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msg What I Saw Happen -- Q2 2020


Overview 

  • The Great Pause, The Great Reinvention, The Great Rethink, The Great Reset, The Great Reshape, literally everyone on planet Earth has been impacted

  • Worst health crisis since 1918, worst economic crisis since the 1930s and the biggest social unrest in the United States since the 1960s 

  • Digitization has progressed 10 years in only 3 months 

  • It takes 21 days to form a habit and 90 days to form a lifestyle 

  • Flexibility prevails, the race for SCALE and SHARE is more important than ever and the pace of transformation is accelerating as consumers desire convenience more than ever 

  • Making long-term business decisions is really hard 

  • In addition to the major banks being too big to fail, it’s time to add Walmart, Amazon, Target, Costco, and all large grocery chains to the list

  • Consumers are reevaluating brands during the pandemic and brands are becoming the new authority of trust 

  • Bigger brands have the ability to have bigger voices with their marketing spend, especially the July Facebook boycott  

  • This is a movement not a moment 

The 6 phases of the pandemic 

  • Phase 1 (February through March 15) -- Ignorance. It can't happen to us. What is it? It will go away. Stock market rises. Lies. Tech companies with a presence in Asia know something is going on. Marketers prepare for the upfront.  It will be a good year. 

  • Phase 2 (Last 2 weeks of March) -- Acknowledgment. Scared. WTF scenarios. Stock market drops. Glued to the news.  Airline travel drops 96%. Realize we are ill prepared. 2 million US deaths predicted. Pay attention to how Asia handled the crisis? Sports are cancelled. Respirators needed. Fauci. Consumer confidence plummets. Marketers begin to pause advertising, especially small businesses.  

  • Phase 3 (April) -- Shelter in home. Stock up on the essentials, especially toilet paper. Cut costs, personal and business. Spend a significant time with the family. Stream as much TV as possible, especially Netflix. Digital transformation quickens. People move out of cities.  The Zoom culture begins. Stimulus $’s. Cook and bake. Run the dishwasher 3X a week. Get in shape?  Pay more attention to your Governor. Supply chain breaks. Alcohol consumption increases . Very sad in Italy. NYC Subway is patient 0. Don't wear a mask. BOPUIS. Contactless everything. Stop working on weekends. No sense of time.  Hospitals workers are our heroes. The 7:00 pm salute. More marketers pause advertising. CPM’s drop. 

  • Phase 4 (May) -- Continue to stay at home and make the best of it, maybe even make home improvements. Realizing 10 weeks at home is a very long time. Miss friends. Stock market starts to go back up. Start to see friends. 40M unemployed. We all crave restaurant food.  At home haircuts. Wear a mask. Cord cutting increases with no live sports. Big Supermarket trips, stay longer and buy more.  First sunburn.  Retail bankruptcies. Sports with no fans. SpaceX launch. Advertisers messaging we are here for you in these unprecedented times. Advertising starts to come back, but not travel. CPM’s rise. 

  • Phase 5 (end of May/beginning of June) -- George Floyd. Protesting and civil unrest. Police Brutality. Systemic Racism exposed.  Stock market goes up. CPM’s drop, again. Some advertisers pause, again. New messaging needed, again. 

  • Phase 6 (mid June to December) -- Start to open the economy with strict protocols. The old and unhealthy need to be very careful until we have a vaccine, they are basically in quarantine.  Go back to the doctor/dentist.  Local travel by car, not national or international. Quality of COVID data deteriorates. Cases increase to 100K+ a day. The swoosh recovery is happening. Most companies will get a Q2 pass by Wall Street. Temperature checks everywhere. Kids go back to K-12 school with staggered/flexible schedules. Colleges start but end on Thanksgiving.  States act differently depending on the Governor.  The US gets nervous as the weather gets cold. Continue to work from home, but go to the office when necessary, probably once/twice a week with strict protocols.  Companies eventually start to rehire but we still have 20M+ unemployed. Strong therapeutics. Mental Health concerns worsen. Cases continue to rise but mortality rate drops.  NYC is slower to get back to normal than most other cities.  NY Subway back at 75% with diligent mask wearing.  Less consumerism everywhere. 25% of restaurants go out of business. Small percentage of people move out of NYC to Southern states. Mortality rate continues to decrease. 

