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Advertising Reliant Products Are Getting Hit Right Now

The writing has been on the wall for a while now, but we're starting to see some of the early signs of the impact Apple's removal of IDFA (its tracking tool) from iOS 14.5.

On Thursday, Snap announced its earnings and it missed on its self-guided revenue target, so naturally, the market reacted. But the reasoning for the revenue miss was obvious. According to CNBC:

“While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS,” Spiegel said in his prepared remarks.

“While it is difficult to predict the trajectory of these challenges, the growth of our audience, the adoption of our new products and platforms by our community, and the underlying efficacy of our advertising products for performance advertisers gives us confidence in the future of our business and our ability to navigate this environment as we continue to invest in our long-term vision,” Spiegel said.

Snap was hit the hardest, but Facebook, Twitter, Pinterest, Google, and other advertising-driven technology stocks all experienced similar pullbacks. Clearly, Apple blocking the sharing of user data to apps has made it increasingly difficult for advertisers to know who is viewing the ad. That, in turn, makes it more expensive to advertise. (Disclosure: I hold Snap and Twitter).

I promise... A Media Operator is not about to pivot and start covering technology stocks. But while we wait for more media companies to go public, we can use Snap and others as a proxy for what's going on in the advertising market. And it's not smooth sailing.

If we change our attention to another part of the CNBC story, we can see something that I predicted back in mid-September regarding supply chain issues. I wrote:

The big one that I am thinking about is advertising. If retailers are struggling to get stock in, why do they need to advertise? The same might be the case for affiliate sources. If there are no products available, can publishers actually expect their affiliate partners to pay high commissions?

And in the CNBC story, it's much of the same:

Spiegel also warned that global supply chain interruptions and labor shortages reduces the “short-term appetite to generate additional customer demand through advertising.”

Snap CFO Derek Andersen warned that between Apple’s privacy changes, supply chain interruptions and labor shortages, the company expects its fourth-quarter revenue to come in between $1.16 billion and $1.20 billion. That’s short of the $1.36 billion in revenue that analysts were expecting for the fourth quarter, according to Refinitiv.

“Unfortunately, these changes are occurring during a season when our advertising partners would normally expect their supply chains to be operating at peak capacity, and at a time when we would otherwise expect peak advertising demand to drive peak contestation, and therefore peak pricing, in our auction,” Andersen said in his prepared remarks.

For Snapchat, that's anywhere from $160-$200m in revenue that it might not generate in Q4 because of supply chain concerns (and Apple's change in privacy).

There's little that publishers could really do to anticipate the supply chain issues. It's not an area that many of us spend much time thinking about. But we have to remember that the advertising we sell is supposed to drive sales for another company. We are a cog in the economy. If there is nothing to sell, then of course we're going to see a cut back in sales.

How long do supply chain issues last? Some people I've spoken with say it'll take at least until mid-2022.

Ultimately, this means that publishers that might have been banking on Q4 being a nice cherry on top of an otherwise very strong year may be in for some shock. Not all of them, but especially those relying on programmatic consumer ads.

I'm empathetic toward supply chain problems.

But no one should be shocked to see that a reduction in tracking capabilities means that advertising is going to become more expensive for partners, thus forcing them to cut how much they spend. Why wouldn't this be the case? With fewer data points, targeting is going to be less specific. That is not something that anyone should be surprised about.

Equally, no one should be shocked that we were going to lose this data at some point. Google has been talking about getting rid of the cookie for a while now. Apple blocked cookies in Safari long before it was cool and has obviously extended that into its iOS platform.

We knew things were going to get more complicated. And yet, publishers don't seem to be worried. According to this Digiday research:

As of the beginning of the third quarter of 2021, less than 50% of the publisher professionals Digiday surveyed said they were worried about their ability to target ads or measure their effectiveness without third-party cookies. By contrast, a majority of both brand and agency respondents said they were worried about those things; more than three quarters of brand respondents, for example, are worried about their ability to target and measure ads without third party cookies. 

Though a number of developments — more companies now preparing for the end of third party cookies, and a nearly two-year extension of Google’s original deadline — have helped lower anxiety about this change with publishers and agencies, it seems not to have helped brands, who are actually more concerned about this than they were six months ago.

I would like to believe that publishers are less concerned because they have developed robust 1st-party data collection and, therefore, can sell advertisers on targeted ad campaigns using owned data. But in reality, what I anticipate is that publishers are seeing Google give them more time and are just focused on the here and now.

It's an incentives game. Why worry about what's coming in 2022 and 2023 when we can enjoy this year's success first? And we wonder why so many publishers have struggled for years...

I digress... It bears repeating, but the future of advertising as we know it will depend on one of two things.

The first is my favorite phrase: 1st-party data. What can you capture about your audience that can then be repackaged in such a way so advertisers can target your audience? A good example is Vox, which has been ahead of the pack on its 1st-party data offering. According to Marketing Brew:

Vox Media, which owns sites like Eater, New York Magazine, and The Verge, came up with its own first-party data platform in 2019. Called Forte, Vox Media recently expanded Forte to Concert, its ad marketplace that includes publishers outside of its own walls. Local publishers like the Chicago Sun-Times are part of Concert, as well as national players such as Fortune.

“When Google first announced their plans, I think that everybody was uneasy. Personally, I’m really excited about it, because I think that we’ve made enough headway to be able to see the outline of the future,” Megan Walton, VP of revenue product at Vox, said. “We’ve had the chance to iterate on it. We’ve had the chance to get real data on it and really prepare ourselves.”

They got the memo in 2019. Whether it works or not, I don't know. But the spirit of the tool is right.

The second is contextual targeting. One reason Dotdash bought Meredith is because of all the contextually related publications that it had in its network. If a user is reading a publication related to food, we have a better idea of who should be advertising.

That's the future. It's either 1st-party data or contextual targeting. This is why, by the way, I'm such a big fan of B2B media. This is all we've got. Relying on targeting never made sense. So long as we can tell who is reading a story and what that story is about, we're able to promote the right advertiser.

AdTech will try to come up with some other solution. They have to. Platforms like Snap will be fine because they'll gather 1st-party data. But the days of 3rd-party tracking are likely behind us. We may see other solutions presented, but my instincts tell me that it just won't work as well as cookies did. And if that's the case, publishers that waited until the last minute will struggle.

We can learn a lesson from Snap's earnings. Depending on third-party sources for data can't be a long term strategy. The sooner we focus internally on what we can capture and understand, the better. The best time to start capturing 1st-party data was yesterday; the second-best time? Today.

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