The pandemic has accentuated the trend where new business formation drives the advertising economy. Brian Wieser, Global President, Business Intelligence at GroupM, explains how this can completely transform advertising growth rates and budgets, and how companies should approach the post-covid period to overcome competition.
The broadest way to characterize the key driver of growth in the advertising economy is to reference the notion of “creative destruction,” or the continuing replacement of old businesses with newer ones. That process was arguably accelerated by the pandemic. New business formation continues at elevated levels around the world. For example, during the second quarter of 2021, on an annual basis growth in new business formation in the US exceeded 60% and in the EU it exceeded 50%.
To the extent that new businesses have different advertising and marketing preferences relative to those businesses which they effectively replace, and if newer businesses are more intensive advertisers than older ones, creative destruction alone may be driving much of the growth we are seeing currently. To further the point, a company that emerges in 2022 will have a different marketing and media mix than one which emerged in 2012, 2002, or 1992. A new business regardless of size, is more likely to capitalize on opportunities related to the internet, as well as opportunities which are national if not global in nature. Such a company might only have a modest advertising budget which measures in the thousands of dollars or euros annually. All of these factors steer newly emerging companies that advertise towards digital media.
We can see this trend playing out on a larger scale too, with massive rounds of venture capital flowing into early-stage companies in markets around the world. Many of these companies – some raising hundreds of millions or billions of euros at a time– will use a
significant share of that cash for advertising. This will hold so long as public market investors reward growth at any cost. International competition is another way in which creative
destruction is playing out, as illustrated by Chinese manufacturers expanding their marketing capabilities abroad without ever establishing a physical presence outside of their home market. We estimate that spending by these companies on Facebook, Google and Amazon exceeds $10 billion annually.
In this world, established companies face new forms of competition, not only for audience attention, but also for consumer’s wallets. None of the new participants in the advertising economy are necessarily negative for incumbents, but all of these factors highlight the reasons why they need to expand how they monitor the marketplace. And they need to continually invest in supporting their brand and maintain efforts to invest in their underlying products and services, too. /
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