Category advertising outlook for Q3/Q4

  • Small Business -- Strong advertising spend as new business open and others spend on driving new customers. Existing small businesses pivot more to ecommerce. New small businesses emerge focused exclusively on digital commerce. Consumers go out of their way to shop small. Marketing spend is still dominated by Facebook and Google.   

  • Auto -- Fiat/Chrysler lead the way with spend, though used cars sell more than new cars as the consumer is more price conscious. Tier 2 and 3 promote used car sales and reinvent local dealerships to adjust the buying process. Those who need a first car, buy used.  Hertz bankruptcy hurts fleet sales and floods the used car market with 500K cars. New brands like Vroom and Carvana advertise more.    

  • Technology -- Amazon leads the way, as usual. The big players like Apple, Facebook, Google and Microsoft spend billions promoting their brand in light of potential regulation. Others like Adobe, Salesforce and Zoom also advertise more. This is one category that did well pre and post Covid. Significant margins so advertising spend does not hurt profits. 

  • CPG -- Start to spend more and to try to build share as we emerge from stay at home orders and new habits are forming. New cleaning products are needed. Price matter more.

  • Travel -- Comes back strong as airlines, hotels and cruises ease their cancellation policies for future travel. Most travel is domestic for the next 12-18 months. Trips go from one week to one month+. 

  • Restaurants -- Spend to tell customers we are open and how to visit -- self serve, new procedures, use the app, etc.  Local restaurants do better than chains as consumers want to keep small businesses alive. 

  • Retail -- Ecommerce stays strong, the new normal.  Growth of 50%+ Y/Y continues. Strong spend as retailers like Macy’s, Zara, Gap, close stores and focus more on e-commerce. Need to get new messages to customers with advertising.   

  • Entertainment -- Movie Theaters open and Disney starts to promote their films as others follow. Though Disney soon realizes their slate of films and TV shows are not diverse and start to change their creative philosophy. YouTube TV and other cable competitors increase spending as habits change permanently. 

  • Finance/Insurance -- Debt consolidation is key led by Lending Tree. The big banks try to build share.  Insurance companies maintain their exorbitant spend in light of new competition like Lemonade. 

  • Telecommunications -- AT&T and Verizon go at each other like they always do, with T-Mobile/Sprint a distant third.    

  • Political -- The biggest spend we have ever seen, they will own the TV experience for months.  

  • Pharma -- Business as usual 

Google will have a very tough Q2 

  • In the Q1 earnings call, the CFO stated -- In March, revenues began to decline and entered the month at a mid-teens percentage decline in year-on-year revenues 

  • Many of the searches during Q2 have been Covid related and not monetizable, though Google is on record saying ~3% of all searches are monetizable

  • Travel is a significant part of Google's search revenue 

  • My Facebook and Instagram feed are now filled with Google advertisements trying to get me to sign up for the Google Ads platform -- these ads are targeted to people 21-64 interested in digital marketing, email marketing, and more 

  • Unlike Facebook, Google said they were not hiring anymore people in 2020 

  • The Trivago CEO, said that he’d rather not spend money on Google branded terms but rather spend branding $’s on TV 

  • Advertisers who bought Google branded terms in the past thought it was just extortion and if that goes away they’ll be so happy and have extra marketing $’s to spend 

  • Google will replace the branded search revenue by implementing an ad in the search results just like Facebook. These ads which will be based on the person not the search term, Google will start to use data from Gmail, Chrome, Android, Waze, and Google Maps etc.

