ORC #2: Adtech or Martech
Wall Street Journal wrote recently (Jan 3): “Alphabet Inc.’s Google and Facebook parent Meta Platforms Inc. accounted for a combined 48.4% of U.S. digital-ad spending in 2022, according to estimates from research firm Insider Intelligence Inc. Their combined U.S. market share hadn’t been under 50% since 2014, said Insider Intelligence, which expects that number to drop to 44.9% this year. The ad businesses of Google and Meta are still growing, but Insider’s data suggest the pace is slower than the rest of the U.S. digital-advertising market. Insider forecasting analyst Zachary Goldner said the erosion of their combined market share was the result of brands having access to more advertising formats… Despite the expectations of slowing growth, digital-advertising platforms will take in an ever-larger share of ad dollars this year, GroupM said: Nearly two-thirds of total U.S. ad spending is expected to go to digital advertising in 2023, compared with less than half in 2019, the last year before the pandemic.”
Here is a chart from Insider Intelligence:
GroupM’s “This Year Next Year” report estimates in 2022 that $187 billion was spent on search advertising and $243 billion on non-search, non-retail – a total of $430 billion. This is close to the $400 billion figure that I have mentioned multiple times in the past. My belief after multiple conversations with marketers is that half of this spend is being wasted – AdWaste, as I term it. This is because of wrong acquisition and reacquisition. This is the marketer’s conundrum” adtech or martech, with 85-90% spending sucked away by Adtech. It is closely linked with the decision to acquire new customers or spend more on deepening relationships with existing customers.
My recommendation is that marketers need to shift budgets from adtech or martech – the 50% AdWaste can be better used to incentivise and gamify interactions with existing customers to win over their attention and get them to volunteer personal (“zero-party”) data which can lead to more personalised experiences. The marketer’s mantra should be: pay customers, not the adtech platforms.
The AdWaste spending is also the opportunity for martech companies to change the narrative in their pitch to marketers. As I wrote in Solving the $200 Billion AdWaste Problem: “For martech companies, the $200 billion AdWaste can become the new pool of money which multiplies their TAM (total addressable market). Today, most martech companies play in the 10% spending pool (about $50 billion). Newer solutions can substantially expand the available market. But to do this, it is not about adding new features to the martech stack but about taking a very different approach with a fundamentally new insight: attention and data are upstream of transactions, and “Atomic Rewards” (micro-incentives) can help marketers get more attention and data. In other words, persuade marketers to pay their existing customers rather than Big AdTech.”
The metric marketers should track in what I call Martech Spend Ratio: what percentage of the digital marketing budget is spent on existing customers. To build a sustainable business, marketers will need to get MSR to 50 or higher.
Conundrum: Spend on adtech (acquisition) solutions of martech (solutions for push channels and properties)
Insight: Half of acquisition spending on Big Adtech platforms is being wasted (AdWaste)
Solution: Create a healthier balance between adtech and martech; get MSR closer to 50