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msg What I Saw Happen -- Q1 2019
  • A focus on Advertising -- a pithy, curated recap of the what I saw happen in the quarter to help start more in-depth conversations 

  • All the insight below are from conversations I have had, podcasts I have listened to and, every once in a while, an article I read. It only makes the list if I believe it and/or I have heard it several times; I review throughout the quarter and edit all the time

  • I send this out to over 1300 of my colleagues in the industry -- if this gets passed along to you, send me an email and I will add you to the distribution list or click here http://eepurl.com/gdaBMv

  • Average read time 10-15 minutes for a quick read and a weekend for the whole megillah (concept from Axios)

  • In addition to What I Saw Happen, I also send out...

    • msg Publicly Traded Company Analysis Focusing on Advertising

    • msg Three Year Advertising/Media Outlook

    • msg Great Companies to Work For

    • msg If I Were to Start a Publisher Today This is What I would Do

 

Of course, let me know if you have any questions. :-)     

-msg (Independent Analyst/Advisor/Consultant)

https://www.linkedin.com/in/msgmsg/

matthew.scott.goldstein@gmail.com  

917.359.5499

====================================================================

 

Overall -- Tech scrutiny is here, 5G is lurking and trust is eroding  

  • Ad load increasing everywhere by publishers and platforms

  • U.S. adults spend ten hours and 30 minutes per day connected to media, the same amount as one year ago

  • The iPhone has stolen time from every other media form over the past 10 years

  • The amount of people looking for jobs in ad tech is out of equilibrium, there are more job seekers than there are jobs available today. I don’t see this getting better, EVER. In the past, most people in ad tech were pulled into a new job today they all need to go look for a new job which can take months/years

  • CES is the perfect time of the year. Post holidays and get out of cold NYC, extends everyone's holiday another week

  • More erosion of trust across tech platforms

  • Brand advertising works

  • 5G really means NO LATENCY; ability to download a movie in seconds. Many households will cut the monopolistic broadband cord

  • China has a huge middle-class upwards of 400 million people

  • In the United States, the Internet is a utility, like water or electricity.  Google, Facebook and Amazon are not utilities

  • Large companies with technology experts on their respective boards do better in the long term. These technology experts can help these companies financially

  • Apple going all in on privacy, and will  promote privacy, especially for the next 5G phone upgrade cycle

  • Breaking up the tech giants have millions of UNINTENDED CONSEQUENCES that none of us understand

  • Pretty much everyone who is watching television is on a second screen at the same time, unless you are watching Game Of Thrones

  • Anti-trust is one of the few government actions that always works

  • We should also break up the IAB

  • It’s okay not to be a leader but you need to be a fast follower

  • Innovate or die

  • It is always better to be part of a growing company and not a shrinking company

  • Lastly, as I always say, hire more analysts and teach them to fish not using excel

 

Platforms/Aggregators -- The digital advertising triopoly still reigns supreme, with Apple trying to kill advertising

  • 5G is not really happening in Q1 2019 or anytime soon

  • Smart speakers are being used by consumers, and many are given as gifts so we have Google and Amazon speakers in our houses; U.S. penetration at 22% now.

  • Google buying DoubleClick was one of the smartest acquisitions of all time

  • Only 4% of our public officials have a background in tech, making it very hard for regulators to break up the big companies

  • Tech giants are increasing their advertising spend in the world of traditional TV -- In 2018, Facebook, Apple, Amazon, Netflix, and Google (FAANG) collectively spent $2.2B on TV ad spend, which is up +38% year over year

  • Fortnite is a new breed of social network and Peloton is the next generation social network for active, highly educated individuals

  • As Zuckerberg recently said, social media is bad and chat is good. The world is headed to messaging with private communications. Once again, Facebook is copying Snapchat. In fact, Evan Spiegel runs product for Facebook, that’s funny :-)

  • The Chinese platforms have done a great job of integrating payments into messaging

  • In 2018, Google spent $25 billion (an increase of 91% year over year) on capital. More than any other S&P 500 company

  • We are in world where no advertising can be tracked by the Safari browser

  • As a proactive antitrust move Amazon should spinoff AWS,  Google should spinoff YouTube and Facebook should spinoff WhatsApp

  • Apple's Texture may do alright, but only because it is pre-loaded on all iphones

  • Don’t forget Apple has ~900 million active iPhones in the world

  • Increase the fees on the ad tech mega mergers and use those increased fees to have the FTC or some other government agency have more money to do more due diligence around all of Tech

