Animal Spirits in Ad Markets

As has been discussed in this space previously, ad spending is cooling off as brands brace for a recession. Which could cause the recession they are bracing for?

Ad spending historically has lagged macroeconomic performance, meaning pullbacks weren’t as apparent until contractions had already occurred. That’s changed as the media buying window has shortened, making ad spending potentially more of a “leading indicator” of where the economy is heading, S&P Global Ratings argues

But some good(ish) news:

The research upheld that a recession is likely to take shape in the months ahead but will be “shallower” than previously thought.

Steal These Ideas

Elevar (a great Shopify app) shared a solid framework for conversion rate optimization in its recent email

1. Identify the biggest drop in your shopping behavior funnel
2. Find user actions that convert highly but happen infrequently
3. Hypothesize and experiment
4. Profit?

Wondering what ads your competitors are running on Google? Soon you may be able to take a peek thanks to the Ads Transparency Center. It doesn’t appear to be live, despite what Big G suggests, but this could be really useful.

Figuring out how much an influencer partnership is worth can be tricky but the new trend toward pay-for-performance could help (just don’t forget the value of branding).

Pay per performance is gaining traction among marketers as the second-most common form of payment used by 56% of marketers. This approach compensates influencers using performance-based metrics, such as sales, clicks, and impressions.

More Ads in More Places

Microsoft’s Bing chatbot is getting more ads / The AI-powered chatbot will start to show more ads — though exactly what those ads look like isn’t final just yet. (Sounds chaotic so far, in the typical new ad platform way, but it’s plenty intriguing.)

“This is how it’s always been done” is an instant red flag for me, so this quote from a piece on ads in audiobooks doesn’t hold much water in my opinion:

“It’s a premium, ad-free, transactional environment, full stop, and so I don’t really see the wisdom of changing that into an ad-supported [space] when there’s already a robust ad-supported ecosystem for audio, millions and millions and millions of people understand that audiobooks are a paid product, and podcasts are ad-supported, so it seems like a very expensive proposition to retrain people.”

rant mode: engaged

Millions and millions and millions of people also understood that you paid a cable provider to pipe a whole bunch of channels into your house instead of paying a channel directly, we all know how that worked out.

Ad supported tiers of other media types are also gaining tractions. You can stare in your rear view and hope the road ahead doesn’t have any curves, or you can be ready to adapt.

Everyone Hates Big Tech

There’s a “new” bill in Congress that essentially caps digital ad transactions at $20B, if a platform goes over that it has to start selling off parts to get back under. It would also prevent these large players from “owning more than one part of the digital ad ecosystem.” I understand what they’re going for with this, but it has unintended consequences written all over it.

Speaking of unintended consequences, turns out the legislation that would allow Joey White House to ban TikTok is a towering stack of them.

The RESTRICT Act contains “insanely broad” language and could lead to other apps or communications services with connections to foreign countries being banned in the U.S.

The bill could have implications not just for social networks, but potentially security tools such as virtual private networks (VPNs) that consumers use to encrypt and route their traffic.

Arkansas sues TikTok, ByteDance and Meta over mental health claims

Meta Is…

Launching "a new set of inventory filters for Facebook and Instagram Feeds, which will provide a simple way for brands to avoid unwanted association with potentially offensive, or otherwise undesirable content.”

“Planning to let European users of Facebook and Instagram opt out of certain highly personalized ads as part of plans to limit the impact of a European Union privacy order”

Who the hell is this guy?

Hi! I'm Kyle.

I'm a strategist and tech nerd at Blue Ion, a badass full-service marketing and creative agency. I started this site to stop clogging chat channels with the news and insights I thought the rest of the team might want to know.

Also, I'm a human. Promise.

The Netflix ad tier has hit the 1 million user mark. Which means it won’t have to refund advertisers anymore.

I’m interested how the numbers are working out for them. The ad tier is $3 cheaper per month than the ad-free basic plan. Netflix wanted CPMs in the neighborhood of $60-$65. Reports are that they’ve been a bit lower. But even at a $35 CPM, it’s forecast The ‘Flix could hit a $9.45 average revenue per user (ARPU) per month.

Making money!

But wait, they have to be paying Microsoft something to provide and maintain the infrastructure powering those sweet ad dollars. I don’t know what that agreement is, but it’s cutting into that $6.45 of monthly revenue differential.

If Netflix goes the roll-your-own route to replace the Microsoft stack, I wonder how long the ad-free basic tier will last.

