First-party data and analytics separate winners and losers
With a growing set of technical and regulatory restrictions to third-party tracking, brands and media companies will increasingly invest in marketing technologies, such as customer relationship management (CRM) systems and marketing automation tools, to generate and harness first-party data. Analytics layers on top of this data will enable a deeper view of the customer, greater personalization and the potential to foster an efficient and measurable ad business.
Efforts by advertising consortia are under way to create a universal, privacy-compliant, cross-channel identity system to replace third-party tracking. However, these efforts require standardized data practices and a critical mass of participating companies. Value will initially accrue to the walled gardens, which offer superior reach, identity graphs and measurement systems. However, value may be redistributed to smaller players throughout the funnel if new ID systems are successful.
Key trends and proof points
Data-driven channels enable micro-targeting at scale
- Demand for more efficient targeting: As COVID-19 constrained marketing budgets, brands and agencies prioritized spending on digital channels that allowed them to target data-rich consumer profiles, accurately measure revenue attribution and rapidly test campaign efficacy. In H1’FY20, share of spending on digital channels will increase ~4% compared to H1’FY19; however, addressable TV advertising, which grew 37% in the US in FY19, provides dynamic household-level targeting designed to reinvigorate the TV ad market.
- Desire for greater flexibility: Digital channels provide the flexibility to scale marketing campaigns quickly, which is key as brands have shied away from upfront TV commitments; these are expected to decline 27% in the 2020-2021 season in the US. The planning timeframe for TV campaigns in the US is shortening from 5-6 months pre-crisis to 2-3 months during the crisis.
Walled gardens prioritize full-funnel capabilities
- Platforms invest in transactional ad experiences: Amazon, Google and Facebook are increasingly spending on ecommerce capabilities to drive full-funnel marketing, such as Facebook’s introduction of Facebook Shops, prompting TV and streaming providers to introduce more transactional ad formats, such as Hulu’s GatewayGo ad unit which sends personalized deals to the user’s mobile device via QR code, email or SMS.
- Long tail of advertisers helps platforms weather shocks: In Q1’FY20, Facebook reported growth in its direct response advertising businesses driven by SMBs seeking ad units lower in the funnel, despite the broad economic impact on SMBs. In Q2’FY20, the company resisted an advertising boycott by largest advertisers. Its long tail of advertisers means the top 100 advertisers only accounted for 6% of ad revenue in 2019, compared to the US TV market in which the top 10 advertisers accounted for ~15% of total TV ad spend.
Third-party tracking beginning to disappear
- Limits to mobile tracking: Apple is limiting tracking across its apps by giving users the explicit option to opt out of the Identifier for Advertisers (IDFA), which creates a device ID that allows mobile marketers to track users and attribute spending across apps and websites.
- End of cookie-based targeting: Google will phase out the use of third-party cookies in its Chrome Browser by 2022 and drive advertisers to Google tools that let them run targeted ads without direct access to users’ personal details.