2023 was a tough year for the advertising industry, but one that also opened up tons of new possibilities and opportunities.
While ad spend cutbacks continued due to economic volatility, big tech giants like Meta and Google that saw their ad businesses flounder in 2022 returned to growth this year. However, that growth was not spread evenly across the ad industry, as evidenced by the bankruptcy of adtech firm MediaMath and several flat quarters for Snap.
Meanwhile, the generative AI explosion opened up new possibilities for advertisers and saw the emergence of startups built around the technology.
Here are the five biggest trends that rocked the ad industry in 2023 and what to expect next year.
Meta and Google surged thanks to AI ad products, but more advertisers now question whether they work
After a year of plummeting ad spend, Meta and Google sprung back touting how their heavy investments in artificial intelligence-based ad products delivered great results for advertisers. These tools are largely hands-off for advertisers because automation determines the most effective places to put ads. However, these algorithms offer little to no transparency into how the technology works and where ads actually run.
“For certain marketers, that’s a godsend,” said Lou Paskalis, former head of global media at Bank of America and CEO of marketing consultancy AJL Advisory. “For big brands, that’s tough.”
Paskalis predicted that Meta and Google’s tools will bring in new ad dollars from small to midsize brands who want to drive sales quickly and efficiently. However, the lack of transparency is a concern for big brands who want to vet where their ads appear, and some advertisers are skeptical of Google’s and Meta’s claims that these tools actually improve ad performance.
Still, AI remains a huge focus for Meta and Google to grow their advertising businesses. Google’s recent decision to replace top ad chief Jerry Dischler with Vidhya Srinivasan shows Google’s big bet on AI — Srinivasan previously worked on AI-based ad products including Performance Max before taking on her new role.
Elon Musk has squashed X’s relationship with top advertisers, and there’s no recovery in sight
Elon Musk shocked the ad world when he appointed advertising sales veteran Linda Yaccarino as CEO in May.
After rebranding from Twitter to X in July, Musk’s ownership of the company has steadily driven away advertisers, according to data from marketing consultancy Ebiquity. Big brands like Walmart and Disney have pulled ad spend because of concerns about X’s content, Musk’s own comments, and because X’s ad tools haven’t performed well.
Bloomberg reports that X is on track to miss internal advertising goals and will make $2.5 billion from advertising this year.
Data also shows that ads on X are declining, and that advertisers have continued to vacate the platform.
Data from marketing agency Gupta Media found that the average CPM — or the cost advertisers pay to reach 1,000 people — decreased from $1.75 in January to $1.27 in December.
And separate data from ad-tracking firm MediaRadar found that 86% of advertisers that spent more than $1 million advertising on X in 2022 reduced spending in 2023.
“The question, to me, is whether the platform can find a place for advertisers and the richness they bring to the ecosystem,” said Gogi Gupta, founder of marketing agency Gupta Media. “If the relationship is only about revenue, I think that advertisers will continue to be marginalized. If the relationship can acknowledge that brands add value, I think that there will be a path forward.”
While Musk has said he hopes to drive alternate revenue streams through subscriptions, X has set its advertising hopes by gunning for political ad dollars as the US presidential election approaches. X has been pitching perks like low prices to court political advertisers and hosted an event for political advertisers in Washington, DC — The Financial Times was first to report.
Paskalis said that X will likely be a beneficiary of political ad dollars because political advertisers can push messaging around fundraising and encouraging people to vote.
Netflix proved streaming needed ads — now the race is on for scale
Netflix’s decision to add an ad-supported tier this year proved that an advertising model is essential for streamers to grow revenue.
But advertisers are still struggling to reach the large audience of linear TV on streaming platforms. Netflix, for example, reported 15 million global monthly users in November, up from five million in May. And next year, advertisers are hoping that Amazon will open up the advertising floodgates next year for Amazon Prime Video with an expected reach of more than 115 million monthly users. By contrast, the last Super Bowl alone got 113 million viewers, according to Nielsen.
While linear TV viewership is in decline, it still made up 49.6% of peoples’ viewing time, Nielsen reported in August.
Kevin Krim, president and CEO of TV ad-measurement firm EDO, expects streamers to try to grow their subscriber bases to attract advertisers in 2024 by cutting subscription costs through bundling, like how Verizon offered Netflix and HBO, and how Apple and Paramount are reportedly talking about combining streaming services.
Krim also expects TV ad prices across streaming and linear to go up next year due to the US’ presidential election and the summer Olympics in Paris. Increased prices will make it harder for advertisers to place budget in newer streaming platforms with smaller scale, and Krim expects for advertisers to spend with big, established players that can prove strong returns for advertisers.
Retail media exploded, but will need to prove it works for advertisers
Morgan Stanley expects retail media to make $130 billion in 2024 and is one of the fastest growing segments of advertising.
A couple of years after retailers like Walmart, Best Buy, and Kroger invested in advertising businesses, marketers are asking for solid proof that ads placed on retailers’ e-commerce sites work, said Talia Arnold, managing director of ad agency Exverus Media. She hopes to see data in 2024 from these networks that proves that ads bought using retail data drove incremental sales.
The growth of multiple retail media networks has also made it hard for advertisers to buy ads across multiple retailers, Arnold said.
Companies like Criteo, which help run retail media programs, are trying to deal with this problem by developing ways to buy across multiple networks.
One problem with buying across different media networks is that results are measured differently, Arnold said.
Generative AI is starting to power ad tools, and startups are racing to cash in
2023 was the year when generative AI opened up new opportunities for advertising — from giants like Microsoft and Google using it in their ad-buying software, to tools for making art, and new adtech startups pitching gen AI products.
George Popstefanov, founder and CEO of ad agency PMG, sees a massive opportunity for advertisers to use AI to create thousands of different ads in minutes with less expensive production costs that are personalized to people’s specific interests in 2024.
Popstefanov also said he expects advertisers to use AI more in 2024 to automate basic tasks of digital advertising — like trafficking campaigns and vetting content for potential brand safety issues.
The generative AI startup Typeface, for instance, has raised a total of $165 million and partners with Salesforce, Microsoft, and Google to power some of the tech giants’ marketing tools.
“These solutions are starting to be built and baked straight into the ad products across the board,” he said.
Lara O’Reilly contributed to this story.
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