Does digital advertising create demand? Or does it simply route existing demand to the destination of greatest monetary impact? Some thoughts in this thread (1/X)
2/ In this article, I posit that digital advertising primarily exists to pair users with the products for which they have previously exhibited some affinity. Digital advertising is mostly an exercise in profiling and prediction, not in aspiration mobiledevmemo.com/does-advertisi…
3/ This is apparent in the way that big ad platforms do targeting: they segment users by previous behaviors, which are signals of existing demand. If this wasn't the case, then eg. IDFA deprecation wouldn't be problematic: if ads created demand, behavioral profiles wouldnt matter
4/ But the direct response nature of digital advertising means that immediate measurability creates a monetization feedback loop that is paramount to any assumptions or anecdotes that the advertiser might have in targeting an audience
5/ Brand marketers sometimes bristle at this dynamic because it puts a natural constraint on their field of vision. We don't need to "guess" at who our audience is if we can quickly and efficiently establish its boundaries with ad conversions mobiledevmemo.com/the-uncomforta…
6/ And of course it's true that new products get launched all the time for which no existing demand exists; users need to be educated on value propositions (think Uber: did demand for on-demand car service exist in the formal sense before the concept was proven?)
7/ But the vast majority of digital ad spend isn't dedicated to exploration, it's dedicated to exploitation, as ad systems are built on Bayesian feedback loops. The bulk of advertising revenue is pointed at demand fulfillment, not creation
8/ And thus we get to Facebook and Google, which have become the pre-eminent digital demand fulfillment services, front-running organic discovery by efficiently pairing users with the products w/ which they'll monetize to the greatest possible extent. That's what an auction does.
9/ So if digital ads dont create demand but optimally route it to highest-monetizing destination, what happens when ads cant front-run organic discovery in the post-IDFA world? A common hypothesis is that Apple's services revenues drop
10/ Digital ads are run on very tight margins. Lower efficiency = lower ad spend = lower app revenue = lower Apple 30% cut. mobiledevmemo.com/what-happens-t…
11/ But demand doesn't go away with ads inefficiency because demand isnt created by advertising. If ads efficiency drops by 50%, revenue doesnt correspondingly drop by 50%: ads efficiency only produces marginal increase on the baseline revenue produced through organic discovery.
12/ Meanwhile: Apple regains editorial control of App Store, and perhaps its ASA ad network becomes more attractive. The net impact to Apple is not negative. Apple loses some platform fee revenue because monetization optimization isnt core focus of discovery anymore. But not all.
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