Facebook and Google might get walloped by the thousands of small businesses impacted by the coronavirus, but their massive ad businesses will come out stronger in the end
- Facebook and Google will take a revenue hit as the thousands of small businesses that they rely on for advertising cut back spending amid the coronavirus, but ad buyers say they'll come out stronger long term.
- Wall Street firm Pivotal Research Group expects Facebook's 2021 revenue to be down 20% to 25% while Google's will decline 15% to 20%.
- Facebook acknowledged that its ad business would be impacted by the spike in usage of messaging apps that aren't as lucrative as its newsfeed and stories products.
- Ad buyers said post-pandemic, people will have shifted more of their behavior online and more dollars may move to performance-based platforms, which will benefit the tech giants.
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Facebook and Google could take a short-term hit as small businesses cut spending due to the coronavirus, but they'll come out of the pandemic stronger than other digital players, according to media buyers.
It's easy for brands to pull digital spending as opposed to TV advertising, which can take time to pull airings and negotiated contracts.
But Harris Diamond, chairman and CEO of McCann Worldgroup, said Facebook and Google would ultimately come out stronger in the long run because homebound consumers are getting more comfortable with shopping online, benefiting platforms that drive conversions.
And when advertising comes back, the players that already dominate performance-based advertising will benefit, said Mike Mothner, founder and CEO of digital agency Wpromote.
Facebook and Google rely on thousands of small advertisers directly impacted by coronavirus
Facebook and Google are big immediate risks of coronavirus because their businesses rely on thousands of small business and direct-to-consumer advertisers that are pausing or cutting ad spend. In 2019, Facebook made $70 billion from advertising while Google's parent company Alphabet made $162 billion.
In a note last week, Pivotal Research Group warned that Google's revenue could be cut by 15% to 20% while Facebook could lose 20% to 25% of revenue in 2021, as small businesses account for more than 10 million advertisers for each company.
Even as the government moves forward with a $1.8 trillion stimulus bill that helps small businesses, that money may not return to Facebook and Google, wrote Michael Levine, Pivotal Research Group senior analyst.
"We think this represents a massive tail risk to the economy, and most certainly to the SMB base at Google and Facebook," he wrote. "If you choose to keep your store open and employees in their jobs, we would think that variable marketing will be one of the first to go."
Direct-to-consumer brands' efforts to slash ad budgets will also hit Facebook and Google hard.
On March 24, Facebook warned in a blog post that spikes in WhatsApp and Messenger usage would also impact its advertising business. Unlike the feed and stories features in Facebook and Instagram where ad load is high, ad load is lower in messaging apps.
"We don't monetize many of the services where we're seeing increased engagement, and we've seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19," VP of analytics, Alex Schultz, and Jay Parikh, VP of engineering, wrote in the blog post.
Ad performance and prices are down
According to data from digital ad agency Tinuiti, there has been a dip in ad performance because of news about the coronavirus. For example, after Washington State confirmed the first death from coronavirus on February 29, people started stocking up on essential items, leading to more clicks on ads but less conversions.
Between February 25 and March 17, Tinuiti saw conversion ratios - which measures how many clicks on ad campaigns generate sales - on Facebook and Instagram drop from 14% to 4%. Conversions on Google search ads dropped slightly from roughly 8% to 6%.
Tinuiti's data also shows that ad prices have decreased.
Despite the drop in ad performance and costs, Craig Atkinson, chief client officer at Tinuiti, said that the changes will not affect long-term spend with Facebook and Google, along with Amazon.
"I expect that you will see that the triopoly will take the lions' share, but I don't see that eroding or giantly growing," he said.
Big Fortune 500 brands might take a lesson from small marketers
Despite the coronavirus hit, Facebook and Google's ad businesses could benefit in the long term from a focus on performance-driven advertising.
Big brands impacted by coronavirus like American Airlines, Hilton Hotels, and Purell aren't currently running ads on Facebook, but other advertisers like on-demand movie streaming service FandangoNow and fitness brand Daily Burn have been promoting at-home products for consumers stuck at home, according to Facebook's ad library.
Wpromote's Mothner said that he expects big brands that stopped advertising to take cues from performance-based marketers that spend heavily on the platforms because of high conversion and low acquisition costs.
He said that his agency is working with a large packaged goods maker on a forthcoming direct-to-consumer product and that the coronavirus will likely speed up its rollout because the virus is training consumers to shop online.
"If small businesses don't make it, those are net-lost dollars, and you could argue that could hurt Facebook and Google more than a TV network that has big brands," he said. "That said, I think we would need to see this go on for a long time."
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