblown:

“It has always been a small problem,” with “very very very small numbers” of ads running against videos that aren’t “brand safe,”. “And over the last few weeks, someone has decided to put a bit more of a spotlight on the problem.”

However, given the big brand names freezing activity, the controversy rumbled on with large agencies such as Havas and GroupM freezing activity for more clients until there was further information and action coming from Google.

Here the cynic in me, having worked in this industry for over eight years, lead me to question why the agencies themselves were publicly declaring such “boycotts”. One can understand brand managers at global multinationals becoming nervous and pulling ads until something is done, but one can speculate that this was a chance for agencies to have some free positive PR for a change. Agencies are safe in the knowledge that with Google needing to diffuse the situation quickly, it’s unlikely that their own bottom lines would be impacted.

YouTube creators also expressed concern after rumours flew around that some of Google’s responses to this crisis that YouTube would restrict advertising on channels with less than 25,000 views. This rumour turned out to be false, but creators continued to report inconsistent revenue.

Fallout in The Markets

Investors too seemed spooked, despite pronouncements from Google such as:

 “We don't comment on individual customers but as announced, we’ve begun an extensive review of our advertising policies and have made a public commitment to put in place changes that give brands more control over where their ads appear. We're also raising the bar for our ads policies to further safeguard our advertisers’ brands.” – Statement from Google

The GOOG stock price which had been on a six-week rally from early February, and which some analysts had predicted would continue to rise to break $900 this year, took a tumble of 4.5% over a week. Hardly cause for investor panic, but a loss of momentum following mixed signals at the Q4 2016 earnings call in late January.

[DISCLAIMER: As an ex-Googler, I hold a handful of Google stock units. Various Google controversies impact on me both professionally and financially, so I take a keen interest in how such controversies play out and the resulting market sentiment]

It should also be noted that this controversy is more about YouTube ads, and Google don’t break out YouTube revenue in financial reports, but it’s estimated as of 2016 to be $10.5bn or 12% of Google’s gross ad revenue. It’s on a par with Netflix's gross revenue and four times Twitter’s revenue, so even a predicted 1% drop in YouTube revenue from this controversy is still big bucks!

Fast Forward – Six Weeks Later

It’s natural in such a crisis involving big brand names, new technology and vast sums of money that there will be a lot of media attention given to this, with various stakeholders weighing in with their opinions on what needs to be done and Google scrambling to limit the damage caused. However, as with all such stories, the mainstream news cycle moves on to the next big thing, be it the start of the formal Brexit process or missile strikes on Syria, and this controversy rumbles on at a lower level in tech media and agency-land.

Six weeks later, let’s take stock of the current situation. First up, Google have released various statements and reassurances about how they will apply tighter controls and monitoring of how ads are placed. Our Google agency account managers recently shared a document (publicly available for all Google advertisers) about how Google policies the GDN and YouTube networks, and how advertisers can leverage existing and new tools and features to apply tighter controls over where their ads are shown.

This is standard crisis management, but also contains a certain element of asking for more trust in Google’s systems to combat the problem, rather than going into specifics about actions or processes. Trust in Google has taken a battering in recent years from both advertisers and users of Google services over various controversies, and it would be very beneficial to reassure advertisers and agencies of what exactly is changing.

In terms of media reaction, the picture is more mixed. Here’s the Google News stories for the search “Google YouTube”

As we can see, some of the recent commentary suggests that the controversy is still rumbling on, with potential impacts to both Google’s reputation and revenue. Yet as we can see, four of these news stories, including two featuring Irish media sites and a major Irish agency, focus on advertisers and agencies restarting advertising on YouTube and the growth in ad spend. This follows on from my cynicism referenced earlier, regarding the agency boycott of YouTube. I knew that this would be relatively short-lived as agencies are not going to see their own bottom lines being impacted.

“As long as the product is great and we can reach the consumers we want to reach then it’s unlikely to change. This is about economic reality,” – Michael Roth, CEO of Interpublic

In fact, it may force more agencies to pay closer attention to their ad placement processes, especially if they are using their own proprietary programmatic solutions. Display and YouTube ad placement requires thought and monitoring, and should never take a “set and forget” approach and you cannot solely automate your way to success – a steady dose of manual checks and balances and common sense from senior agency staff is needed. This is not something any bot can be programmed to do.

There has also been an official response from the UK government, one of the advertisers who pulled ads based on the controversy.

“With huge scale comes huge responsibility. They need to take the concerns of advertisers and the public far more seriously than they have shown in the past. They need to get their act together and make sure they do a better job at improving blocking inappropriate content.” – Nigel Huddleston, MP (Conservative); Member of the Commons Culture, Media and Sport Committee

So, What Next?

Programmatic advertising, which had been riding a wave of huge growth and investment, will come under renewed scrutiny over its effectiveness and place in the digital marketing ecosystem. This will include programmatic options beyond what Google provides, so I would expect more commentary and reviews of programmatic activity among advertisers and agencies.

“We join the ecosystem in calling upon all digital advertising platforms to take the necessary steps to guarantee the safety and reputations of our brands …The current crisis is representative of the issues that ANA—and others—have raised with respect to fraud and risk, reduced transparency, suboptimum measurement and nebulous productivity. A dearth of trust and a need for verification lie at the heart of these problems.” – US Association of National Advertisers (ANA)

Alphabet (Google’s parent company) released Q1 2017 financial results yesterday 27th April. No impact! Given that this controversy erupted in the final two weeks of Q1, it was unlikely that the balance sheet would have been impacted significantly. What will be more interesting to see is if there is an impact on Q2 results and if the predicted 1% drop in revenues will pan out across 2017.

On the financial results call yesterday, Alphabet CFO Ruth Porat said that "YouTube revenues continue to grow at a significant rate," dispelling concerns about the possible impact of an advertiser boycott of the video service.

“Advertisers can be fickle and certainly the approval of the advertiser is critical, but less so than the approval of the user," said Phil Bak, CEO of ACSI Funds, an asset manager.

Google’s search ad business continues to grow - Paid Clicks increased by 44% compared to analyst expectations of 29% - so advertisers have not pulled spend here (yet?). This is good news for Google, since search ads have provided the bulk of historical revenues and they continue to enjoy massive growth, even in mature sectors and markets.

However, YouTube faces special challenges separate from the search business. YouTube must keep both users and creators happy, as well as fending off strong challenges in terms of video content and advertising options from Facebook, Twitter and Snapchat.

“YouTube has a decade-long head start, but obviously, everyone wants a piece of the pie,”- Hank Green, Founder of VidCon

Google has a history of riding out controversies like this in the past, even when the issues have involved governments and the EU courts, and usually bounce back in terms of revenue and growth. Its dominant position in the online advertising industry insulates it from any long-term consequences of controversies.

Richard Talbot is Head of Paid Search & Display Advertising at Tinderpoint, a full-service digital marketing agency based in Dublin, Ireland. With almost a decade of PPC account management experience gained at Google, Bing and latterly in agency-land, Richard has helped hundreds of clients squeeze the value from each paid click. He regularly trains, lectures and speaks at Irish digital marketing events.

Tinderpoint is both a Google AdWords Premier Partner and Bing Ads Partner