The future of ads

Ads are everywhere. From the moment we wake up in the morning to scroll on our phones, we all see ads almost every minute of the day. They’re on social media, they’re on billboards, they’re on podcasts, and heck, they’re even still stuck to street posts from 2012.

On average, Americans see up to 10,000 ads per day. Yes, 10,000 ads per day. Not per week. Per day.

Ads make up a significant portion of our days and of our economies. The global increase in ad spending keeps growing at historical rates. In 2021, global ad spending grew over 19 percent with over $700 billion spent. 64% of this ad spend goes to digital advertising.

And the part that blew my mind the most - “somewhere between 80% and 90% of digital advertising outside of China will go to Google . . . Meta. . . and Amazon”.

To say we’re in a weird place when it comes to digital advertising is an understatement.

However, in the last few months, there've been a few announcements that have made my ears perk up a bit.

Before I jump into those announcements though - let’s cover how we even got to this weird place when it comes to ads and tech companies and their heavy influence over the internet.

How the tech companies have dominated the internet

Back in 2020, a United States house of representatives subcommittee on antitrust laws published a 400 page report recommending changes to antitrust laws that would help create more competition with four major companies: Apple, Amazon, Google, and Meta.

This was a big deal as it revealed a lot of findings on how Apple, Amazon, Google, and Meta have become so powerful in this digital age and continue to grow their power over the internet.

As I just mentioned, three of these companies control somewhere between 80-90% of digital ads on the internet, but that’s not the only space they have a heavy influence.

Over 99% of smartphones use the Apple app store or Google Play store, almost ⅔ of all Google searches end in a person never leaving Google, and Amazon accounts for 65-70% of all US online sales.

These facts are a big deal and with governments across the world beginning to pay attention, these companies’ influence and anti-competitive measures they’ve created will begin to be held in check.

In the United States, there are currently two different bills in the works that have bi-partisan support: the Open App Markets Act and the American Choice Innovation Act.

The Open App Markets Act would end the duopoly of the Apple and Google Play stores. Currently, both of these app stores require developers to hand over 30% of their revenues to either Apple or Google.

For example, if you spend $10 in an app, $3 of that is going back to Apple, and only $7 is going back to the developer. That’s pretty wild, especially when you compare this percentage to other similar business models like credit cards which typically charge about 3% of a transaction. 3% vs 30% is a pretty stark difference.

The Open App Markets Act would end this and developers would have much more freedom when it comes to getting their app in front of users and customers.

The American Choice Innovation Act is an even bigger deal than the Open App Markets Act.

The American Choice Innovation Act would prevent these large tech companies from prioritizing their own products on their own platforms.

For example, if you search on Amazon for a common product like a basketball, you’ll constantly see Amazon prioritizing its own Amazon Basics products.

Sure, they have the Amazon’s choice label on a different basketball than their own, but when you own the marketplace on items and constantly have your items as the very first item in the list, you’re going to consistently generate sales for yourself.

The American Choice Innovation Act would prevent Amazon from doing this. If you don’t think these items are a big deal - consider this: Amazon has over 158,000 in house products.  

That’s almost 40,000 more unique items than the average Walmart has in their store.

Amazon Basics is one of the largest, if not the largest, off brand knock offs ever created that absolutely takes advantage of small businesses. They can do this because they own the data! If you’re really doing well on Amazon with a particular product, Amazon can see that and create their own version.

They won’t admit to using this data, but surely won’t deny it. Here’s what Jeff Bezos said in his testimony to congress on this very subject: “What I can tell you is we have a policy against using seller-specific data to aid our private-label business,” …“But I can’t guarantee you that policy has never been violated.”

All of this shows how much power these 4 tech companies have had on the internet in the last couple decades. They’ve built incredible products, and truth be told, I own a lot of Apple products and they definitely make my life a lot easier.

However, Apple, Amazon, Google, and Meta shouldn’t be getting this much influence over the internet. We need small businesses to be able to compete in the online marketplace, especially for common items like a basketball!

So, obviously this is all a big deal and explains a large amount of how tech companies have become so dominant over the internet and not let others compete with them.

However, there’s one area of the internet where competition is ratcheting up without new legislation: ads.

Why and How competition for ads is changing

When you’re starting a new business, one of the most common practices to start finding customers is to use either Facebook Ads or Google Ads. Facebook and Google have had a duopoly for quite some time at this point when it comes to cost effective advertising.

Facebook and Google have built their entire business models off of this advertising model. Facebook in 2021 made over $115 billion dollars in just ad revenue and it accounted for 97% of their revenue. For Google, they made over $200 billion dollars in ad revenue which accounts for over 80% of their revenue.

For some perspective, Apple made over $365 billion dollars in revenue in 2021 and Amazon made over $469 billion dollars in revenue in 2021.

Apple and Amazon don’t just want to be comfortable with the revenue they are generating currently though. They want to continue to grow and they’ve noticed that they themselves have an opportunity to tap into this advertising space.

The fact that Amazon and Apple own these gigantic platforms from top to bottom allows them to create brand new business models quickly and dramatically affect industries. One that they’re starting to affect is, you guessed it, advertising. They want to end the duopoly of Facebook and Google when it comes to advertising.

