• by Joe Mandese , May 7, 2019

The bad news is that digital ad-spending growth is beginning to “decelerate,” according to an insightful analysis from GroupM’s intelligence unit. The good news is that it’s a natural reaction to the marketplace expanding so fast in recent years, and it also represents an opportunity for marketers to negotiate better deals from the digital supply chain.

The analysis, published Monday by GroupM Global President-Business Intelligence Brian Wieser, was done in response to last week’s overly negative reaction to Google parent Alphabet’s earnings, which reported a slowdown in its rate of growth.

While it’s true that Alphabet recorded its lowest rate of annual ad revenue growth in recent years, the bearishness is an overreaction because it nonetheless continues to expand at healthy double-digit rates, and as Wieser notes, it reflects tough comparisons with a boon in 2018 that followed some brand safety concerns surrounding YouTube in 2017.

But the real story, he says, is that the bigger digital picture: Alphabet is not an outlier, and “deceleration was widespread among sellers of digital advertising,” he notes, citing the following big digital players’ deceleration between the fourth quarter of 2018 and the first quarter of 2019.

• Facebook advertising decelerated from +30% to +26%

• Amazon advertising decelerated from +50% to +40%

• Verizon Media’s total revenue fell from -5.8% to -7.4%

• Microsoft’s search advertising decelerated from +14% to +12%

• Twitter advertising decelerated from +23% to +18%

“Deceleration was always inevitable for digital advertising for one core reason: there is only so much growth to be had,” Wieser explains, adding: “The core reason for a slowdown in digital advertising growth should begin with the notion that the overall economy has limits to its own growth.”

To prove his case, Wieser analyzed the ad spending as a percentage of total revenues of a pool of the largest endemic advertisers in digital, which include many of its biggest suppliers, as well as companies such as Netflix, IAC and Booking Holdings.

With the exception of Netflix, all of the biggies have reduced the share of total revenues going toward advertising.

“Digital endemic companies are decelerating more broadly, largely because growth from a big base necessarily produces slower calculated growth rates,” Wieser notes, adding: “Companies which are endemic to digital media, whether ad-supported or not, are generally decelerating. This also should not be surprising: as their share of the economy continues to grow and gets closer to some natural limit, revenue growth will be slower.”

Wieser also pointed out that the deceleration of the digital economy already has manifested in non-ad-supported companies, noting that U.S. e-commerce growth rates declined through 2018:

• +16% in the first quarter of 2018

• +15% in the second quarter of 2018

• +14% in the third quarter of 2018

• +12% in the fourth quarter of 2018

“While first quarter 2019 data is not yet available, we can see the deceleration trend with Amazon, where online stores decelerated,” Wieser writes, adding that Netflix’s growth has been slowing down and “we would expect to see similar trends when key companies in online travel or ride-sharing report their first quarter results as well.”

While deceleration is inevitable given the rapid expansion that digital advertising and commerce have been experiencing leading up to this correction, Wieser notes that digital as an ad medium will remain “dominant,” and that the correction means there is an opportunity for advertisers and agencies to exert some leverage with the biggest suppliers.

Advertisers “may find media owners becoming more receptive to their preferences in terms of content focus, pricing or other characteristics of the inventory,” he concludes.