August 2, 2022

So, A Recession… Now What?

People far smarter than I can debate the merits of whether two-quarters of economic contraction is equal to a recession or if it requires fancier analysis. But if you do a Google search for “are we in a recession,” there are plenty of articles trying to answer that question.

And honestly, whether we are or not is irrelevant when seeing what’s going on in the market. Snap reported its earnings a couple of weeks ago, and investors panicked. Revenue came in at $1.11 billion for the quarter when investors expected $1.14 billion. And according to CNBC:

In its investor letter, Snap said it’s not providing guidance for the third quarter because “forward-looking visibility remains incredibly challenging.” The company said that revenue so far in the period is “approximately flat” from a year earlier. Analysts were expecting sales growth of 18% for the third quarter, according to Refinitiv.

When looking at Meta, it was equally frustrating. According to CNBC:

Revenue in the second quarter fell almost 1% from a year earlier. Meta also issued a disappointing third-quarter forecast, citing a “continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty.”

This can’t all be blamed on the economy. When Apple rolled out iOS 15, it destroyed these ad businesses that depended on 3rd-party data for advanced targeting. Nevertheless, I imagine many media companies might be experiencing similar shocks. We’ll see how more traditional media companies are doing when NYT reports its earnings later this week and NewsCorp reports next week.

But it does beg the question. If we are in a recession, what next?

First, assess the different projects and business units you operate. Are there things you were investing in during the flush market that are looking unappealing in a recession? Prioritization is boring when everything is going up and to the right. But when things get tough, it’s important to assess whether something is worth doing.

That might mean that you shut specific projects down. I wrote about balanced growth back in May, and this part is worth looking at again:

I mention this because growth at all costs works when the economy is strong. I talked with one founder over a year ago, and when I asked if his business was profitable, he said, “not right now, but that’s by choice. We’re investing in growth. We could be profitable tomorrow if we wanted.”

That attitude comes to mind when I ponder whether things will really slow down. If you’re investing in growth and can be “profitable tomorrow if we wanted,” what happens when revenue drops 20%? Can you still get profitable tomorrow?

The way you get there is to be very intentional about which projects make sense to work on and which are worth getting rid of. It’s not a failure if you learn from what you work on and apply those lessons to future initiatives.

Second, assess the team. It’s always sad when a media company announces layoffs, but it’s often necessary. According to Axios:

Vox Media is laying off 39 people, less than 2% of its total staff of more than 2000, in an effort to get ahead of economic uncertainty, according to a source familiar with the cuts and a memo obtained by Axios.

The company is laying off staffers in a few key areas, including recruiting, some editorial roles and sales.

This actually makes sense to me. If you’re not going to be hiring as much and expect fewer ad deals because the market is tightening, then these roles might not be as necessary.

But I would argue you should assess the team even in the good times. Do you have roles where if you brought in someone slightly more senior, you’d need fewer people? I think the default is for companies to hire more people rather than the right people.

Third, dig into the core monetization and ensure everything works exceptionally.

If you’re a subscription business, have you perfected your onboarding flow? Do you send users emails when they sign up and recommend things over their first 30 days? Are you trying to build loyalty so that they don’t become inactive subscribers almost immediately?

You can always fill a leaky bucket with new subscribers when times are good. But when the economy constricts, people spend less. So to ensure you don’t shrink, you need to fill in as many holes as possible.

But the big fear when we enter a recession is on the advertising side. And there’s no denying that there could be a big hit. Let’s use the Great Financial Crisis as a test (that was a way worse economic event than what we’re dealing with today). According to eMarketer, ad spend was $176.46 billion in 2008. In 2009, ad spend dropped by 17%. In that eMarketer piece, they wrote:

Digital ad spending declined in 2009 as well, but only by single digits—and that was after eking out an increase in spending in 2008. At the time, digital was a relatively small share of total ad budgets, and digital advertising was still playing catch-up in terms of its share of ad spending vs. consumer attention. Digital’s measurability made it attractive to frugal marketers looking to drive performance.

Not all ads are created equal. In 2009, print advertising was a much more significant part of the ad business. Digital was much newer. But that last, bolded sentence is critical. Marketers will still advertise, but they will be biased toward ads that perform for them. When the economy is strong, budgets are more frivolous, and there are experiments. But when the economy weakens, marketers go to what they know will work.

Is it any wonder that even with marketers cutting back, Google still saw revenue grow 13% year over year? This is because it’s less dependent on third-party tracking like Snap and Meta, so it can still deliver the quality advertising marketers want.

Your business should be the same way. Figure out which ads are not working and try to improve them. Often, publishers use “brand building” as an excuse for a low-performing ad. And, I agree that there’s immense value in brand building. But during a recession, marketers lean into performance. So, is your ad business ready?

Here’s what it boils down to… We’re not the Fed and are not trying to guide this economy into a soft landing. You can only control what you can control. Trying to plan for these massive macroeconomic episodes is very hard. Therefore, focus on what you can have a material impact: prioritization, costs, and your primary monetization. And good luck if this really does turn into a big recession.

We keep getting cookies

Google and the 3rd-party cookie might be the thing that keeps me in business. When I started writing, Google was getting rid of 3rd-party cookie tracking in 2022. Then Google pushed it back to 2023. And now Google’s pushing it back again.

According to Business Insider:

The latest delay is intended to allow more time for advertisers, publishers, and other members of the online ad industry to begin formal testing of the new cookieless technologies proposed in Google’s “Privacy Sandbox” initiative, sources familiar with the matter told Insider.

And in a blog post, Google wrote:

The most consistent feedback we’ve received is the need for more time to evaluate and test the new Privacy Sandbox technologies before deprecating third-party cookies in Chrome.

There are two ways to approach getting rid of the 3rd-party cookie. First, you can do it like Apple, which has really hurt a lot of companies—and small businesses—by just cutting cookies without a plan. Or, you can try and do it in a tempered and thoughtful way since it will impact the entire ad ecosystem.

The real question is whether Google will actually get rid of cookies. This tracking method has been the modus operandi for decades; switching to something non-cookie-based might be insurmountable in the short or medium term.

But publishers shouldn’t take their foot off the gas in trying to develop their 1st-party data. Do you know why Google didn’t seem revenue drop while Snap and Facebook did? Google has contextual intent-based ads, so marketers always know they’re targeting someone they want. Facebook and Snap depended on 3rd-party cookies to build a complete profile on someone. Without that data, it’s much harder to target.

The same will be true for publishers. Right now, we can depend on 3rd-party cookies, but the more contextual and 1st-party data we can capture about our audiences, the better we’ll be. It is what will separate publications. The more data you have about your audience, the more you’ll be able to offer marketers.

That said, for slow publishers that might not prioritize it, Google is giving you another two years to figure things out. And maybe as time passes, Google will keep giving you more time. Who knows?

Thanks for reading today’s newsletter. If you have thoughts, hit reply. Or become a premium member to join the AMO Slack. Have a great week!

Join A Media Operator

Consider becoming a premium member so you can receive even more analysis and insights.

Existing member? Log in here