Recession and effects on the digital marketing ecosystem

July 7: The global economy is in entering into a recession state. Recently the S&P 500, the stock market index for the top 500 performing companies in the United States, confirmed that the market is in a bear market state. The United States is currently the world’s largest economy and they are going to try the nation from slipping into a recession state. To do this the United States Federal Reserve is going to push for higher interest rates which would potentially lead different world economies into a state of pandemonium. The market has fallen for the past week straight leading to a frenzy. The S&P plummet by 21.8%. Experts are expecting people’s purchasing power to diminish over time. All of this sounds grim for the digital marketing industry.

Let us take a deeper look into how the looming global recession is going to potentially affect the digital advertising ecosystem. During the peak of the pandemic, ad-buying had increased by 38% compared to the previous year (2019) but in 2022 a deceleration in terms of ad buying is visible. A massive reason for the deceleration in advertising ad spend is because China accounts for 20% of ad spend and the ongoing war in Ukraine has had an adverse effect too. According to a recent statistic by GroupM e-commerce sales grew only by 6.7% in 2022 compared to the previous years. This has been the slowest growth rate noticed in the e-commerce industry since 2020. Additionally, GroupM predicted that consumer price inflation is going to soar upwards of 7%.

Despite these turn of events, the large agencies Zenith, MAGNA, and GroupM recently released their mid-year reports and all of them have noted an increase in their advertising spend for 2022. This provides hope to brands and advertisers of all sizes. Zenith is predicting a $33 billion increase in advertising spend across different digital platforms. Online advertising on OTT (Over-the-top) and CTV (Connected TV) is a big growth factor for a lot of agencies and brands. It is predicted that global advertising expenditure on online video advertising is to rise from $62 billion to $94 billion by 2024. The advertising industry has severely decreased its spending on TV ads this is because the younger generation is engaging more with different OTT platforms. Concurrently, advertisers find it easier to measure the success of campaigns on CTV and OTT compared to traditional TV.

Another space where advertising expenditure is set to increase is podcasting and online radio. It has been a market that has not been completely tapped into yet. MAGNA, the ad giant, claims it will be increasing its spending by 5.7% in 2022 on audio advertising. Additionally, MAGNA is forecasting its advertising revenue will grow by 9.2% in 2022. Along with CTV and OTT, out-of-home advertising is expected to grow as people are beginning to travel and spend more. In other words, brands are cramming to get their ads up on different types of OOH ads.

In India, the advertising budgets for 2022-2023 are said to increase by 20% despite inflation being around the corner. Companies like Maruti Suzuki are said to increase their advertising budgets through the remainder of the year. Large FMCG companies are increasing their pricing and passing on the cost to the consumers ensuring they are protected at all times. A number of companies in India would want to ensure that they can keep their expenses low during the inflation period.

A different aspect to also keep in mind is that all the major advertising agencies, trading desks, and global brands are at a critical junction given that Google is set to depreciate its cookie-based targeting by 2023. Audience-based targeting tools are going to be sunset and brands are on the hunt for other alternatives. Budget allocations need to be made for market testing and product fit to ensure that it will yield the best results. With the impending inflation, advertisers need to ensure that they are able to safely carry out their day-to-day operations as per normal.

Only time will tell whether brands, advertisers, and ad tech companies are able to make it through the inflation period unhinged.

By  Akaash Ramakrishnan, Co-Founder & COO, AdSkate

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