  • Google takes too damn long to get stuff done and too political

  • Covid gives marketers the long needed opening to reset spend on Google 

  • Google continues to employ more contract and temporary workers (130,000) than full-time employees (123,000) -- that just seems wrong 

  • The relentless pressure to maintain Google’s growth, has come at a heavy cost to the company’s users. 

  • Useful search results were pushed down the page to squeeze in more advertisements, and privacy was sacrificed for online tracking tools to keep tabs on what ads people were seeing

  • Prabhakar Raghavan, who was previously overseeing Google's advertising and commerce products, will now lead the entire Search -- need to focus on revenue 

  • 2018 Search marketing top 10 spenders in search -- 3 of top 5 are travel 

  • Expedia Group - $398M

  • Amazon - $292M

  • Booking Holdings - $260M

  • AT&T - $181M

  • TripAdvisor - $122M

  • Comcast Corp. – $117M

  • Experian - $109M

  • Lending Tree - $108M

  • Capital One . - $107M

  • University of Phoenix - $102M


Work/Office of the future 

  • May be hard to maintain work culture if we are all remote 

  • Lots of accidental experiments happening at work 

  • We come to the office for very specific collaboration or social bonding

  • Off sites will create shared experiences and bonding together  

  • Peers of fellow workers take on greater significance 

  • How do companies attract talent in today's new world?

  • Switching to new large projects mid-stay at home is complicated, much easier to just continually work on the same project 

  • Less travel by employees (no more road warriors) 

  • Less overall real estate needed by companies 

  • Work from home will give companies the ability to cut salaries

  • New hires for large companies like Facebook and Google will have to work on campus for the first few years to understand , process, training, etc. 

  • Relationship capital breaks down after we’ve been working remotely 

  • Call centers will never go back to the office, they just need better software to monitor activity 

  • Easy to get depressed and lonely if living alone 

  • I miss casual encounters that always happen in NYC 

TikTok -- The triopoly is about to become the quadopoly 

  • Disney’s Head of streaming, Kevin Mayer, is now the new CEO of TikTok

  • TikTok will IPO and Kevin Mayer will be with worth $1B in 2021 -- surpassing Igor’s net worth 

  • ByteDance valuation has risen at least a third to more than $100 billion in recent private share transactions, reflecting expectations that TikTok will keep pulling in advertisers 

  • ByteDance could fetch a valuation of between $150 billion and $180 billion in an IPO

  • ByteDance is said to have generated $17B in revenue in 2019, up about 130% Y/Y 

  • ByteDance draws 1.5 billion MAUs to a family of apps that includes TikTok, its Chinese twin Douyin, the news service Toutiao, the music streaming app Resso in India, and a nascent gaming business

  • TikTok has ~800M monthly active users 

  • Only real Chinese break out hit in the US 

  • TikTok has some of the best artificial intelligence in the world

  • In April, TikTok posted 10,000 new jobs mostly in China, US, London, and Singapore 

  • Will TikTok start acquiring and/or making content?

  • TikTok content is seen on Facebook, Twitter and Instagram all the time now

  • Transferring global decision-making and research capabilities out of China 

Retail/Shopping/Commerce  

  • Amazon in 2019 accounted for 13% of all package deliveries in the United States, could grow to 40% in the next 5 years

  • Amazon has 38% of e-commerce sales; Walmart a distant number two at 5%

  • Amazon has added 12 new cargo aircraft to Amazon Air, bringing its total fleet to more than 80 aircrafts

  • Amazon prime has at least 150 million members worldwide

  • Amazon should have waived their prime fee in April and May when next-day shipping was not really available?

