A long era of growth in social media advertising has come to an abrupt halt, and Wall Street is noticing. US advertisers are on track to spend $65.3bn on networks such as Facebook, Snap, and Twitter this year, a year-on-year increase of just 3.6 percent. That is about ten times slower than in 2021, according to estimates. Why?
The social media slowdown is such that its forecast growth rate for 2022 is almost the same as traditional media, such as television and radio, whose audiences have been shrinking for years.
So why is social media advertising going south?
1ne: With the economy turning, inflation rising and supply chains clogged up, some big advertisers are taking a more prudent approach. Meta’s chief financial officer, David Wehner, told analysts that growth from large advertisers “remains challenged”.
2wo: Short video has upended social media. TikTok is luring billions of eyeballs away from Instagram and Snapchat. But as consumers’ attention spans shrink, so does the time to serve them advertising. Not even TikTok has managed to monetize its advertising successfully, according to the staff at the loss-making company. Analysts at eMarketer estimate the platform will generate around $5bn of ad revenue in the US this year — a fraction of Facebook’s turnover.
3hree: Apple’s privacy changes affect the digital advertising business. Apple chief executive Tim Cook insisted this week that its new App Store ads business was “not large relative to others.””” Nonetheless, it has grown rapidly at the same time as iOS privacy restrictions introduced last year have taken a $10bn bite out of Meta’s revenues.
4our: Ad Fraud. Exploiting the programmatic advertising system is remarkably simple. Ad fraud is one of the largest frauds in the history of the world. Nobody knows the exact extent of ad fraud, but several reputable studies peg it at over $ 60 billion. You can become a successful ad fraudster with almost no technical know-how. And if you have the technological know-how, the sky’s the limit. According to Hewlett Packard Enterprises, ad fraud has the highest potential for profitability and the lowest barrier to entry.
A common theme in decline in online advertising is the lack of accountability regarding ROI. Advertisers are finally learning that impressions online don’t mean anything, and clicks, with high bounce rates, are also useless.
Will social media advertising disappear? Of course, not, but advertisers will demand a better ROI when more privacy issues come into focus.
