Why Is Digital's Ad Growth Decelerating: Explanations Abound, None Good

by Joe Mandese , October 21, 2019

During a briefing on the Interactive Advertising Bureau's and PwC's first half 2019 Internet Ad Revenue Report special guest GroupM President of Business Intelligence sought to answer questions about why digital's ad growth is beginning to slow down. His answer is it's not yet 100% clear, but it likely is either the maturation of some key drivers -- especially high-flying growth categories like social and mobile -- or it may just be the economy.

"I do see some macro economic issues being a more practical issue," GroupM President of Business Intelligence Brian Wieser said during the briefing, noting, "It does feel like we are long in the tooth on economic expansion."

The big question he said of a macro economic downturn is explicitly how that might affect digital's ad expansion, given the fact that it was hardly impacted in past economic recessions.

"Does digital media start to behave in terms of its growth rate more like other media in a downturn, or will it be more resilient?," he asked rhetorically, adding, that he has begun seeing evidence that weakening economies in "other countries around the world" are showing signs "more meaningful slowdowns in digital," but he said it was too early to see if that might also impact the U.S.

One thing was clear from Monday's briefing, the rate of digital's growth as begun ebbing in recent quarters, and some of the reasons for that suggested by Wieser, as well as representatives of the IAB and PwC, is that two big drivers -- social media and mobile -- are beginning to mature and slowdown their rates of expansion.

Eric John, deputy director of the IAB's Video Center of Excellence, noted that there could be some high growth categories like CTV (connected TV) that currently are not being measured that could actually be propelling digital ad spending growth.

The IAB staff indicated that they haven't been getting compliance from CTV advertising platforms as part of the IAB's industry self-reported data compiled by PcW.

GroupM's Wieser was more pointed about the limits of endemic digital advertising growth, noting that two of the biggest recent catalysts -- so-called pure-play digital marketers, and small businesses -- may have maxed out their incremental impact on the digital ad economy, making the role of traditional big brands a more important driver than ever.

That said, Wieser noted that big traditional advertising brands already spend about 40% of their media budgets on digital and that it might be difficult to rationalize much more share going that way without some digital "business transformation" case.

He noted that many industries already have done through such transformations.

9 comments about "Why Is Digital's Ad Growth Decelerating: Explanations Abound, None Good".

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Ed Papazian from Media Dynamics Inc, October 22, 2019 at 7:44 a.m.
Or it could be that many advertisers are recognizing the many negative or problematic issues facing digital media---lack of actual ad exposure, fraud, ad blockers, often not so great targeting mechanisms, lack of short term reach, very high costs of buying and data messaging, etc. Also, this type of analysis is meaningless unless we consider the various types of advertiers separately---direct response, search, local vs national, branding vs DR, etc.
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Joe Mandese from MediaPost Inc. replied, October 22, 2019 at 7:49 a.m.

@Ed Papazian: Could be, but those same negative or problematic issues face non-digital media too. Never understood why some label them as ONLY a digital problem. I can't tell you how many stories I've written about those problems before there even was digital media. I don't think they've gone away. Re. analyzing various types of advertisers separately, click through to read the entire IAB report, or check out my colleague Laurie Sullivan's top line analysis here:

https://www.mediapost.com/publications/article/342263/1st-half-digital-ad-revenue-reaches-579b-perfor.html

Ed Papazian from Media Dynamics Inc, October 22, 2019 at 8:32 a.m.

Joe, I don't agree that the same issues that I cited apply to TV magazines or radio though there are other issues such as the ways that these media sell time and space or how advertisers use---or misuse ----them certainly apply.

Kevin Killion from Stone House Systems, Inc., October 22, 2019 at 10:58 a.m.

Deja vu: Media lore tells of early unbridled enthusiasm for newer media untempered by realities. Cable networks were so trendy in around 1980 that adding them to a plan was just about a requirement if you wanted to claim media high ground, irregardless of practical problems. It took a while before things got serious, and rating reports were reliable, the needed extra decimal places were programmed by back office suppliers, and demographic claims were documented.

Joe Mandese from MediaPost Inc., October 22, 2019 at 10:58 a.m.

@Ed Papazian: I can give you explicit examples of all of those same problems occuring with TV, but would have to do some research for magazines and radio. Other traditional media -- outdoor, for example -- have also been historically rife with similar issues. I don't think problems are unique to digital media, and it is up to agencies (and smart in-house client teams) to be vigilant and steward media.

I agree with your statement about "how advertisers use -- or misuse..."

Marc Goldstein from Media Solutions LLC, October 22, 2019 at 11:39 a.m.

Is it at all possible that simple math plays a role, when you're a $20 billion business growing at 20% ii's 4 billion, when you're a $50 billion a 20% increase requires another $10 billion. Perhaps that's more than people are prepared to commit in terms of their budgetting for any number of reasons as cited earlier. Maybe we should focus more on the absolute rather than the %!

Ed Papazian from Media Dynamics Inc, October 22, 2019 at 1:10 p.m.

Joe, I'd be interested in any evidence of wide spread fraud when it comes to TV time buys and the same thing applies to ad viewability where every TV commercial is on-screen 100% of the time and runs from start to finish---not two seconds. The same goes for the costs of makintg the buy, including the fees charged by programmatic platforms, "big data" numbers crunchers, the costs of getting and inserting ads so they might be seen, etc. A typical national TV buy spread across broadcast networks, cable channels and syndication costs about 2% from start to finish--with broadcast lower and cable higher. That includes everything down to post buy evaluations, make good adjustments, etc. The corresponding costs for many digital buys are 10-20 times higher.

John Grono from GAP Research, October 22, 2019 at 7:41 p.m.

Every growth curve has a point of inflection forming an ogive.

The thing is growth MUST eventually slow. initial growth is generally slow (early adopters). As adoption takes off, growth improves (and is numerically big because of the prior small base). When sufficient mass is obtained growth tends to hit its numerical peak, the growth rate graph tends to bend back on itself. When you achieve swathes of users (near maximum penetration), growth comes from increased incidence of usage. When usage incidence and penetration have reached their apotheosis, growth comes from monetary sources.

Then as other commenters have noted there can also be other external extenuating issues that affect the rate of change - but not so much the actual shape of the growth curve.

Stewart Pearson from Consilient Group replied, October 27, 2019 at 7:23 p.m.

Digital spend is the wrong metric. May we consider that the future of advertising, whether or not we consider it digital, is in un-measured 'owned' and 'earned' media rather than the traditional measures of paid media. We challenge brands to evaluate the true drivers of their short-term performance and long-term growth in a true analysis of what messaging as well as media works in an economy when customers lead.