Twitter dumpster fire masks the big news for the ad industry

Opinion

A raft of recent company earnings reports demonstrates that we have reached the end of an era where advertising supported the exponential growth in online channels.

You really don’t need yet another article about Twitter and there is little more to say about the most overblown story in media in living memory.

Yes, Twitter is significant to its 238 million users, many of whom (like me) spend too long on it. Its content resembles the old Daily Express phrase ‘All human life is here’, but I have to confess that one of the reasons I overuse Twitter is the sheer horror of some of its content.

It’s a useful compendium of all that is good in the world but an even better repository of the simply appalling, and has contributed to a media ecosystem where uninformed opinion seems to carry the same weight as fact-based and well-balanced commentary.

Social media has inflamed division and helped foment anger, and Twitter is as responsible as any for driving wedges in society. If its content moderation lessens from where it has been, God help us. A publicly-quoted business had a greater duty of care to its users than a private one.

However, as a relatively minor platform it is attracting far more attention than it is due, partly because of Elon Musk’s unhinged handling of the transition but mostly because it is the preferred social media home for the ‘commentariat’. No self-respecting politician, journalist, thought-leader or rabble-rouser (e.g., Farage) can avoid Twitter.

We shouldn’t lose sight of the fact that Twitter has been failing for many years. It failed to turn its audience into money and relied too heavily on advertising for its revenue, without providing new and interesting formats for advertisers to exploit.

I wrote several years ago that the internet is often a great place to communicate but a lousy place to advertise, and Twitter is the epitome of that dictum. Twitter has always carried way more value for its users (for nothing) than its customers and has arguably never earned its place at the advertising table.

We now have a situation where Musk attempted to appease the people who provide 90% of Twitter’s income before threatening to ‘name and shame’ advertisers who abandon Twitter as they are clearly anti-free speech (or something—let’s not try to rationalise this). Belatedly Musk has realised that he needs advertisers more than advertisers need him.

Moving into a new age

Meanwhile the Twitter fiasco is distracting attention from the truly tectonic changes happening in the advertising world. A raft of recent Q2 earnings reports demonstrates that we have reached the end of an era where advertising supported the exponential growth in online channels.

As usual, Professor Scott Galloway calls it right in his latest blog (‘Elephants in the Room’), dissecting the earnings statements and the underlying causes, including the effect of Apple’s privacy protocols. Although mentioned as an ‘adtech’ player, Apple’s influence in the consumer electronics world has proven to be crucial in disrupting online advertising. It’s not the only factor, but the global penetration of Apple devices has allowed Apple to set itself up as a significant player in advertising at the expense of its rivals.

For several years advertising has funded the growth of social media in particular, at the expense of curated content publishers. Obscene profits have been made by the large digital platforms, leaving only crumbs for those operators who have to generate content themselves. Now the slowdown in advertising growth, and the movement of adspend into TikTok, is changing the game again. We are moving into a new age, where hybrid funding models are needed to ensure growth and sometimes survival.

An industry that has been used to high continuous growth in ad revenue is now confronted by a decline in adspend caused by multiple factors, among which is the lack of accountability of much of online media, especially in the ‘Walled Gardens’.

The move away from a cookie-based market and new privacy regulations and practices (such as Apple’s ATT) is also making the measurement of ROI harder.

Online publishers are having to consider subscription or purchase-related charges (as gaming already does) and now social media companies are scrambling around for additional revenue streams, such as Twitter’s verification charges. Meta’s pivot to the Metaverse is an extreme example.

Conversely, subscription-based channels such as Netflix are moving in the opposite direction, attempting to eat into the drying pool of adspend. It’s going to get ugly.

Demanding a more nuanced approach to media strategy

The ramifications for advertisers are significant. A hybrid funding media ecosystem where some channels are partly ad-funded and partly subscription demands a more nuanced approach to media strategy. An advertiser’s target audience may be harder to reach if they are able to opt out of the advertising market. This will particularly affect manufacturers of upscale goods as their well-to-do customers will be able to afford the subscription options and this will diminish still further their exposure to ads.

New media strategy approaches and research and data techniques will be required to identify the opportunities and obstacles in the hybrid market, and more consideration will be given to non-media ways to build business. This in turn will erode available media adspend.

Advertisers should also be aware of the pressures on their media partners. Their media agencies and adtech providers will come under increasing pressure to find new revenue streams as adspend slows down. It will be increasingly important for advertisers to work constructively with their partners on reward schemes that encourage wider marketing communications thinking and discourage more hidden fees.

As media planning gets harder advertisers should be prepared to pay more for better multi-channel strategy and execution which deliver measurable improvements in business performance.

We can be confident that our industry will adapt robustly to the new hybrid shape of the industry, and new winners will emerge as they always do. The most important action right now is to ignore the hype around Twitter and focus on the more important underlying trends across the wider industry.

A good place to start for advertisers is to ask their media partners (including publishers and platforms) how they are going to adapt to the new market eco-system, and a good time to do that is now.