It has to be looking at Disney’s success raising the price to avoid ads with envy. Same $3 difference, 94% of subscribers ponied up. (Expect that price insensitivity to be tested again.)

There is also the aggregation theory angle at play.

Netflix rose to prominence on a deep catalog of OPC (other people's content). That moat is gone. It's far from the only streaming service in town these days.

What happens when companies like Apple, Amazon, and Google start dumping billions of dollars into content production for their competing platforms? Those companies don't need to monetize that content directly, it's just a sweetener for joining (and staying in) their respective ecosystems.

Reed Hastings ('Flix cofounder) has one of my favorite views on content competition:

It’s 8:00 in the evening, you’re next to your TV–which remote control do you pick up: PlayStation remote? TV remote? Or do you turn Netflix on?

Sometimes employees at Netflix think, ‘Oh my god, we’re competing with FX, HBO, or Amazon, but think about if you didn’t watch Netflix last night: What did you do? There’s such a broad range of things that you did to relax and unwind, hang out, and connect–and we compete with all of that.

That's pretty clear-eyed. It also means the rise of TikTok and YouTube is just as panic-inducing for them as for Meta.

But for now the focus is on making enough money to stay relevant, otherwise the rest of those concerns are irrelevant.

After a rocky start, the new ad tier could be the money printing machine The 'Flix has been looking for. At least for as long as the current economic uncertainty sticks around.

If there were a year to transform your brand into a cult brand, 2023 would be it.

If you want a brand like Death Wish Coffee, Patagonia, or The Liver King (don't be like The Liver King), then you're looking for this:

But how do you get there?

Here’s a rough guide created by combining these 3 episodes of the Marketing Against The Grain podcast:

• How To Start A Cult Brand | Lessons From Peloton, Nike, and CrossFit
• How Liver King Fooled The World With Great Marketing
• Use This Marketing Framework To Build A Cult Brand

Cults 101

Let's start with real cults, the kinds your parents warn you about and every procedural show needs at least one episode about.

Why do people join cults? (And what brands might match up?)

1. Offering a solution to societal problems (Patagonia, health brands)
2. Gain a sense of belonging (Peloton, fitness brands)
3. Low self-esteem (fashion brands (Chanel, Gucci, etc.))
4. Seeking purpose (Nike)

A few more quick nuggets to keep in mind:

• Cults are based around a charismatic leader that uses “routinization of charisma”
• People join cults to discover their individuality and stay for the sense of belonging—come for “you,” stay for “us”
• Word of mouth is the most successful method for generating new members
• Successful cult brands become the status quo

So, to apply that to brands:

Let's get culting!

But first...

Be Marketing-Minded

There are 3 general focal points for marketing people:

• Leadership (of a category or market, etc.)
• Analytic Iteration & Data
• Storytelling & Messaging

The key is to be at the intersection of all 3. And doing that means focusing on a lot of little things.

Here’s an example, where the marketing-minded person will put out something “on trend, relevant, and super cool.”

The goal is to operate from that central point and make it part of your brand's DNA.

Be A Category of 1

To cult your brand, you need to redefine the category and/or differentiate the product.

If you can’t create a new category—or if you have a product that is “nothing” (NFTs, anyone?)— you need to create a truly unique experience that makes it seem as if you are in a class of your own. You can’t just take something that exists and make it slightly cooler, you need an experience. (According to Todd McFarlane, adding 3% sexy gets you over the tipping point into something new.)

Be Charismatic

How do you do that “routinization of charisma” thing?

Organized religions have regular services. Crossfit has a daily workout.

This ritual is a critical part of culting your brand. It also serves as a word-of-mouth generator since fans will talk about it.

Put It Together

(Read that again, even if you aren’t trying to cult your brand)

If you want to go the extra mile, you need to identify a clear enemy for your brand to stand against.

At its core this will be the status quo, but you can get more explicit with it (like Pepsi vs. Coke).

Create urgency with clear reasons why this is important to do now.

It wouldn’t be a terrible idea to reference that list of 4 reasons why people join cults and see what you can align with. This is where the charismatic ritual comes in.

Now the easy part, cultivate a group of passionate followers that are rabid about your brand and help spread the word.

This is where the rubber meets the road. Everything before this was theory, this is where you have to turn your dreams into reality.

While not covered in these episodes, I would recommend picking one—or maybe a small handful—of channels to focus on to build your fanbase. Pick the medium that feels most natural and manageable, then find the channels that match up, and then get to work making and shipping.