In 2021, Apple introduced what they call App Tracking Transparency or ATT for short. ATT, not ATT the phone and internet company, is the feature that when you download an app onto your iPhone that you get a pop up that says “Allow “Insert App Name Here” to track your activity across other companies’ apps and websites?” and you can then select “Ask App not to Track”.

96% of iPhone users select the “Ask App not to Track” which makes complete sense. Most people want privacy when they’re on their phone and don’t want to feel like big brother is watching.

This has massive implications. If apps on your iPhone can’t track you, the data they’ve been collecting on you isn’t as good. So, Facebook and Google, don’t know you as well as they may have in the past. At least, that’s the theory.

This has a dramatic impact on ads because Facebook and Google rely on being able to predict what users want to see as an ad. For ads to be successful on Facebook and Google, they have to serve up ads to the right customers for them to be clicked on. Knowing what a customer likes through their personal data that Google and Facebook have had so far, is a significant part of their success to date.  If they don’t have the same access to data, Facebook and Google can’t predict which ads a user wants to see which results in lower click through rates. If ads aren’t being clicked on, businesses leave Facebook and Google Ads which has a dramatic impact on their respective revenues.

Just this past July, Facebook reported its first ever quarterly revenue drop.

One report has said that Facebook will lose over $16 billion in revenue just based on ATT alone!

This feels like a win for consumers as they’re being protected by Apple from apps like Facebook and Google. However, Apple still knows you and has your data. And if they’re the only ones who have your data, no one will be able to come close when it comes to the effectiveness of ads within the Apple ecosystem.

Apple seems to know that ATT could be a very lucrative option. Just this past year, Apple’s Search Ads within its own App Store have grown significantly because of it. They’re now in the same ballpark when it comes to channel adoption rate as Google and Facebook.

This feels like the start of something for Apple and surely not the end of their expansion into advertising.

Apple isn’t the only one expanding into Ads either. Amazon is expanding their ads business too.

Amazon, unlike Facebook, isn't being affected by the new ATT feature and it shows in their most recent earnings report. When Facebook posted their first quarterly decline in revenue, Amazon posted an 18% growth in ad revenue from a year ago.

The ability to purchase an ad for your product and place it on the first page of Amazon is pretty powerful and it’s showing up in the earnings reports.

The duopoly of Facebook and Google when it comes to ads is coming to an end. Amazon, Apple, and yes, others, are coming for them.

The future of ad spend is going to be more complicated

With this duopoly of Facebook and Google most likely coming to an end when it comes to ads, it’s going to make decisions for where to spend money on ads much more complicated.

It’s not to say Facebook and Google won’t still be giants or will stop being effective when it comes to ads. They very much still will and they’ll continue to innovate. Particularly if the metaverse and other new technologies successfully launch in the next couple years.

However, as I mentioned, there were two announcements in the past few months that have me hopeful and excited when it comes to ad spend.

They’re both similar products and aimed at similar audiences.

In July, ConvertKit announced the ConvertKit Sponsor Network and in August, Shopify, introduced Collabs, both aimed at connecting sponsors and creators together.

For example, if you have an email newsletter on ConvertKit that has over 10,000 subscribers and you send a weekly newsletter, ConvertKit will you help you find sponsors to put into your newsletter that week. So, every newsletter you send out will pay you to send it to your subscribers.

This is huge because instead of you having to find sponsors via cold outreach or just connections you may have, ConvertKit is bringing them to you.

For sponsors, this allows them to pay creators more directly and potentially have the ability to market more authentically, especially if the creator has built a lot of trust with their audience. For consumers, this most likely creates a better ad experience as a creator most likely isn’t putting in a sponsorship in their newsletter unless they think it’s helpful to you as an audience member. If a creator is just putting random sponsors in their newsletter, they’re going to lose a lot of trust with their audience.

Shopify’s Collabs works really similar to ConvertKit’s Sponsor Network except instead of it being creators that Shopify is bringing to the table, Shopify has millions of merchants and businesses looking to potentially sponsor creators to show off their products.

Both ConvertKit and Shopify are major players in e-commerce and the creator economy and this will only grow their impact on e-commerce and the creator economy. Plus, it gives smaller creators more of an ability to be paid for their hard work.

With ConvertKit, Shopify, Apple, and Amazon all expanding their footprint in ads - it’s safe to assume that where businesses spend their advertising dollars is going to be more complex. It’ll no longer just be automatically sending those budgets to Facebook or Google. All of these companies are entering the space and they won’t be the only ones.

This is a good sign as the future of ads won’t be dominated by the current duopoly of Facebook and Google and sure seems like a sign of things to come when it comes to the power of these tech companies. The legal challenges and these types of market dynamics will really challenge the major tech companies this upcoming decade.

If digital ads end up affecting all of these major tech companies, that should have ripple effects across many different industries.

And, we didn’t even cover the future of non-digital ads which gives even more hope to the future of physical retail stores. Warby Parker, Allbirds, Casper, and Harry’s are just a few brands putting a new spin on old ad and marketing tactics in the physical retail space.