The Collapse of Social Media Advertising?

"What's going on with Facebook?", the client asked. "YouTube's taken a hit, Facebook's taken a hit? Is it time to unplug from those and move to a new one?"

The client was referring to the recent cataclysmic stock performance from Alphabet (parent company of YouTube and Google) and Meta (ill-timed name of the parent co of Facebook). Facebook is getting hammered in the stock market. It just reported its second straight quarterly decline. Shares of Meta plunged 24.5% yesterday (Thursday, October 27th for future reference). Mark Zuckerberg has lost over 100$ billion with a B this year. That same Mark Zuckerberg doubled down on his metaverse dreams even though Meta’s Reality Labs division, the builders of the future metaverse, lost over $9 billion in the first three quarters this year. Even Jim Cramer is apologizing.

Google and YouTube's parent company also had a rough week with its worst day since March 2020. Revenue growth slowed to 6% from 41% year over year as they deal with a slowdown in online ad spending.

So what's going on? And what does it mean for IMA's clients?

Are you in danger of losing your two best ad platforms for lead generation and branding?

In short, no.

And if you were losing them, it's kind of ok. Let me explain.

We are in a period of reset. Covid changed the world. For tech and ecommerce companies, it time-warped them into the future. Ecom sales skyrocketed with everyone home. Digital ad revenues soared with everyone stuck on their screens. Cash poured in from advertisers. That was the story of 2020.

Things began to change in 2021. This was especially true for Facebook. In April 2021, Apple released an update to their iPhone operating system called iOS 14.5. This update enabled the one billion iPhone users around the world to control what apps could track their behavior. Only 4% of users opted-in to tracking. Meaning that, given the choice, only 40 million people out of one billion wanted companies to track their digital behavior. This tracking was the lifeblood of Facebook's advertising platform. They were cut off at the knees.

Advertisers adjusted, including IMA. You might recall needing to verify your domains that spring and summer as we made adjustments to help Facebook gather the data it needed via first-party sources. That was all related to this iOS update. #ecomTwitter and #ppctwitter spun out of control as media buyers struggled for months to get things under control (they mostly did). But things will never be the same. They might be better in three to five years but for now, Facebooks Ads are not what they once were.

And that's ok.

Because they still work incredibly well.

A huge issue with Facebook's ad revenue slipping is related to ecommerce. That's why #ecomTwitter was freaking out so badly. There were ecommerce brands wholly built and sustained only using Facebook Ads. Weighted blankets, fidget spinners, and geriatric cosmetics, these brands spent their media dollars exclusively on Facebook. They would regularly spend $1-10M per year on Facebook ads. One rule of thumb was to spend 30% of revenue on ads.

When iOS 14.5 hit, these brands ROAS (Return on Ad Spend) dropped. Sales dropped. They had nowhere to turn. They were overly reliant on one channel for their revenue and the health of their business. They didn't invest in their funnel. They didn't invest in other brand activities. They got cooked.

The ones that survived realized the errors of their ways. They went back to sound marketing principles. They built out their funnel. And they diversified their media spending. TikTok is eating a lot of that spending in 2022.

It wasn't just ecommerce brands that were killed off or cut back their budget. The laser-eyed crypto punks played a part as well. One year ago, on October 29, 2021, Bitcoin was priced at $60,592. Companies like Coinbase and Cryto.com saw their revenues surge. VC money was flowing like water. These companies needed to grow to justify valuations or their own rising stock prices (some were already public). With surging revenues and VC cash, marketing budgets got fat. Ad spend poured into YouTube, Google and Facebook.

Until it didn't.

Bitcoin crashed to a low of $18,958 on June 18, 2022 (coincidentally my parent's 56th wedding anniversary but I don't think it was their fault). Crypto.com and other Web3 companies cut their overzealous marketing spend. This had downstream effects. Google partially blamed its third-quarter slowdown in revenue growth on advertiser pullback in the crypto space.

Amid all of this Elon Musk just "freed the bird" and plans to revive Twitter's languishing ad platform.

YouTube and Google Ads are healthy. They just aren't as frothy as they were at the height of the pandemic. Noting is as frothy as the height of the pandemic. My weight isn't as frothy as it was at the height of the pandemic (whew). It was an "unprecedented time". To expect ad revenues to stay at such great heights doesn't make any sense yet Wall Street is not known for its short-term memory

Finally, as we recently discussed, TikTok is eating Meta's (Facebook and Instagram) lunch. 

As clients of IMA, you should always know that we will place your brand where attention resides. We are platform agnostic.

 If Facebook Ads fade away, the vacuum of attention will be filled by a new platform. Human civilization is not turning in their screens.

If attention is the new oil, then we'll drill where the oil is on your behalf.

We won't allow you to be so reliant on a single ad platform that its implosion could affect your revenue. We will help you diversify your ad spend, construct your funnel and build your brand so you can dominate your local market. 

Facebook or no Facebook, we'll help you win.

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