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The Trade Desk 4Q22 Results: Critiquing Comments on Walled Gardens, Connected TV, Upfronts and More
The Trade Desk reported its fourth quarter 2022 results on Wednesday, which showed continuing growth, likely based on share gains relative to peers as well as underlying tailwinds. Because of the company’s prominence among advertising technology businesses, a healthy market capitalization and sustained expansion over many years, statements provided by the company about key trends are given weight by many in the broader advertising industry. However, in some instances nuanced critiques and alternative interpretations are warranted.
In this post I will provide some counter-points or additional important context to comments made on The Trade Desk’s earnings call about shifts between walled gardens and the open web, connected TV, the US national TV upfront marketplace and marketers’ trade-offs between price and value.
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Walled Gardens Vs. The Open Internet
Early in the earnings call CEO Jeff Green said “with The Trade Desk and the Open Internet, marketers can measure ROI (returns on investment) and value with more objectivity. And that means they'll prioritize us over the limitations of walled gardens.”
While there will surely be at least some marketers for whom this might be true, for a much broader group it’s critical to first note that there are many ways to measure ROI, with definitions of ROI that are typically much more subjective and potentially fluid than the definitions that financial professionals use given the range of time horizons that might be tracked, the non-revenue-based metrics that might be incorporated into any calculations and choices attributing returns to different media tactics given the typical usage of multiple media channels in any given campaign. More generally, the biggest walled gardens continue to provide the broadest reach and the most significant data sets for targeting. This means that even if an individual service or technology provider can demonstrate high ROIs (however defined) in limited volumes, marketers who might only have the resources to spend with one or two media owners are unlikely to shift away from those walled gardens any time soon.
Industry Concentration: It’s High and Up, Not Low and Down
Relatedly, Green cited recent data from Insider Intelligence (aka eMarketer), stating that they “reported a couple of weeks ago that 2022 represented the first year in a decade that Meta and Google did not account for more than half of the digital advertising market between them.” Without disputing the specifics of the data as it is defined by Insider Intelligence, I think most analyses citing this data miss at least four critical points relevant to any discussion of concentration and the importance of walled gardens:
· Insider Intelligence’s data is defined on a net basis, not a gross basis. For the numerator, market control or dominance should only be defined in gross terms, as this reflects the share of total industry sales, and the denominator should not include traditional media platforms’ digital extensions where the traditional media owners generally drive sales directly. On this basis, Meta and Google likely accounted for approximately 70% of the US digital advertising market.
· Adding Amazon and the figure almost certainly would exceed 80%, and rather than declining concentration is increasing
· The figures provided are US-only and not global
· The critical point of analysis for companies such as The Trade Desk and others focused on large brands should be market share for large brands distinct from all advertisers. On this basis market shares realized by Meta, Google and Amazon are certainly lower than they are across the industry, but it’s unclear if they are rising or falling, and further unclear if the share is above or below 50% for the typical brand owner.
Connected TV: Mostly Walled For Foreseeable Future
Next, there was commentary on connected TV:
“Not only is the shift from linear to CTV driving significant growth in digital spend as advertisers shift dollars from linear TV to connected TV, but more spend is happening outside the walled gardens as advertisers shift spend from user-generated content to premium streaming content.”
This assertion does not appear to map to choices that I think the typical large brand is making, and depends highly on the definitions of individual terms. First, I would not define CTV as including online video in a general form – instead I think most brands will only think of CTV as referring to premium content, and not include YouTube nor online video advertising that is not associated with premium video content. However, to the extent that there are some marketers who do attempt to plan for UGC as part of a broadly-defined “TV” budget, UGC including YouTube and TikTok is undoubtedly growing in share.
Later on, Green said:
“CTV is the king pin for the open Internet. And I believe its size, its efficacy and its value will be transformational in showcasing the power of the open internet to advertisers. Eventually, it will force many walled gardens to lower their barriers. This will happen in part because CTV is perfectly fragmented, but collectively huge. It's not so fragmented that you need millions of parties to coordinate, but it's fragmented enough that no one has enough power to be draconian and go it alone. As a result, everyone is rational enough to make the right decisions for the ecosystem that optimize the experience for viewers, advertisers and of course, media companies. Because of these dynamics, I also believe that 2023 will be the year that everything in TV changes.”
