How tech giants slashed adspend by $1 billion during the pandemic

In the run-up to last Christmas, Publicis Groupe said it would set out to help its clients “win in a platform world” for 2021, such is the essential role of the world’s major tech companies and how they now dominate the global advertising industry.

As Publicis chief executive Arthur Sadoun told Campaign earlier this month, “even before the pandemic, it was clear that we were living in a platform world. You only had to see who was disproportionately benefitting from digital media investment compared to the publishers, or the market cap of the leading tech companies.”

But what of the tech companies’ own advertising expenditure during a year that was marked by a wave of disruptions precipitated by the pandemic? How did social distancing, and the acceleration of digital behaviours, affect the marketing behaviour of the so-called FAANG companies (Facebook, Apple, Amazon, Netflix and Google)?

The following data is taken from each company's fourth quarter earnings/2020 annual reports, as well as its 10-K annual report, a separate document with additional information, which listed companies in the US usually file several days after an earnings release.

We are also unable to analyse Apple, given that the company does not report advertising expenses separately in its financial reporting.

Taken together, the four remaining companies – the FANGs, with a single "A" – incurred advertising expenses of $20 billion in 2020, which is down 5.8% year on year.

This is significant because this is the first time that these companies’ combined ad expenditure failed to grow in a decade. In fact, in that time they have never failed to grow by double digits.

With the exception of Facebook, the FANG companies’ annual advertising costs decreased last year for the first time in a decade.

Generally, we would also expect adspend to grow in line with revenues. Each of these companies has grown annual revenue by double digits for each year of the past decade. Facebook, meanwhile, has grown by at least 20% in each of these years.

Given that the pandemic has helped accelerate ecommerce spending and digital media consumption, why have these companies' ad expenses begun to decline?

Tech companies are 'maturing'

Brian Wieser, global president, business intelligence at WPP’s media-buying arm Group M, tells Campaign that even companies that grew during the pandemic did not necessarily increase spending on advertising. 

Wieser’s own research, which also includes the spend of post-dotcom boom digital service brands, such as Uber, eBay, Airbnb and Expedia, shows that spend by this group fell by about 20% in 2020. However, he said this decline is due mostly to travel and transportation-related costs being included as overall ad expenses. 

“The main reason was usually that those marketers didn’t want to drive demand they couldn’t fulfil, while in other cases they knew demand would come to them regardless of whether or not they advertised,” Wieser says. “And then others cut advertising in pursuit of efficiencies.”

Wieser adds that these tech giants’ approaches to marketing are “maturing”. He explains: "[They] are very conscious of their brands and the contribution that their brands make to long-term business health, while also looking for ways to become more efficient on a day-to-day basis.”

Advertising got cheaper in 2020

It is important to note that companies that spent less on advertising in 2020 did not necessarily advertise less in terms of volume last year. 

In the UK, for example, the cost of advertising fell considerably across the biggest media channels – TV and online display – as advertiser demand plummeted when the first lockdowns hit in March and continued into the spring.

By last summer, TV spot prices had become very cheap, due to high audience volumes and low advertiser demand. Campaign revealed in November that hundreds of new advertisers – many of them tech and ecommerce brands – had made their debut on TV in 2020.

Research by Thinkbox, based on Barb linear TV data, showed that 341 brands were either new to TV or returned after five years’ away between April and September. One-fifth were ecommerce or social media brands, including TikTok, which launched its first British TV ad in May.

Digital advertising costs, meanwhile, became volatile when the pandemic took hold last spring but recovered much more quickly than an initial drop. Cost-per-thousands on Facebook, for example, "took a nosedive" in March, according to digital agency Jellyfish, and then began to steadily recover from the middle of April. It was a similar picture for cost-per-clicks for Google Shopping Ads, Campaign reported last May. 

What the companies said

Facebook

Facebook was the only one of the FANG companies to increase its advertising expenditure in 2020. While it was a significant uplift – by 44% to $2.26bn – this is in line with the previous year (2019 ad expenses were up 43%) and relatively tepid compared with 2018’s huge 240% uplift.

Commenting on an 11% increase in overall marketing and sales costs, Facebook cited a slowdown in consumer marketing and hiring. 

WPP’s Mindshare handled media planning and buying globally for Facebook, while it tends to split creative advertising between its own in-house team and Mirum, another WPP shop that is part of the Wunderman Thompson network. 

Amazon

Amazon’s decision to cut adspend last year was the first time the ecommerce titan had done so in 17 years, Campaign reported earlier this month. 

The company benefitted from “lower spending on marketing channels as a result of Covid-19”, Amazon’s annual report said. 

In 2019, Amazon overtook Procter & Gamble to become the biggest advertiser in the world, after hiking its spend by 30% to $8.2bn in 2018 and then by 34% to $11bn in 2019.

The company, which advertised again during this year’s US Super Bowl, uses several creative agencies, including Lucky Generals, Droga5 and Joint, and media buyer Initiative globally.

Netflix

Netflix slashed its global adpsend by 23% last year to $1.45bn, despite revenue soaring by 24% and an increase in competition from rival streaming platforms such as Disney+ and HBO Max in the US. 

The annual report said: “We utilise a broad mix of marketing and public relations programs, including social media sites, to promote our service and content to existing and potential new members.

“We may limit or discontinue use or support of certain marketing sources or activities if advertising rates increase or if we become concerned that members or potential members deem certain marketing platforms or practices intrusive or damaging to our brand.”

Netflix also noted that “word-of-mouth advertising from existing members” can help attract subscribers.

The company uses Wieden & Kennedy and WPP’s AKQA for creative advertising, as well as WPP media agency Wavemaker. 

Google

Google’s parent company, Alphabet, reported its advertising expenses came to $5.4bn in 2020 – down 21% from $6.8bn in 2019. 

The company explained: “We reduced spending and paused or rescheduled campaigns and changed some events to digital-only formats as a result of Covid-19, and a decrease in travel and entertainment expenses of $371m.”

It’s worth noting that while this is a lot, it is far short of the “half” that Google was apparently considering when the pandemic first led to global lockdowns last April/May. 

The company uses a number of advertising agencies, including 72andSunny Amsterdam for consumer advertising in Europe. Publicis.Poke for B2B work, and R/GA London for digital projects. WPP’s Essence handles digital media and OMD UK handles offline media buying.