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By Doron Gerstel, CEO at Perion
The Year of Surprises. That’s how I would describe 2022 for digital media. And that, with a swift turn of the calendar, will make 2023 The Year of Experimentation. As brands and agencies – reacting the unpredictability of last year – will accept nothing as a given, and will be motivated to abandon many of their preconceived notions. Think of it as “zero-based living.”
Let me first drill in on what made 2022 such a cascade of unexpected changes, and then what the Year of Experimentation will look like, and how retail investors should view their strategies in that context. To get a quick discussion of the macro-economy behind us, we knew that the Federal Reserve would be waging war against inflation, and that it would probably impact consumer spending.
Which brings us to the first surprise – which is that rising rates didn’t slow consumer spending to the extent the experts predicted. “Consumers kept up their spending in October, even as prices rose” reported a slightly stunned New York Times. It was one of many such headlines all year, as many were astonished by the economy’s resiliency.
Surprise #2: The Google/Facebook duopoly showed real cracks, as their share of spending dropped below 50 percent for the first time since 2014. The beneficiaries were largely Apple, Amazon and TikTok, and this shift will lead to a great deal of media experimentation, which I will get to in short order. TikTok had been growing rapidly, but I don’t believe anyone expected it to become as powerful a force as it emerged as in 2022, which includes its new role as the Gen Z search engine.
Surprise #3: The chaos at Twitter was completely un-anticipated and complicated an already hyper-kinetic digital media environment. All those fleeing advertising changed the game.
Surprise #4: Digital video and CTV grew 24%, an unexpected spurt which demonstrates the velocity at which this channel is becoming an essential component of the media landscape.
Surprise #5: The growth of retail media networks – which now includes Walmart, CVS, Home Depot, Uber, Marriott and Chewy…just for starters.
Surprise #6: Consumers are not accepting privacy violations as inevitable. They are doubling down; in fact a recent study from Lucid found that 95 percent of consumers demand that brands do more to protect their privacy and avoid “stalking.”
Surprise #7: ChatbotGPT. I’m sure your inbox, like mine, has been flooded with examples of its ability to generate strikingly accurate answers to even complex questions. No wonder Google called it “Code Red” for their search business.
All these factors are combining to encourage – if not force – an unprecedented wave of media experimentation and experimentation in 2023.
Expect media plans to be more fluid and nimble than ever before, as dollars will move between search, social, display, video with unprecedented speed. Within each of these there are also unprecedented opportunities, both existing and new – like the retail media networks I described above.
New technologies and creative solutions are also satisfying the hunger for experimentation, including attention-grabbing high-impact ad units, and the implementation of binaural sound (3D-audio) to leverage the full range of human senses. This industry is expected to reach $15 billion globally by 2028; that includes all sectors including advertising, but it gives you the idea of the scale involved.
At the same time, new measurement tools will enable faster decision-making and adjustment within this fragmentation. As a result, this year will be the final nail in the coffin of “set and forget” media planning. Also driving the Year of Experimentation is the continuing pressure on Chief Marketing Officers to show results, fast. With an average job duration of just 40 months, they can’t afford not to boldly iterate.
For investors, a few things.
I would argue that the direct-to-consumer brands – beaten up due to the changes in Apple’s privacy policy which made it more expensive to acquire users on social media – will broadly benefit from the Year of Experimentation, and its expanded range of spending options. Don’t give up on them.
Structurally, I would look for companies that control their own destiny and can leverage assets, rather than be at the mercy of exogenous forces. I’m not recommending any specific stocks, but retailers who can leverage first-party data through their media networks – as discussed – and others who have effective walled gardens, are attractive candidates.
Also look for retailers who have enormous traffic but who have not yet decided to monetize by creating their own proprietary networks. I would also look at companies on the infrastructure side, like those delivering binaural audio, and those innovating in AI and machine learning. They are the “picks and shovels’ of digital media.
In short, the Year of Experimentation will be a year of opportunities. Grab them with both hands!
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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