While demand for all things related to the internet has soared during the coronavirus COVID-19 crisis, demand from advertisers remains in a state of flux and is therefore impacting advertising revenue streams of the big technology companies. Some obvious categories with significant increases in advertising spend include Pharmaceuticals, Toys & Games, Food & Beverage, and Health & Beauty. But calculating the precise impact of change is not a straightforward task, given that in times of crisis the advertising field can be slow to react in budgetary terms. In addition, it is difficult to predict how the significant changes to Amazon delivery times and potential upcoming delivery and supply issues will affect ad spend. Regardless of global or US news headlines, this is a situation that is expected to continue to play out for quite some time.
Channels & Verticals
The effect of COVID-19 on overall ad spend will be determined by the three broad channels within the digital apps, as the impact so far on each channel is decidedly different. The eCommerce channel (of which Amazon is the largest player) became increasingly relevant and saw a spike during the first few weeks of the crisis as shoppers rushed to stock up. This may come to an end, however, with the prioritization of essential items and the potential delays to deliveries of non-essential items of several weeks. It is these delays which could impact eCommerce spend in the short-term, particularly in the Housewares & Home furnishings and Toys & Game sectors. In contrast, the paid search channel dominated by Google is expected to suffer the most as advertisers pullback in spend due to the direct-response category being primarily driven by interest and intent. The trends around social channels, primarily consisting of Facebook and Instagram, are considered the most complicated to predict because of the many variances around ad spending verticals. There are some areas that advertisers have been very keen on getting in front of audiences during the crisis, for example, Health and Gaming have seen higher CPMs because those audiences are currently seen as more valuable.
Below, we take a closer look at the implications of coronavirus on some of these verticals as follows:
- In both the search and social categories, spend on the Travel vertical between March 16-23 took a huge drop. The ongoing travel situation will have a big impact on Search due to a larger spend from online travel agencies such as Kayak, for example. The large drop in this vertical is something to keep an eye on if the situation is drawn out as this could represent a significant loss of revenue to Google;
- While spend increased across categories such as Telecommunications and Politics & Government due to the increase in the amount of news being published around COVID-19, the Education, Gaming, Computers & Electronics and eCommerce categories held up the best in terms of pricing in the paid search category as people moved their social, education and working time into their homes;
- On the other hand, spending decreased for Media & Entertainment because much of this involves advertising for events and ticketing. Other significant players in this category include media-services providers such as Netflix, which are evidently in high demand as people are forced to view entertainment from home, although technical limitations during busy times may hinder advertising spend. Another vertical that is inevitably expected to be hard hit in the longer term is the Automotive category;
- Consumer Packaged Goods (CPG) saw a large spike at the beginning of the crisis, however, it should be noted that advertising budgets for companies such as Proctor and Gamble do take time to follow the trends of world events. If shipping and delivery times can hold up, CPGs are expected to keep pushing their essentials quite aggressively, with Amazon being a benefactor from that type of spend more than Google or Facebook.
COVID-19 is expected to have differing effects on advertising spend, mostly in relation to the repercussions on each vertical within online sales. An impact on pricing of advertising should be expected, therefore, and pricing will fall if advertisers scale back or become less competitive as observed in the Food & Beverage and Apparel & Fashion categories in eCommerce channels.
Winners & Losers
In terms of tech companies reliant on advertising income, ‘smaller’ channels such as Snapchat, Pinterest, Twitter, Apple, and Walmart are usually hit during times of stress as many advertisers perceive them to be less ‘mission-critical’. This could be countered, however, by a growth in net new users given that so many people are spending time at home literally stuck on their computers, particularly on platforms such as Pinterest and Twitter. Similarly, Snapchat is expected to do well in terms of gaming clients who have a big advertising spend.
Because advertisers are focussing on e-Commerce channels and delivering items to home-bound customers, Amazon is expected to come out stronger in the short-term than either Google or Facebook. Looking forward, however, it is anticipated that breakdowns in delivery and supply chain could start to have a negative impact on eCommerce ad spend. What is guaranteed is that as our society is pushed ever-more into the digital realm, all big tech companies should come out in an even stronger position in the mid- to longer-term.
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