  • Apple is not only trying to sell devices, but also trying to fill it with content and, of course, services

  • Amazon will get to $100 billion in digital advertising spend mostly from the long and middle tail

  • Wearables, like the Apple Watch and FitBIt, will become more prominent as the health features become better and more useful

  • 2020 election advertising on Facebook has already started in earnest  

  • Apple TV appears to be just another streaming service as consumer fatigue starts to set in with a plethora of DTC subscription offerings from all entertainment companies

  • Apple will eventually introduce Apple prime for $99 a month. You will get access to every subscription service they have 20 gigs of storage etc. and a new upgraded phone, with accessories, every year

  • The biggest fear of big tech antitrust is missing the next cycle of industry change while being distracted and hounded by regulators (think Microsoft back in the day)

  • Disney + will be a niche for those households with kids

  • Amazon and Netflix have advanced my disdain for commercials during TV

 

Publishers -- Impressions flooding the market bringing programmatic CPM’s down  

  • Open marketplace impressions are up ~25% in Q1 causing CPM’s to decrease -- too much supply in the marketplace -- STAQ benchmarking

  • Digital Direct ad sales business is up 6% year over year -- Agaddo benchmarking

  • Preferred deals are a pain in the ass to set up, execute, and drive volume through

  • Story ad needs to be everywhere (full page in App)

  • Safari 11 SUCKS for advertisers -- revenue is down ~70% vs Safari 10 in some cases

  • Digital Newfronts are stupid and need to be rethought

  • Billionaires are ok with writing one big check but no checks after that

  • Newspapers should be able to bargain collectively with Facebook and Google

  • Performance marketing is gaining prominence for publishers like J2 in the tech sector

  • Membership is better than subscriptions

  • All users still hate Salesforce, but Troops AI via Slack seems to ease some of the burden of updating and changing opportunities and activities

  • LinkedIn needs to retire the feature that tells me it’s someone’s birthday, that’s what Facebook is for

  • As TV ratings continue to decline, it’s much harder for advertisers to build a brand

  • Google’s move to a first price auction is all about transparency. Plus, at the end of the day, it will be good for Google

  • Axios, has the best newsletters in the publisher industry, clean and concise with many content options

  • Host read ads in Podcast work very well, especially those that have a personalized website/URL. Gotta love the easy 30 second skip button. Podcasts have a light ad load and are super intimate. When the host explains his/her personal experience with product if applicable that really works. Still poor measurement of podcasts for advertisers and producers

  • Put your audience into cohorts -- Fanatics, Loyalists, Occasionals, Tourists and Drive-bys

 

Ad Tech -- Diminishing except for The Trade Desk & Beeswax (both DSP’s)

  • The self-serve nature of the Beeswax DSP and the custom algorithms they provide are powerful

  • CTV is driving growth throughout, nice to see tailwinds for this category

  • Thinking about this more, Rocket Fuel may have been the company that killed ad tech with their 63% margins, plus bad karma as Sizmek just declared bankruptcy  

  • STAQ has the best programmatic benchmarking data -- full disclosure I do help them

  • Ari Paparo is the smartest technical mind in ad tech -- https://twitter.com/aripap

  • Comcast should double down on Freewheel then Comcast should buy The Trade Desk. Saying that again.

  • The Trade Desk will win, they become the buyers front door to OTT

 

Retail -- E-commerce is growing nearly five times faster than in-store sales mostly via mobile

  • Amazon is adding free samples to consumers packaging based on buying patterns, Amazon is just leveraging their data, mostly CPG to begin with, people like free stuff, nice amazon competitive advantage over Facebook and Google      

  • In a sign of the times, the Lord & Taylor department store has closed its flagship New York City location, the building will become WeWork

  • Amazon is eyeing shuttered Sears and Kmart locations as it looks to expand the reach of its Whole Foods subsidiary

  • As Deloitte detailed in an influential 2017 report on "the great retail bifurcation," brick-and-mortar retail as a whole is not suffering. All of the growth is either at the low end (stores competing purely on price, like Walmart or 99-cent stores) or at the high end (stores offering premium experiences, like free beer for people who pick up their Nordstrom orders in person).