  • Supermarket shopping has shifted away from the weekends during pandemic with the length of the average visit increasing

  • Google now lets businesses clarify what online services they offer during the pandemic 

  • Facebook Shops will be important down the road, especially for small and midsize businesses who rely on Facebook 

  • Too much retail clothing inventory in the ecosystem now making it a very promotional environment 

  • Walmart announced plans to provide cash bonuses for all U.S. hourly associates to recognize them for their many contributions to communities across the country during this unprecedented time 

  • Nordstrom reported nearly a 40% slump in quarterly sales, as lock downs to contain the COVID-19 pandemic forced stores to close. Digital sales rose 5% to $1.1B 

  • Casualization of style is happening 

  • The country may be starting to reopen, but retail will never be the same: 25,000 stores expected to close permanently in the US this year 

  • Half of store closings in 2020 will be in malls

  • The United States has more retail space per person than any other country in the world

  • Etsy dominated the mask market in the United States

  • Social commerce will be huge 

The death of the TV upfront (with input from Greg Bayer) 

  • The Upfront has been happening for the past 50+ years with up to 80% of the money committed to TV and Cable networks 

  • First half of 2020 we will see a 25% hit due to marketer budgets, consumer accelerated shift to streaming and lack of live sports  -- March Madness, MLB, NBA, etc. 

  • 2021 will move to quarterly upfronts due to the uncertainty of live sports

  • 2021 will move to a calendar year with willing buyers and sellers cooperating

  • Annual $70B total linear TV spend has been a relatively flat and resilient number 

  • Cord-cutting individuals will equal cord-keepers by 2024

  • Disruption is already here led by Netflix, YouTube, Hulu and Sling

  • Streaming ad spend is growing, and offers key solutions during our current pandemic: real time and inexpensive creative and messaging changes 

  • YouTube generated $15B in streaming ad revenue in 2019 

  • With streaming services, TV Networks have enough customer data to start to measure their own ratings -- just like Facebook and Google have for years 

  • Yearly upfront advertisers will be 20 or so companies that excel pre and post Covid -- Walmart, Target, Kroger, Microsoft, Google, Facebook, Amazon, P&G, and all large insurance companies etc.  

Ads on Hulu -- such a bad user experience 

  • Horrendous frequency: as an example I watched 12 episodes over five days, ~3.5 breaks per show, ~90 seconds per break, ~10 ads per episode, 120 ads in five days 

  • Frequency for some advertisers 10+, which is way too much 

  • Ad pods seem to come at times that didn’t seem appropriate 

  • I love the countdown clock, lets me know exactly how much time I have to take a break

  • Makes me want to go back to Netflix to consume my next show  

  • Based on my experience, Hulu needs better ad serving algorithms, more creative to serve and much better targeting

Agencies -- need to be reinvented 

  • More technology and automation 

  • Need to catch up, though may be too late  

  • Will lose 50K jobs over the next few years 

  • Creative shops should thrive, will be remote work and all independent contractors 

  • Media agencies are in deep trouble 

  • The RFP should, and will, die 

  • All spending will go programmatic so the CMO can tell the CFO we can stop the advertising in minutes 

  • Cuts to the agency workforce could inspire CMOs to bring more work in house

  • Brands can hire in-house talent or freelancers who have been laid off from agencies 

  • Lots of subcontracting will occur by the brands with 6+ month engagements 

  • Can agencies ever become the trusted advisor they used to be?

  • Agencies revenue hurts as the 5-10% in upfront fees they take goes away 

  • Do we see some consolidation of the holding companies?

Other stuff to think about 

  • HBO Max will be a DUD and AT&T will not really release results in Q2

  • AT&T will release an ad-supported version of HBO Max early next year -- not that it will matter 

  • All large corporations need a Chief Health Officer who is responsible for maintaining safety of all employees and visitors -- masks, thermometers, health apps, cleaning supplies, nightly cleaning, medical staff,  contact tracing, etc. Great opportunity for a new company/category to emerge 

  • Medical analytics, a new field will evolve  

  • My favorite data set: daily travelers from the TSA -- TSA

  • Healthcare and education in the US needed to fundamentally change from the last few generations and hopefully, now, it finally will

