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JULY 22ND, 2022 3:30 PM MONTREAL, CANADA.
(Written After Snap and Twitter earnings, before Meta and Google Earnings).
Hey Guys,
There’s been evidence so far in Q2 Earnings of SNAP 0.00%↑ and TWTR 0.00%↑ that major macro headwinds and churn to TikTok advertising is occurring across Western social media apps.
With stagflation, low demand, higher interest rates and more pressure on the global economy from energy crisis, war, a weak China and plummeting consumer sentiment, brands are having to re-think how to do Ads, including Apple’s privacy changes and its impact on the likes of Meta and Snap.
Google is now warning about TikTok (and to a lesser extent Instagram), where young people are doing mobile search bypassing Google’s dominance in search. This is a big red flag for a major shakesup in Ads and a case for the “Great Ads Reset” I’m proposing for 2023.
Senior Vice President Prabhakar Raghavan, who runs Google's Knowledge and Information organisation, referenced the popular social apps in a broader conversation at Fortune's Brainstorm Tech conference about the future of Google's products and its use of artificial intelligence (AI), reports TechCrunch.
In a discussion about the evolution of search, he somewhat offhandedly noted that younger users were now often turning to apps like TikTok and Instagram. This has been occurring with ByteDance owned apps for years vs. Alibaba and Baidu in China. Weird that this is just coming out now in the Western media.
We were already more likely to search Google with “+ Reddit” or YouTube instead of Google itself. We want trusted human based reviews and not all the spam that Google Ads puts on top of its legacy search pages.
Core Google services, including Search and Maps, are also being impacted by a growing preference for social media and videos as the first stop on younger users’ path to discovery. This is the super power of GenZ apps like TikTok and Snap, they are better at retention and utility over-time.
Let’s think about TikTok’s growth in advertising in its first three years alone.
TikTok to 3X Ad revenue in 2022, even as Western Ad revenues falter. TikTok raked in nearly $4 billion in revenue in 2021, mostly from advertising, and is projected to hit $12 billion this year. That would make it bigger than Twitter Inc. and Snap Inc. combined 3 years in.
So what did the VP say exactly:
“We keep learning, over and over again, that new internet users don’t have the expectations and the mindset that we have become accustomed to.” Raghavan said, adding, “the queries they ask are completely different.”
These users don’t tend to type in keywords but rather look to discover content in new, more immersive ways, he said.
“In our studies, something like almost 40% of young people, when they’re looking for a place for lunch, they don’t go to Google Maps or Search,” he continued. “They go to TikTok or Instagram.”
My Thesis is that the Great Ads Reset occurs for a few reasons:
Apple’s new privacy rules
The Macro stagflation lower demand for Advertising
The rise of TikTok (and Amazon)
The loss in confidence in Meta and its products
The impact of GenZ mobile behaviors related to video
Emergence of Super-apps like TikTok (more powerful than YouTube)
The splintering of social media into niches (Reddit, Discord, Pinterest, Twitter, more apps in the attention economy as a whole).
META 0.00%↑ earnings for Q2 next week will be the most important data if this really is a “Great Reset” for Ads, or if it’s not quiet yet arriving so soon.
All of these are impactful in their own way but creates a “great reckoning” for the future of digital advertising, a great reset if you will.
According to Bloomberg (BNN)
The most downloaded app of 2021, TikTok has surged to a billion-plus global users, who consume an infinite feed of short clips delivered instantly by algorithm.
TikTok raked in nearly $4 billion in revenue in 2021, mostly from advertising, and is projected to hit $12 billion this year, according to the research firm eMarketer. This 3x of 2022, will accelerate in 2023 further pressuring Meta, Google and other smaller players.
Alphabet Inc.’s Google and Facebook, now Meta Platforms Inc., are the giants of online advertising, a duopoly so powerful they have been hit with antitrust complaints in the US, the UK and the European Union.
Meta will face increasing litigation around its antitrust issues, even as Ads for its services are likely to fade due to Apple’s privacy rules where Facebook’s ARPU decreases drastically.
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