Wash. Rinse. Repeat. Repeat. Repeat.

Build Your Pyramid

You need a clear vision—a clear point of view—on the problem you’re solving, in addition to solving it in a differentiated and better way.

This vision comes from the founder or CEO and sets the stage for the brand story.

Sometimes companies are product-led, in those cases story can act as an accelerant and differentiator. A compelling story isn’t required from the jump (or at least the seed of one), but it certainly helps.

To be a successful company, you have to have a point of view around a real problem you’re solving and how it truly helps the people you’re trying to help and serve.

Less “we make shirts,” more “passionate fishers spend a lot of time in the sun, we make shirts to keep them burn-free so they can spend less time worrying about reapplying and more time focused on reeling in that next great story.”

Don’t worry, this doesn’t need to be the fully realized, end game vision. You don’t have to have it all mapped out. But you need to be clear about where you are now and have a plan for what the next steps will be. And the vision can evolve as the product iterates and grows over time.

Positioning builds off this clear vision by applying it to a clear, well-defined category.

So you’ll need to start by determining if you fall into an existing category or are creating a new one. Then you’ll need to know how you’re differentiating from what’s existing in the market / mind of the consumer. This step might be handled by a group at the company with roles similar to CEO, head of product, and head of marketing.

Messaging is how you communicate all this to your customers.

Turning the position you created into words that will resonate with your target market. And this is all in the hands of marketing. The more you get down to functional messaging the more the product people will likely take over, but keeping the brand peeps involved and in an ownership position can ensure cohesion.

The pyramid is upside down for a reason. Everything flows down from the vision, it is the base of the pyramid as far as foundational importance but top of the list as far as priority. Message is the tip because the entire thing balances and pivots on the strength of the messaging.

The Quick Version

• Foster a sense of both belonging and individualism.
• (Truly) Differentiate the product.
• Position and market against the status quo.
• Develop routine and ritual built on charisma and connection.
• Don’t drop the ball.

We may be heading towards a recession (we technically always are, it’s just a matter of time frame), but we don’t require one to come down from inflation.

A primary factor in recessions is consumer confidence.

Continued headlines acknowledging a looming recession can cause a recession by eroding that confidence.

Again, recessions are normal.

Businesses have cycles.

The economy has cycles.

Trends and fashion have cycles.

There are seasons for everything.

Everything about time is cyclical except for the narrative we tell ourselves about it being linear.

The cult of continuous growth we expect to be the norm.

How much of the current downsizing and sales numbers are a result of over exuberance during good times?

Big tech hired like crazy.

Retailers of all stripes are talking about a glut of inventory. (Whereas car dealerships can’t get enough inventory.)

Poor planning requires an adjustment.

And I’ve been wondering for a while who will be left holding the bag?

Maybe we have the wrong “re” in mind.

Less recession, more readjustment?

The fallout from The End of Cookies has already (for the most part)  happened and now various crumbs are being swept up into assorted piles as marketers and platforms figure out what shape fits their needs.

On the marketers’ end, influencers and creators look to be the post-privacy strategy of choice on social platforms that were hit hard by The iOS-ening.

On the platforms’ end, APIs are the name of the game. Conversion APIs are the most common but there are others for various purposes. These APIs allow platforms to receive data directly from servers instead of using the browser as a proxy. In many cases this means data can be transferred without having to worry about ad blockers or privacy controls. Generally this is less plug-and-play than the pixels for end users.

Any company that wants to be (even tangentially) an AI company is rolling out generative tools to create images or videos, or turn images into videos, or etc etc. Microsoft is adding the feature to every tool they can think of. Soon (if it’s not possible somewhere already) there will be a prompt field or button in the ad creation flow of most major digital platforms that allow you to generate visual assets instead of or alongside “manually” created assets you upload.

The biggest draws of this route for marketers will be speed and no longer needing to worry about image licenses or permissions. You can’t get sued over an image an algorithm created based on your own words (probably, only precedent will truly tell). A potential drawback will be the terms and conditions the platforms apply and if it includes language that you don’t really own the image. Ultimately not a big deal if it’s just an ad campaign image, but the concern arises from where else it might surface or what it might be used in tandem with if the platform owns it.

Just as markets boom and bust, they also bundle and unbundle. We are currently in a phase of unbundling. 

Everyone that owns a tv show or movie now has a streaming service.

