TMT trends report Q2 2022: social platforms pushing forward amid shifting advertising landscape

We are hearing from industry experts that in response to the tougher economic climate, some advertisers are cutting back on upper-funnel brand efforts and not necessarily reallocating to direct-response approaches. By contrast, certain advertising within Meta (Facebook and Instagram direct-response) is “almost recession-proof,” according to a former manager at TikTok Inc. “People know exactly what they’re going to get, which is a positive return on investment, and if they don’t get conversions they don’t have to pay.” With that said, the specialist expects the general pull from e-commerce to impact revenues, echoed by another who said supply chain issues and inflation impact social platforms because many advertisers are pulling their spend. “Even TikTok and Meta, I think you’ll see similar impacts, especially with Meta Reels and short-form, because that’s an area where they have not made the same strides and performance in driving clear revenue benefits as they have on more traditional Instagram advertising and Facebook advertising.” 

TikTok is gaining increasing recognition regarding its own direct-response advertising, we were told, though “it’s not quite there yet”. Meta continues to be the “gold standard” for lower-funnel advertising, according to our expert, and TikTok is “trying its best to keep up.” This resonates with a recent Hootsuite study that acknowledged TikTok’s exceptional growth since 2018 but found only 35% of advertising respondents planned to increase their investment in the next year.¹ https://blog.hootsuite.com/social-media-trends/ “Most businesses continue to place big bets on reliable networks like Instagram and Facebook,” Hootsuite said. Out of Facebook, Instagram, Twitter, TikTok and Snap, a former manager at Instagram (Meta Platforms Inc) said the latter is most likely to be affected by a downturn in advertiser revenue because Facebook and Meta’s broad scale should enable them to retain more dollars, while TikTok is currently the “industry darling”.  

One of the defining characteristics of today’s evolving social media landscape is the rising popularity of short videos, creating opportunities to integrate e-commerce and other traditional advertising features – but still a relatively nascent area. Renowned for its algorithm that shares content with users based on mutual interests, TikTok currently owns this space. However, advertisers switching from traditional to short-form video is, at present, “not necessarily positive for their revenue” because the same conversion rate has to date not been achieved. In an earnings call in April, Facebook CEO Mark Zuckerberg said the focus on short-term videos is a “drag on revenue” because they do not monetise as well as its traditional advertising services.²https://www.cnbc.com/2022/04/27/facebook-forecast-points-to-potential-revenue-drop-for-first-time.html

“That’s the ongoing struggle right now, I would say, is to achieve those conversion rates that advertisers have come to expect from social media advertising,” the former TikTok Inc manager said. Showing the right content to users is paramount and TikTok has “figured that out”, they added. But it is still only “scratching the surface” of taking the secret sauce of its algorithm and matching users with products. On the other hand, Meta has an “incredible” dynamic ad product, but the question is whether it can apply that successfully in a short-form video context, we were told.

Meanwhile, as part of the iOS 14 update, Apple declared last year that it will give users the choice to block the Identifier for Advertisers (IDFA) at the app level, requiring apps to ask users for permission to collect and share data (see a Third Bridge Forum article looking at the impact on gaming companies). This is having a profound impact on advertisers’ and social platforms’ ability to target users with a laser-focus and thus achieve high conversion rates. The businesses that are most impacted are those that deal with retargeting; those that are less impacted are those that have never relied on first-party data, we were told.

The iOS change is fundamental to a “huge, huge number” of businesses, a former manager at Instagram (Meta Platforms Inc) said. “This, to me, fundamentally shows the weakness of all of the social platforms in that they are carried by Google and Apple.” The former divisional leader at Meta Platforms Inc added: “We haven’t even seen the impact of Google, and the deprecation of third-party cookies. We’re going to see this progression.” Meta’s CPMs could have peaked, our Interview suggests, with the former divisional leader at Meta Platforms Inc predicting a potential 15-20% decline from the introduction of the IDFA by the end of 2022.

To counteract these challenges, some companies are creating identification graphs to ingest advertiser data. “It is not an accident that Google created Google Ads Data Hub, ADH. Facebook created Facebook Advanced Analytics, and Amazon created Amazon Clean Room Beta,” the aforementioned specialist noted. But even though alternative solutions to the IDFA are being created, we were told that few companies are buying into it. “Very few compliance officers want to deal with that.” As part of this rethink, Facebook is shifting to contextual advertising – and it is the platform’s vast scale that makes this effective. However, if its scale starts to dwindle, advertisers could re-allocate their budget. “I would say Google and Amazon are the two beneficiaries, and they’re coming out with new products that are very advertiser-friendly, that help with privacy, but not at the loss of scale.”

The former divisional leader at Meta Platforms Inc also expects there to be an increase in the number of publishers creating their own “clean rooms” to match the scale of Facebook. Meanwhile, TikTok is helping advertisers create high-quality videos, with its latest approach focused on pairing them with creative agencies and subsidising some of the costs. “They’ve pivoted more to improving the ways that we can create videos automatically and optimise them through machine learning,” the former manager at TikTok Inc said. “It’s hard to get these agencies to really invest heavily in a totally new way of creating content.” As the former executive at Glow Social & Digital noted, there has been a “pivot to what’s called authenticity”.

While advertising will continue to be a core part of social platforms’ revenues, their parameters are shifting and we heard that efficiency could wane. Short-form video has staying power, we are told, but many players have yet to wrap their head around this new format, notwithstanding IDFA roadblocks. Against the backdrop of a new era of consumer privacy and data protection, what we are seeing today is almost certainly the tip of the iceberg. The former divisional leader at Meta Platforms Inc warned that differing privacy laws across US states could compound an increasingly challenging environment. “We’re going to be a mishmash of 50 different privacy laws, consent platforms are going to go through the roof, and that I think is the greatest threat to digital advertising, in my view.”  

* Zenith, 2022