  • Philadelphia banned cashless stores and a bill is on the floor for NYC to do the same

  • Warby Parker and Peloton both direct to consumer brands, now deliver more revenue from physical stores than digital

  • The new Instagram shop product is a big deal. Allowing buyers to buy a product directly through the app. 20 companies in the initial rollout. Payment outsourced to PayPal. More good purchase data for Facebook

  • Glossier now a $1B valuation other DTC Unicorns are Warby Parker, Kylie Cosmetics, Jessica Alba Beauty, Dollar Shave Club, and Casper. Beauty with 3 of the 6. On the rise: -- The Generals Hot Sauce Link (full disclosure, the company is run by my pal Dan Ballister)

  • E-commerce growth rate is very consistent across incumbent retailers (across categories like consumer goods, home furnishings, general merchandise, etc.) - all within 30-40% range

  • Retails competitive advantage is increasingly coming from two areas:

    • Leveraging data well to drive personalization - e.g. StitchFix

    • Leveraging customers as the best-possible brand advocates (possibly reducing need for paid marketing?) - e.g. Glossier

  • Retail subscriptions are a great business to be in, whether you're a Rent the Runway or a Costco

  • Tim Armstrong’s DTC company will not survive the same way Yahoo/AOL/Oath/Verizon Media Group are having issues -- unless you are already a DTC brand, you are probably too late  


Marketers & Agencies -- The agency in house relationship taking shape, many hybrids models developing

  • For the life of me, I still don't understand why agencies have creative and buying separate

  • Trust still does not exist between most agencies, especially digital media buying

  • This lack of trust and transparency forces marketers to take back control of many buying elements

  • Agencies are always doing everything they can to keep the business even at low margins

  • Unfortunately, the fear of getting fired for agencies drives innovation

  • If marketers are bringing anything in the house and hire full-time employees it’s much harder to terminate those full-time employees. It’s much easier for a marketer to hire an agency and then have an agency review etc.

  • Advertising in housing has been around for generations

  • Cost have been stripped out of the agencies as much as possible

  • Agencies have too much of a focus on short term vs long term, like almost all companies

  • ~70% of marketers now have some type of capability in house -- two different sources quoted -- reality is that it is happening

  • 90% of advertisers are still working with agencies

  • Agencies are more open to imbedding (co-location) people directly into marketers teams

  • Small, typically more nimble agencies, seem to be growing

  • When an agency review happens and it is driving by procurement that is trouble for both sides,  the remit is to drive the lowest cost

  • In-housing all because of TRUST, really the lack of TRUST between marketers and their agencies -- very disappointing for the industry

  • Agencies are looking to leave Google DBM as the DSP of choice

  • Who will win TV buying in an Agency Traditional or OTT? $70 billion Traditional verses $2 billion OTT

  • Go work for an agency if you are a senior ad tech person, then look for your next gig  

  • Brand Response advertising is Direct Response that does not suck

 

eSports/eGaming -- Growing and probably a big part of the future of entertainment (new!)

  • Fortnite has amassed $2.4B in revenue and still growing larger than any theatrical movie

  • Not enough existing traditional media companies are going strong into esports, though ABC recently had The Overwatch League on Saturday and Sunday in late March  

  • Fortnite hurts stocks of Netflix and all major game makers like Take Two and Activision

  • Rich Greenfield on Twitter: "Spend 15 minutes and watch this -- NO this is not the Olympics or the Superbowl - this is the Opening Ceremony to @LeagueOfLegends from @riotgames in Korea” -- link

  • ESPN, with the expensive rights for traditional sports will never be strong in esports/egaming

  • 80% of tech investors are “nerds” and don’t really like or understand sports

  • The price pool for Fortnite World Cup is $100 million -- link

  • Every sports game, like the NBA, should have multiple different feeds. One traditional, one for gambling, one for Twitch, one for AR/VR, one for millennials, etc.

  • Google Stadia is a big deal, it's integration with YouTube is impressive  

  • Digital ad revenues from esports in the US will grow 25% to $178.1 million this year. There are multiple revenue streams connected to esports, including advertising, sponsorships, media rights, ticket sales to live events, and merchandising  

 

So what does this all mean?

  • More changes will happen in the advertising ecosystem in next few years than ever before
  • All companies in the advertising space need to spend more time thinking about the future vs the quarterly earnings and daily recaps they typically tend to focus on
  • If you are not creating you are dead! Status quo is STILL unacceptable in today's world
  • There is white-space out there , just need to brainstorm and figure it out and take some educated risks
  • Be like Bezos/Amazon and plan today for 2-3 years in the future
  • BE BOLD!!!!

Edited by William Goldstein  -- https://www.linkedin.com/in/will-goldstein/

 

Copyright © 2019 .msg, All rights reserved.


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