Search is unbundling from Google as specialized and niche alternatives pop up to fill the gaps Google leaves behind in its quest to realize The Future of Search™.

The shopping experience is splintering across platforms and surfaces as every company tries to shave off their sliver of the commerce pie.

Social is shifting from “one platform for everything” to “one thing per platform” (such as Facebook for groups, Snapchat for close friends, Instagram for broadcasting to connections, TikTok for discovery, YouTube learning and entertainment (and yes, it’s a bit of an overstatement)).

Plus podcasts, newsletters, slacks, discords, telegrams, messaging apps, etc. 

It appears the internet is niching back down. But the problem is all the providers and platforms still want to be monoliths.

The End of the Techno-Giants?

This unbundling could hit the current techno-giants (techno-tyrants?) the hardest. 

Google is flailing to find a post-cookie solution the market will latch onto. The current cookie ecosystem powers their money printing machine and they’ve parlayed it into a dominant market position. Content creators love to talk about not building your empire on rented land; the way things are currently shaping up, Google is poised to become a tenant of someone else’s tracking and targeting high rise.

Meta is floundering. The meta-pivot was too little, too soon (the timeline was probably accelerated to distract from all the bad headlines they were generating) and another example of techies chronically believing The Next Big Thing™ is much closer than it actually is. In this case, that’s VR. The metaverse is here, it’s just called Roblox or Minecraft or something else the kids are doing that I haven’t heard of. Meta is also getting hammered by the privacy-posturing of Apple (and others) and the years of trying to be everything for everyone is finally catching up with them.

Microsoft is no longer The Windows Company but is having one hell of a second (third?) act so far. Apple is probably just fine, unless they bet too big on The Next Big Thing™ or bet on the wrong one (that mysterious AppleCar project is getting mighty expensive), but it has more than enough money in the bank to weather plenty of storms. Amazon is in the awkward adolescent period, we may soon find out if it’s a goose or a swan.

The past week or so has felt like the dam breaking in terms of TikTok showing its ambition and illustrating the differing approach of eastern and western attention platforms.

First, why “attention platforms” and not “social media”? One reason is because TikTok refuses to call itself social media. More importantly is because this isn’t just about traditional social platforms. Social media as a discreet concept or experience type feels more archaic by the day. The guiding idea here comes from Netflix CEO Reed Hastings who said (something along the lines of) the company doesn’t (just) compete against other TV and movie platforms but all other ways people spend their time. Name-checking options like TikTok, YouTube, and even sleep.

Back to TikTok. While most social platforms have been rushing to TikTok-ify (or BeReal-ify), The Trend Machine has been ignoring all of them and setting its sights on other sectors.

I would categorize the Silicon Valley approach as a vertical one. Adding iterative features that are similar to what they already have with everything geared towards maximizing ad inventory and, therefore, revenue. For Facebook, everything since the creation of the News Feed has been just another feed. This might also explain why Horizon Worlds and the dream of the metaverse is going so poorly.

My take on the Chinese approach is solely informed by what I know of WeChat and TikTok, so consider it highly imperfect. As you might guess, I see it as horizontal. Instead of asking “what format don’t we have,” they ask “what activity don’t we have?” Announcements or leaks have come out about TikTok potentially getting into product distribution, music streaming and podcasts, and it continues to build out its commerce capabilities.

Silicon Valley typically tackles efforts like this through minimum viable products or partnerships / integrations. TikTok is doing it themselves, including buying warehouses. But it’s not just TikTok, Shein is getting into the reselling game by building their own, in-app functionality. American retailers just partner with someone like ThredUp.

Elon wants to build (or turn Twitter into) an Everything App like WeChat. If he manages it, it will likely be in some crypto-ish decentralized way. TikTok is actively working towards building the American version of WeChat, in a very centralized way (much like the Chinese government). (I am highly skeptical that a true WeChat clone will happen in the US. The Everything App is more-or-less a digital representation of the state, so users didn’t have to adapt to the idea. It is also dangerous to map across countries on different points of their development and adoption curves.)

Only time will tell if their bets pay off, but we’re watching the fallout of one approach to building an attention platform while witnessing an attempt at another approach.

The market is mixing signals like a middle school dance.

Housing prices and mortgage rates are up. Inventory and home sales are down. But the high end of the market seems unphased. Spec builds might decrease as builders race to catch up on fulfilling existing orders. Lumber and container prices are dropping. Along with the valuations of tech companies. And levels of VC funding. And capital in biotech. Digital prices didn't move much. But inflation and gas prices did. Crypto skipped fall and went straight from summer to winter. Travel is exploding, both in volume and infrastructure stability. Extra income is down, but consumer spending might go up.

