Facebook's revival came at a cost and small businesses paid the price
Why there's no saving grace yet for brands in the D2C space
One of the most common questions we get in our audits and founder introductions, still, three years later is: “It’s never been the same for us since Apple’s iOS14 changes. Facebook and Instagram used to be a great revenue driver for us, and our revenue has since plummeted. We can’t afford to advertise on Facebook anymore.”
So what did Apple do? How has this changed the advertising ecosystem for small businesses and is there light at the end of the tunnel?
Brief context on Apple’s software update
In 2021, Apple introduced iOS14, a new software update that came at the mercy of legislative change and a push for protecting privacy for users. This gave all mobile users the option to opt-out of privacy tracking on their devices. Over 60% of users opted in for privacy protection, and as a result, this sent audience targeting algorithms into a downward spiral, including Facebook’s; causing millions of businesses performance at their campaign level to collapse. Suddenly, businesses went from deploying creatives (imagery, videos, etc.) to their campaigns that could effectively target the perfect shopper through data and interest tracking, to what seemed like near-zero visibility. In the advertising world, this is the closest we’d been in the last ten years to our equivalent of Black Monday. Over the next twelve months, Meta’s share price fell 75% from all-time highs of $376 p/share, to $90 p/share.
Where did operators run to next?
Coincidentally, the decline aligned with the TikTok boom, and founders and operators soon realized, after months of frustration (I thought this was a better way to describe the situation than 'wanting to jump off a bridge'), that if their in-house, mediocre Canva designs were no longer good enough for Facebook (now Meta), they needed to start thinking outside the box. It was clear they had to invest in content capable of convincing a TOF (top-of-funnel, or new) audience to buy their products, kind of like actual advertising maybe? UGC (user-generated content) and influencers began to thrive, driven by businesses desperate to find creative winners in their ad pipeline.
However, after two years of riding the largest D2C shopping wave in history, with government stimulus checks and tech sectors soaring, how could they succeed when 1) the consumer sentiment index is at 5 year lows and 2) interest rates are sitting at 5%? Even Facebook’s new and “trusty” (lol) AI driven Advantage Plus campaign (which gives more power to the algorithm) wasn’t flushing out the fact that life was about to get more expensive if you want to advertise successfully.
The reality small businesses are facing now
One of the biggest challenge we face at Igloo today is explaining to founders of bootstrapped businesses that they’ll have to conquer (and afford) three elements if they want to find success on Meta as a platform for driving revenue. It’s no longer an engine you can turn on and off with a bit of field knowledge and expect profitable returns. The three primary components can be broken down into the following:
Creative strategy: Without a method behind the madness, or an analyst examining which hooks, angles, design styles, personas, etc., could or have worked well, you will not succeed. A clear strategy that aligns creative analysis, reporting, and brief-building for your designers is essential.
Creative design: As you can imagine, executing these designs is a crucial part of the process. Whether it’s editing footage, designing static imagery, shooting content, producing videography, or managing influencers, designers are more valuable than ever. Maybe AI will change this, but someone still has to pull the levers, right?
Media buying: Interestingly, out of all three verticals, this is the area that has shown the most flexibility in pricing since the pandemic. Agencies have realized that without a creative service or strategists to assist founders, they can’t justify charging the fees they did in 2020. The percentage-of-ad-spend model is being questioned, and agencies now need to negotiate their rates, especially as campaign management becomes more automated.
Can’t AI solve some of this stuff? The most common applications for AI in media buying includes writing copy (ex. ChatGPT), creative development (ex. Mid Journey) or software to analyze performance (ex. Motionapp). However, teams haven't necessarily gotten smaller - what's changed is how operators manage their tech stack. If everyone is increasing output and becoming more time-efficient by using AI tools, then the competitive advantage of integrating AI into your workflow remains minimal. But as the saying goes if you’re not moving forwards, you’re moving backwards.
Until the point of complete account automation, small businesses without internal teams to support this new workflow are paying a lot more for seems like a lot less.
Is automation in Big-Tech’s best interest?
The caveat with the above, is Meta benefits from human error. Google also, makes billions of dollars per year from operators over-bidding on search terms. As operators, we still witness this today, typically by agencies whose fees are tied to spend, or by large businesses holding less accountability for profit. A totally automated and controlled advertising environment would be, in my opinion, a bust to big media. I’ll discuss this more in a latter newsletter.
However, Meta’s stock price is currently around $550, marking an undeniably impressive comeback for the "Lizard Man" (read this). But who's in the driver’s seat? AI isn’t generating profit for Meta - it's actually costing billions. LLaMA’s added value is largely speculative, with no clear path to profitability. The Metaverse is still a smudge on the P&L. So, what's driving the value? It’s certainly not small businesses. Meta is now leeching off a growing number of mobile users, with steadily increasing screen time, which translates to more ad visibility and consequently more revenue per user. However, with rising CPM’s (cost per 1000 views), only larger, well-funded businesses can afford to capture more and more market share in this landscape.
**Yes, there are hopeful founders with great businesses trying to compete - maybe a few will succeed.
But one thing is clear:
It's never been easier to start a business, yet it's never been harder to build a profitable one. I’d be surprised if the short shelf life of small D2C companies today is enough to reclaim any significant market share advertising on Meta.