  • NBA moving to Disney in Orlando is great for the Disney brand and shows how Disney is very aware of health and safety

  • Facebook market cap surpasses Google in Q3 

  • Newfound appreciation for the home

  • In China, you cannot really travel without a smartphone -- I assume the same thing will happen in the US

  • Podcasts are still very niche and should be a subscription service not ad supported

  • Spotify is clearly the leader in podcasts with Apple number two

  • Professional athletes are some of the healthiest, youngest people in the world 

  • Looking forward to innovation everywhere as we go into Q3

  • Twitter should enforce terms of service for anyone with over 10 million followers -- Jack be bold

  • We all value connecting with each other in person more than ever 

  • Will Elizabeth Warren go after big tech once things settle?

  • Zuckerberg is the most powerful person in the world

  • Do we need a sales rep firm for all the smaller publishers? 

  • Does CES get moved to the summer?

  • Mobile games have been downloaded more than ever before

  • Restaurants and retailers should go to percentage of sales for rent versus flat rent 

  • AMC only sold 17% of their seats in 2019 versus their live sports at 75% and the theater at 90% 

  • Commercial real estate is in trouble 

  • Great hack: listen to podcasts at 1.5X speed 

Some merger, acquisition and divestiture predictions 

  • Netflix buys Quibi 

  • Warby Parker leads the merger of several DTC’s to create the next generation Procter & Gamble

  • Comcast sells NBC and then tries to buy Netflix 

  • Some major company buys eBay and tries to turn it into the next Amazon 

  • Microsoft sells Bing and it becomes the white label of many new search tools

  • Google acquires Roku 

  • Google divests of Doubleclick 

  • Amazon buys a browser and then buys Nordstrom  

  • Mike Bloomberg buys something big

  • Silverlake takes Twitter private, then makes Twitter a subscription service 

  • P&G starts a DTC coronavirus monthly care package for all of their cleaning products

  • Apple buys Disney 

  • Shopify will make a purchase or be purchased; Facebook would love to buy Shopify but that won’t happen

  • Twitter, Snap, LinkedIn, and Pinterest all merge their back office advertising operations platforms 

People I know who have a start up company -- give them some love!!!

  • Patrick Pleiss and Michael Morris -- Hyperlocology, national-to-local marketing platform helping brands gain new community insights and seamlessly roll out proven tactics locally. https://www.hyperlocology.com/

  • Dan Ballister -- The Generals Hot Sauce, veteran-owned, hot sauce company in South Carolina.   https://www.generalshotsauce.com/

  • Karen Schmidt -- Schmidt Bros is a design-forward cutlery brand that brings premium quality at everyday affordability. https://schmidtbrothers.com/

  • Alan Rudnick – Affirmed Healthy software, bring your employees and visitors back to the office safely.  www.affirmedhealthy.com


============================================================

What I Saw Happen -- Q2 2020

  • A pithy, curated recap of what I saw happen in the quarter 

  • All the insight below are from conversations I have had, podcasts I have listened to and, every once in a while, an article I read. It only makes the list if I believe it and I have heard it several times 

  • Some examples are Vox/Pivot, NPR, AdExchanger, Ad Age, The Information, eMarketer, Digiday, Math & Magic, Arete Research, Axios, Business Insider, AdWeek, Variety, LionTreee, Twitter, MediaPost, New Yorker, NY Times, Seeking Alpha, CNBC, CES,  etc. 

  • I send this out to 2,500 of my colleagues in the industry -- if this gets passed along to you click here to be added to the distribution https://www.WhatISawHappen.com

  • I love getting feedback, feel free to reply and send me a message

-msg (Independent Analyst/Advisor/Consultant) matthew.scott.goldstein@gmail.com //  https://www.linkedin.com/in/msgmsg/ //  https://www.WhatISawHappen.com

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-msg (Independent Analyst/Advisor/Consultant)

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