When markets or sectors are running hot, I always wonder who will be left holding the bag. I'm still waiting for that one hotel or apartment project in the local market here to realize they were the one that marked the overbuilt point. I've been waiting for years. CNN+ marked that point in the Great Unbundling Race a.k.a. The Streaming Wars. (Let The Great Rebundling begin!) Substack is playing this game with...itself?

Being left holding the bag isn't always a bad thing though. In some markets that bag is full of money. Grocery delivery companies are scrambling to be the one that secures the bag. Social media platforms seem to take a misguided approach to this (believing they must all be TikTok now).

Everything is either in a phase of unbundling or rebundling (yeah, you'll have to stretch those terms a ways to make them fit plenty of areas).

Hey, I thought this was a newsletter about marketing and (tenuously) marketing-related news?

It is.

How can you plan your marketing if you have no idea what the larger market and economy is doing? (Tesla started with a luxury sports car because that's the market that could handle the prices required to manufacture an EV at that time. As scale could be reached, prices could drop, and vehicles with broader appeal (except Cyber Truck) could be launched.(I am not an Elon fanboy, but this is the best example I could think of off the top))

What makes everything so messy now is that the signals are all over the place and the causes are unprecedented. The housing market explosion wasn't toxic like 2008 (I think, we really won't know for a few years). It was driven by pandemic-induced lockdowns that had people spending more time in their homes than ever before and with very few other avenues to spend money. "I could really use a [insert: 'home office', 'play room for the kids', 'bigger kitchen', 'actual kitchen', 'second / third bathroom', etc.]. I know, I'll buy a house that has one!" Wash, rinse, repeat. Thousands of times.

That same pandemic messed up supply chains like a kid kinking the hose to get you to look into the nozzle.

And then a war was started by a country that exports a lot of oil.

And then we collectively got to a point where we were over the pandemic and decided, at the population level, to do things outside our homes again. Like roleplaying as sardines and getting the hell out of where we are for literally anywhere else and calling it a vacation.

The money that turned the housing market into Shark Week didn't disappear. It just went somewhere else. Substitute goods reappeared and people yelled "praise be the flying spaghetti monster." And they went and spent their money.

So, in conclusion: the market is up. But also down. And people don't have any money. But people are also spending money. Don't panic. Yet. But understand what's happening out there when you're analyzing your marketing. Or business performance. Or personal budgeting. Etc, etc, etc.

You think about yourself / your business more than you think about the market (probably). Others think about the market more than they think about your business / you (unless they're family, maybe).

Welcome to Hot Weird Summer.

Your GDPR-compliant cookie banner is actually a violation of GDPR.

And so is your analytics platform. (If you’re using Google.)

And so is Facebook Meta. (This is unlikely to impact non-European targeting advertisers directly (if it were to actually happen) but the fallout, at least financially, from such a move could cripple Big Blue Infinity / Upside-down Spider-Man Mask Eyes)

More importantly, this is another sign of the de-centering of America in the digital sphere and the splintering internet. We essentially have two internets now: The West v. China. But these headlines could signal a Web Trinity: America v Europe v China.

To be overly reductive of the West v China split: the western internet is bottom up while China is top down. Wild west versus total control. This has been getting more dramatic lately with full blown tall poppy syndrome taking effect, as illustrated by the recent Tencent drops.

The US v (western) Europe division is more nuanced but built on items grabbing more (marketing / tech) headlines: privacy, competition, data sovereignty, and user experience. European authorities don’t want their citizens’ data in reach of US spy orgs (and no one wants it within reach of China) and they want privacy by default. The thorny bits are related to data handling for international tech platforms and the fact that privacy typically benefits incumbents since they get to keep their data locked up tight. And how does all of this impact the user experience of the web? (I’m guessing no one enjoys ubiquitous cookie banners.)

The ad-based internet gets a lot of flak; some of it warranted, some of it overblown. (I’d wager people will like depersonalized advertising a lot less than the current setup, remember ye olden days of banner ads?) Combining recent lawsuits in various European countries hints at a trend of making advertising harder while forcing the platforms that rely on it for money to pay for the content they make accessible (you know, because News Corp needs more money).

This will be an interesting space to watch over the next few years, especially if laws and regulations remain ambiguously written.