Welcome to the new turbulence
For a decade, the received wisdom was that the early internet - full of disruptive promise - had settled into immovable monopolies, too big and too clever to be challenged. But change has been bubbling away - and now the pandemic has begun to blow the field wide open again.
But who will benefit - consumers, advertisers, or the new tech winners?
End of digital monopolies
The digital landscape once seemed to be stabilising into one of high smart phone adoption, steady ecommerce growth and dominant tech companies establishing huge footprints in their core areas. But now a shake up is under way and things are set to enter a new period of rapid change.
The trend towards a new battleground was already visible - the pandemic has disrupted old models across the board, driving a surge in digital adoption in which new entrants have gained sure footholds in mere months. 2020 saw the rise of Amazon ads, the beginning of the end of third party tracking, and prominent antitrust cases against tech giants gathering momentum (as discussed in our briefing on tech regulation). In our view of 2021 we discussed Amazon splitting apart the digital advertising duopoly of Google vs Facebook.
These are all aspects of a bigger, more fundamental change. The pandemic has brought closer a new period of digital turbulence and opportunity - and caught in the swirl of legislation and competition, unintended consequences will abound, and unexpected opportunities.
We look at what the strands of this new reality are, and then consider how advertisers can benefit.
New faultlines
A series of high profile head to heads will dominate tech news this year - between tech firms, and between companies and particular governments and regulators. These are symptoms of the underlying change. High overall growth combined with new entrants growing fast causing more market overlap between companies, while the sheer size of the sector leads governments to regulate on monopolies while tightening taxes.
Tracking - Apple vs Facebook
In the headlines currently is the end game of third party tracking being phased out. A PR battle between Facebook and Apple over ‘choice’ vs ‘privacy’ has dominated digital news - focusing on the roll out of iOS 14 which switches to user’s needing to actively opt in for tracking on apps. This tracking, for Facebook - and for any ad supplier - is the basic means of targeting, segmenting and selling ad space, while Apple would prefer a less ad funded internet favouring their subscription services. Behind the PR battle is a battle to direct the future of the paid internet.
Shopify vs Amazon
The amount of consumer spend going through Shopify doubled in 2020 compared to 2019. This is more than 40% of the estimated gross spend going through Amazon’s equivalent business. “Looking back a bit, Amazon had $130bn of [third party] GMV in 2017, so in that sense Shopify is only three years behind,” notes the analyst Benedict Evans.
Shopify isn’t trying to do what Amazon does - it has grown so fast because it has blown open the ability to make an ecommerce website at a time of high growth and a swing to direct sales.
Governments vs Tech
There are three strands to consider in the increasingly confusing field of government vs big tech.
Headline antitrust cases
New taxes
A patchwork of content and competition legislation
The resulting set of frameworks will look different territory by territory. Current antitrust cases in the US, UK and EU have a similar focus: agreements between firms (Google paying Apple to be the default search on iPhone); market definitions (are Uber drivers self employed? Is Google Shopping an entire market?); and whether competition has been stifled (e.g. internal Facebook memos on buying Instagram). These will give rise to an evolving set of precedents.
The Australian government, cheered on by Microsoft, legislated that online platforms had to pay for news links - but Google and Facebook have come to closed agreements with the government, after months of PR battles. Similar closed deals around the world will surely follow as tech giants battle it out for preferential deals and an edge on their rivals.
Taxes (either designed to ‘level the field’ between physical shops and ecommerce, or to tax ‘windfall profits’) will also have unpredictable effects. For example, the UK’s 2% digital tax was passed on directly to advertisers by Google, but not by Facebook.
Meanwhile, the global internet is fast fragmenting in terms of how governments view and regulate it. Three striking examples demonstrate this. In China data is closely protected with local versions of apps and enforced moderation of social content at a much higher level than that which Facebook or Twitter currently use. In India, a dispute between Twitter and the government over posts the government held to be ‘incendiary’ have led to new legislation for social media companies. They must provide compliance and grievance officers available to law enforcement at all times. Meanwhile, political splits also have a fragmentary pressure: the far right internet in the US is rebuilding after the Trump-led campaign to contest the presidential election led to violence and the expunging of far-right sites from servers and app stores.
Giants battle for the same ground
Once there were neat and clear territories separating Amazon, Facebook, Apple and Google, but now multiple pressures are pitting them against each other on the same territory.
Partly this is diversification of core products as they max out their initial potential and need to sustain growth. This is why Amazon entered advertising with such force; and why Google and Microsoft are challenging Amazon on cloud hosting services. The Economist charts this revenue overlap in the US as moving from 22% to 38% since 2015.
In part this change is also consumer driven - the ease of accessing services through one provider; and the fact that commerce has become more social and direct, for example leading Google into more direct conflict with Facebook as it follows this trend.
New challengers
Challengers to the big tech incumbents have been growing in market share for half a decade. Over that time, challengers have moved from 18% market share (as analysed by The Economist) to 26% of revenue. And this change is accelerating.
As we see with Shopify vs Amazon, the challenges take different forms. Competing on exactly the same model is rarely as successful in tech than competing by using or refining a different model - one that’s easier or which reaches customers and their changing needs. There might already be a hundred banking services with apps, but what about one that integrates directly onto merchant checkouts and allows you to buy now, pay later (the basis for the rise of Klarna)?
This is where a key potential lies in this turbulence. All businesses engaging online need to ask this question: can we invent easier, more painless paths for our customers? And if we were reinventing our model right now, what would it look like?
New models will also emerge in markets with particular competitive and regulatory frameworks. Digital models and advertising platforms invented in China are already propagating around the world through competition or imitation (for example the rise of TikTok).
Plans with high stakes
For advertisers, understanding how analytics will change in a more privacy focused web will power how campaign planning and audience reach can evolve to deepen brands’ relationships with existing customers. Advertisers need to harness this campaign evolution to open up new ways to cut through to audiences of potential customers which don’t rely on the old third party data driven sources.
A combination of machine-led but creatively controlled campaigns with incumbents (Google, Facebook, Amazon, YouTube and smart tv) with a portfolio of smaller sites and networks, all driven by analytics will be the starting point. Otherwise, only depending on a small set of big campaigns on the established networks will leave an increasingly large gap in reach with new audiences and developing kinds of digital engagement with content.
There is also potential in the sheer scale of growth that this new phase will bring. Services and products which will come online, or become software-led - cars being the most obvious - will transform industries far beyond the current ‘high street vs internet’ debate, and feed back into the competition and legislation fault lines discussed above.
Add in the roll out of faster and cheaper internet into countries where smart phone use is still prohibitively expensive for the majority, and the potential for deeper digital engagement in already established countries combines with entire new markets around the globe. No wonder competition is heating up - because the stakes have never been higher.
