Optimism in agencies, pessimism in platforms: why advertising improves in some and falls in others

One of the most striking aspects of the current turbulent economic times caused by inflation or the reverberations of the Ukrainian war is the uneven impact on advertising planning.

While the large groups have been presenting good quarterly closes and raising their turnover forecasts for the rest of the year despite the circumstances, the large platforms that have been absorbing digital budgets have presented discrete numbers and do not see any improvement in the short term.

This peculiar trend highlights the weaknesses and strengths of both sectors in a context in which uncertainty affects all advertisers.

Although there are several reasons for this situation, industry sources point out that a key issue is that large advertising groups maintain stable agreements with large companies on a fee basis, while platforms have traditionally captured budgets from medium and small companies. The latter means that such diversified investment is very beneficial in good times but can turn against them in bad times, as it is precisely these advertisers who are reducing their spending on advertising as it is the most dispensable in order to protect cash flow.

The first half of the year has left contradictory perspectives on the behaviour of advertisers, which can be explained by the differences in basis between large agencies and platforms.

Moreover, the ease with which it is possible to plan in large environments such as Facebook, Instagram or YouTube also allows the process to be stopped as soon as the time is not right for spending. This is not the case with WPP, Omnicom and the rest of the big conglomerates, which have multi-year horizons with large clients that assure them recurring income, and which in some cases have increased their marketing budget in a scenario of inflation that forces them to fight for the favour of the eventual client beyond the price or in spite of it. This brand advertising is the traditional business of the big groups, which differs from that of the platforms insofar as they normally work as investment optimisers to obtain conversions of some kind (sales, registrations, app downloads, etc.).

But that kind of planning is being undermined by several overlapping factors: prices have been rising from the low levels that made investment very profitable a few years ago; and iOS privacy restrictions have affected the ability to target.

As a result, some advertisers have found themselves paying more for worse results, or at least more dubious attribution, while their accounts reflect the current difficulties of continuing to operate. This translates into a direct impact on the accounts of technology giants that until very recently were benefiting from the forced digitisation of businesses that the pandemic promoted.

It also remains to be seen the impact of the two major milestones that remain in the year to move advertising budgets: the mid-term elections in the US, with a great capillarity of localised investment in multiple elections; and the World Cup in Qatar. In the first case, platforms try to shield themselves from misuse of their systems by political actors through increasing limitations, which makes it less attractive to plan on them, or directly reject these ads as problematic. In the second case, spending tends to be mostly associated with brand advertising by large companies through agencies.