Once again, to start any such assertions require a common acceptance of the definition of what, exactly, CTV is or should be. It is possible that with the waning reach potential of traditional ad-supported television (including premium programming delivered via connected devices) marketers will need to broaden their definitions of TV to include more online video, but most of the market is not there yet and unlikely to get there any time soon. To the extent that marketers might choose to include all online video as part of their definitions of television, it would be surprising to find that video-based inventory delivered off of the walled gardens would come close in terms of the quantity of inventory available on walled gardens given the massive scale of each of YouTube, Facebook, Instagram and TikTok alone. Consequently, it’s difficult to believe that walled gardens would need to “lower their barriers” for this reason (although they may very well continue to do so for other reasons).
US National TV Upfront Marketplaces Will Persist
Commenting further, Green asserted that “in order to get the best out of data-driven TV advertising, you cannot use a forward market that was invented in 1962. By the way, that's the same year the cassette tape was introduced. The cassette tape has evolved. In fact, the way we consume music has evolved many, many times over the last 60 years. But the upfronts have not. The market needs an upfront that is always on, but also leverages data so that content owners sell fewer, more relevant ads at higher CPMs and advertisers get more efficacy.”
Notions of the inefficiency of the television upfront markets are often conveyed by practitioners and non-practitioners alike, and have been for decades. And yet the manner in which much of the US national television advertising market is negotiated has persisted. From my studies of its history and experience as a participant, the US upfront continues much as it has for so long not because it is good, necessarily, but because it is better than the alternative for most large brand owners.
Consider the following: if a given marketer has decided that television is an important component of a campaign which might be planned for a year or 18 months out, would it be better to wait until close to the campaign’s launch date to see if desired inventory is available? Or would it be better to commit early? And if the marketer knows that other marketers are going to make their commitments around the same time, wouldn’t it be better to do so before desired inventory has been secured by others?
If anything, one could argue that marketers should want to make upfront commitments much earlier than they presently do, at least if they know they will need the inventory and if they believe there will be no alternative source of equivalent media that will be available to satisfy campaign goals when that inventory is needed.
On the other hand, I have argued in the past that marketers should develop alternative plans across different marketing choices which do not rely on having to make commitments to suppliers of media inventory which is so relatively scarce, and controlled by relatively few suppliers. However, most marketers are reluctant to create proper “BATNAs” (Best Alternative to a Negotiated Agreement”) which would lead to improved leverage and likely to better overall outcomes.
To the extent that growing numbers of marketers have shifted focus to audiences rather than programs, this helps on the margins. It can lead to fewer must-buy situations and a wider range of choices to be had. However, because the vast majority of relatively wide-reaching ad-supported professionally-produced video programs (especially including sports-related content) is still desired by enough advertisers, related ad inventory will inevitably be secured in an upfront marketplace. So long as this is true, it might be hard – or possibly impossible – for large brands to accomplish reach-based media goals without including that inventory, even if they bought on an audience basis.
Put differently, marketers who try to buy audiences on television will still need access to the broadest reaching inventory. This means they need scarce inventory when it becomes available, and so long as the main sellers choose to “herd” buyers together by opening sales for their scarce inventory around the same time, the benefits of participating in an upfront outweigh the costs for most marketers.
Many Marketers Will Focus on Price Over Value For Foreseeable Future
Further discussing ideas around price and value, Green said “as advertisers have more opportunity to deploy data more fully in their omnichannel campaigns, their focus will continue to shift from price to value. They will always want to make sure that they are buying impressions at the right price, but that won't be the leading indicator anymore. It never should have been. They will continue to put much more priority on whether those ad impressions delivered the right outcome for that price, in other words, value. Second, in the pursuit of value, advertisers decisioning will shift from inventory to audience. Instead of focusing on buying a certain show or a certain piece of inventory, advertisers will put much more priority on audience precision regardless of channel because data enables them to do that.”
A focus on value is an ideal, to be sure, but one of the reasons why marketers focus on price as much as they do is because defining price is easy while defining “value” and “outcomes” is so subjective. This is especially true for brands whose businesses are driven by many factors, including competitive actions, history and untrackable elements such as word-of-mouth, let alone the imprecisions of most media. Moreover, it doesn’t necessarily follow that a marketer focusing on value makes a shift “from inventory to audience.” There may be some who do so, but there are many, many other ways to drive value in media and marketing (i.e. a different creative message, more thoughtful campaigns, changes in media choices, etc.).
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