Google, Facebook Could Lose $2.9 Billion in Digital Ad Sales

Advertisers may move back toward branded relationships, Forrester study warns

Last Updated: May 5, 2017 @ 9:57 AM

The digital, click-based ad market may take a tumble that could cost Google and Facebook roughly $3 billion, as advertisers move toward branded partnerships and interactive experiences, a report from Forrester Research published this week warns.

According to the study from Forrester’s James McQuivey, consumers’ desire to get away from distracting display ads, which often interrupt reading or browsing and can slow down computers, and toward mutually beneficial and interactive relationships with trusted brands will cause corporations to reevaluate their strategies.

“[Chief marketing officers] know this already, but nobody wants to talk about it, even though advertisers wasted $7.4 billion on poor-quality ad placement in 2016 alone,” McQuivey wrote. “Digital accounts for a third of all ad spend in the U.S. because it’s supposedly so effective. Yet display-ad click-through rates hover around 0.35 percent; only 40 percent of ad spending is viewed by a real human; and ad blocking is rising around the world. The advertisers most likely to feel this pain are the ones who spend the most, which is making them look closely at the effectiveness of their ad buys.”

McQuivey mentioned consumer goods giant Procter & Gamble, which announced earlier this year that it would hold its media and advertising partners to a higher level of accountability. He predicts dollars will follow the call-outs.

However, that doesn’t mean consumers don’t want to hear from brands — they just want a different type of conversation, he said.

“A majority of U.S. online adults who belong to a loyalty program still tell us that they actively seek out connections with — not messages from — brands that matter to them,” the study said. “And they want those connections to make them feel special: 59 percent like getting offers and services that are reserved for an exclusive set of customers.”

McQuivey also predicts that the growth of virtual assistants, like Amazon’s Alexa-enabled devices and Google’s Home, “will make it possible to interact with customers more frequently and at a lower cost for both customer and company.” And as brands move toward these different types of conversations, he expects the old-line digital ad market to suffer.

“We don’t expect a complete vote of no confidence in all of advertising or even in digital advertising, on which you will still spend billions,” the report said, addressing its target audience of corporate marketing executives. “But if we can persuade the top 10 U.S. advertisers to shift just 10 percent of their ad budgets to branded relationships, it will cut $2.9 billion from the current ad business.”