Advertising Growth: Driven By Large Businesses, Not SMBs

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A common narrative we hear in relation to the growth of the advertising market is that much of it is due to increased spending from small and medium-sized advertisers which in turn have been responsible for much of the growth of Meta, Alphabet and Amazon.

In the United States, at least, this is not generally true.   We could already see that small business and large ones have increased their spending on advertising at roughly similar rates through at least the 2000s and 2010s, but with a release last month of new data from one of my favorite data sources – the IRS – the trend generally held in 2020 as well.

Source: Madison and Wall analysis of IRS data

In this data I break up the industry into three different cohorts.  The smallest, each generating less than $50 million in annual revenue, and representing 20% of all tracked advertising spending in 2020, did underperform in the 2000s but through the 2010s and it grew very similarly to the rest of the industry at around an average CAGR of 4.7%.     2020 was unsurprisingly a soft year for this group, whose spending fell by 12.2%.

Middle-sized advertisers, or here those which generated between $50 million and $250 million in revenue and who accounted for 10% of the industry – performed similarly over longer periods, including a CAGR of 5.1% in the 2011-2019 period, but did exhibit much stronger outcomes relative to the industry in 2019 and 2020 (although this group underperformed in 2018).  

But the biggest group, companies with more than $250 million in revenue (around 9000 companies each averaging around $2.7 billion in revenue and $28 million in ad expense in 2020, and slightly more in 2019) who accounted for 70% of the industry grew 4.7% over the 2011-2019 period and declined at a pace that essentially matched the smallest cohort in 2020 with a 12.4% decline that year.

Put differently, rather than attributing growth in advertising to smaller businesses, it’s more likely that businesses which only emerged in the past couple of decades– many of which are now incredibly large as marketers (see: Airbnb, Doordash, Uber, Etsy, etc.) – have generally been responsible for much of the growth in advertising we have seen rather than smaller businesses often credited for overall industry trends.