‘Could it really be that healthy?’: GroupM’s Brian Wieser dissects global ad spend boom

But how stable could this growth be during what Wieser points out is the “worst economy globally since at least the 1930s”? Can we expect the growth to stick? [I break down the expected growth here.]

To make long-term projections, Wieser and co have to understand who is spending and why. He’s identified three major types of contributors to the latest boom.

First is Chinese manufacturers selling direct to global consumers. “We know that there‘s something like $10bn of advertising going to Facebook, there‘s other companies like Wish where there‘s $1bn or $2bn ad spend, and we know that Amazon probably sees about 40% of its marketplace participants coming from China.”

Next is new business formation. As a result of the Great Resignation, people are reportedly quitting jobs. Many are creating new businesses, often operating at a national or global level. “They may be more intense advertisers, because they‘re not necessarily spending money on real estate and have put into digital.”

And, finally, is the flood of digital endemics, or what Weiser and co call ‘the digital index.’ “These are companies whose businesses are rooted completely in the internet, they‘re often very large, and may benefit from venture capital financing in the hundreds of millions, if not billions, of dollars. Many are spending money on advertising independent of the profitability of that spending, because they‘re being rewarded for revenue growth independent of profitability. The hope is that they grow into the valuations that they have...” It’s clear that many won’t.

The pandemic created an environment where digitally-savvy businesses were most likely to thrive. And many of these businesses live and die by ad spend more than bricks and mortar businesses may have had. Wieser explains.

“In the before times, if £1bn was spent on white tablecloth restaurant dining, that may have translated into maybe £1m because that genre of dining doesn‘t spend a lot on advertising. But then that dining went away and people paid for apps to deliver food to their home – and for that same billion pounds of food spend, there might be £1.5bn in advertising.” Many of these businesses are spending more than they are generating to secure market share and consolidate competitors.

He adds: “That’s an example of creative destruction in advertising. One category goes away, replaced by another. But the new category which emerges could be more intense as an advertising category.”

This contrasts with some of the trends we saw during the 2008 recession, where spend dried up and crawled back at a snail‘s pace. Meanwhile, globally – but particularly in the UK – there‘s been “remarkable” ad spend growth.

The reason, Wieser says, is tacit collusion (an unspoken understanding) that saw herds of marketers collectively cease ad spend, inspired by the wider consensus. As a result, many a marketer missed out the opportunity of being the sole voice in their category. The pandemic freeze was more about immediate uncertainty around supply chains – be it product or media. These were solvable issues and saw some select business types thrive.

Now the industry outlook is strong, but to say it is rosy would be misleading. Wieser’s biggest concern is inflation. Inflation is something that a lot of people are worried about. “In Western Europe and the US, we’re seeing a mid-single-digit, even high-single-digit rates of growth in prices. That will probably translate into higher advertising costs. But there’s always risk it could mess up the economy if interest rates rise too fast to attempt to curtail inflation.”

Watch the full interview here.