Today’s post concerns, something hiding in plain sight, something whose direction can change the market, the shift to online advertising . EkaLore writes regularly about Alien Invaders, overwhelming competitors from another space or geo who come in to dominate markets without following the “rules” by which others play. What happens when the Aliens have been operating successfully for awhile?
The story of the shift between traditional media outlets and online advertising is not new, but this shift has some implications for the public, not to mention retirement funds
An unforeseen, although logical, consequence of shifts in advertising spend are becoming apparent. Revenues of large publicly traded concerns are driven by sophisticated placement of online advertising. The shifts in spend from traditional and legacy media to ‘Internet media’ were heralded and tested across up and down markets. Substantial (not always material) revenues, and especially margin, for the large capitalization tech stocks are driven by Internet advertising and search. (Amazon, Apple, Meta, Google, Microsoft). Popular Internet stocks are also Internet advertising and ecommerce revenue sensitive (Twitter, Snap, Pinterest, Alibaba, eBay). The unforeseen consequences are about to be felt in retirement investments and conservative investment portfolios as revenues shift.
Retirement and conservative investment portfolios have seen recommendations over the last 10 years (US markets) shift to ‘Index Funds (ETF)’ in various forms that have outperformed many ‘financial advisor’ driven investments. The performance of these investments is largely driven by a highly concentrated set of technology stocks’ earnings and valuation. Unforeseen is now real as technology stocks become sensitive to the global economy and fail to continue contributing large earnings to widely held index-fund positions. Continuing increases in valuation of technology stocks has been driven by the optimism of their continued revenue and earnings growth. Investment funds and portfolios dependent on technology stock valuation shifts and earnings will see easy choices become uncertain. Shifts in Internet advertising will now be felt suddenly in retirement and conservative investment portfolios valuations.
The sources of advertising monies on the Internet are widely distributed across the global demographics of enterprises. The direct costs of Internet advertising are largely in execution whereas the costs of preparation, scheduling, and executing large scale advertising buys on traditional media are substantially front-end loaded (content creation, testing, final production, media buying, assessment & evaluation). This practically provides advantages to advertisers:
1) Control of actual ad-placement scope and impressions thus controlling spend
2) Rapid assessment and evaluation of spend results
3) Shift from large expensive placements to millions of individual placements for impressions.
Advertisers have immediate “dial controls” instead of commitments to large lengthy campaigns (from home businesses to gigantic global enterprises). This is critical as shifts in consumer and enterprise spend are less certain – advertisers can rapidly shift or reduce, spend. These shifts can occur due to macroeconomic pressures of pandemic, war, and inflation or simply due to management changes driving new choices. Advertisers may not have the ‘pricing powers’ with large Internet tech firms that deliver impressions like traditional big spenders had on traditional media (consumer goods, food, automotive, financial/insurance services, disposable spending). Local traditional media is also sensitive to consumer spend (automobiles, food/entertainment, consumer durables). However, the aggregate effects of reduced advertising/marketing (search-related) spend is larger – and more immediate. Enterprise advertisers have an immediate impact on tech firms’ delivering ads.
Financial investors, government officials/policy makers, and marketing executives watch public performance of major tech firms as indicators of economic health and confidence. Advertising spend is driven by fiscal performance influenced by economic uncertainty or externally-driven changes in spend (investment/durable, consumer basic, consumer durable). Advertising spend is an indicator of enterprise confidence and economic activity.
Changes in Internet advertising will have rapidly felt effects on financial markets, public perception of economic performance, and subsequent economic policy makers’ decisions.
EkaLore has written about changes in business models for media and entertainment markets as spend shifts Internet advertising, streaming entertainment, and content distribution (games and shows).
Find this and related posts at www.ekalore.com/alien-invaders
EkaLore focuses on management and business issues. We Do Not Provide Investment, Tax, Accounting or Legal Advice.
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