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IAB: Ad-Revenue Growth Stalling, Big Platforms Must Now Mine SMB Market

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A little noticed “addendum” to the IAB’s Internet Revenue Half Year Report, released last month, argued that ad spending among national advertisers is flat to anemic and that big internet ad platforms and exchanges will need to recruit more SMBs in order to drive future growth.

The short addendum, which relies entirely on third party estimates and data, asserts:

  • 259 of the Fortune 500 had revenue declines in 2016; the average decline was 9%
  • Across all companies, [there was an] ad spend growth rate of 2.8% per company in 2013
  • Th largest companies (business receipts >$250MM), [saw an] ad spend growth rate of 1.2% in 2013

Putting aside the fact some of this data is from 2013, the thesis that we’ll see stepped up “recruitment” of SMBs is correct. But this is nothing new; what’s new are some technology changes and competitive changes that may help accelerate the adoption of digital marketing and adjacent services among SMBs.

Using Borrell Associates estimates, the document sizes the market at 9 million SMBs (that have revenues of $50 million or less) and asserts that 75 percent of them buy digital ads, 80 percent of which rely on self-service tools. It depends on the product or service, but we believe the market is larger than 9 million — in some cases significantly larger.

The Borrell data is skewed toward larger SMBs that already participate in the advertising ecosystem; so some of the figures are more aggressive than what we’ve seen at the lower end of the market. Still here’s what’s I believe is important about the discussion:

  • Significant growth will have to come from the SMB world, where business volume resides
  • Big internet companies such as Google, Facebook, Twitter, Snap and others will be stepping up their SMB focused efforts. This is more incremental change than a sea change
  • Machine learning and automation tools will help make self-service more viable and effective for smaller advertisers (though this was not discussed in the document)

We need to distinguish between larger SMBs that have real marketing budgets and much smaller SMBs (the majority) that will pay for services and tools but are somewhat more reluctant to buy “ads.”

The “aha” moment for the IAB is the apparent exhaustion of significant future digital ad revenue growth from major national brands. Part of this is driven by newfound distrust of digital media (see Proctor & Gamble).

Regardless, we’re definitely entering what feels like a new phase of SMB-focused marketing tools and services, driven in part by the cloud, intensifying competition for SMB budgets and loyalty and improving technologies (e.g., machine learning).

I’ve been reluctant to issue predictions this year — though LSA has collected a wide array of predictions from our members and others (coming out soon) — but 2018 feels to me like a year where we’ll see an acceleration of many trends and developments that have been, shall we say, “fermenting” for some time.

We’re going to put as many of these on display at LSA18 as we can. Stay tuned.

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