‘Conservative, not dystopian’: IAB Europe economist Daniel Knapp’s ad spending outlook for 2023

This conversation has been edited for length and clarity. 

Ad spending forecast: cloudy with a chance of recession

Knapp’s outlook on 2023 is as pragmatic as it gets. Indeed, it’s somewhere between the more downbeat forecasts doing the rounds from the likes of Arete and the more upbeat ones from the agency holding groups. That’s the only way to describe a forecast that expects digital ad spending in Europe to grow by 2.4% next year. In short, things are going to get worse before they get better for the industry. “I would love to be proven wrong,” said Knapp. 

“But as it stands I can’t see any factors that would allow us to say something else,” he continued. “There will always be pockets of growth, whether that’s spending from luxury rises or as a result of net new money moving into areas like retail media, but the impact of all of these won’t be equally felt.”

In other words, all this slowdown is really going to do — at least in the short to medium term — is stretch the gap between the haves and the haves-nots. That’s why Knapp is conservative but not dystopian in his outlook for ad spending next year. “If you tally up the factors there are more negatives than positives in the short term.”

So it’s going to be cold winter for online advertising in Europe?

That’s about the gist of it. There are just way too many structural issues to think otherwise. From a slowdown in advertising from SMEs who have matured to the e-commerce boom of recent years crashing into reality, a tech correction from growth to profitability to the crypto market crash, a lot of ad dollars are being redirected, paused or cut entirely, said Knapp. And that’s before the bigger, macroeconomic issues are factored into things. The energy crisis has knocked Europe’s ability to compete in manufacturing and ratched up concerns around deindustrialization, Knapp added. Hampered with overwhelming fiscal and employment pressures, the continent is wrestling with unprecedented inflation and economic recession, he continued. Look to the changing fortunes of the platforms for proof, said Knapp. 

“If you look at the growth of Meta’s revenues in the last quarter, a higher proportion of its revenue came from APAC than Europe for the first time ever,” said the economist. “Future growth for this industry is going to come from countries like India, Indonesia and Brazil where there are large populations, with rising middle class societies.” 

Does this mean western markets are now post-growth ad economies? 

Yes. Don’t be surprised to see the creaking, ads behemoths of the big platforms turn their attention away from Europe. Rather than continue to try and milk the region of revenue through layers and layers of services, they’re going to focus on places where organic reach isn’t so costly. “These markets are still experiencing some of the structural issues that have slowed down advertising in western markets, but they are nowhere near as pronounced,” said Knapp. 

Isn’t online advertising decoupled from the economy

In some ways that’s correct, said Knapp. The ad spending surge over the last two years is a case in point. But ad dollars and the economy have never been completely divorced. It was just a matter of time before the two crossed paths again. The same thing happened back at the climax of the subprime mortgage crisis in 2008.  Despite the financial crash, the ad market was still positive, said Knapp. The advertising crash only happened later in 2009 he added. 

“It’s a drama foretold that we will start in the second and third quarters of 2022,” said Knapp. 

One platform’s loss is another’s gain 

It’s one of the more interesting sub narratives of this tumultuous period: the shift in momentum among the biggest platforms. Google and Meta aren’t going anywhere, of course. Nevertheless, the momentum in ad spending  isn’t necessarily in those businesses anymore, said Knapp. 

He expanded on the point: “We’re moving into a world where the players to succeed will be the ones who can provide full funnel solutions with their own first-party data and subsequently measure the effects of advertising on their own platforms.”

Simply put, the growth engines of online advertising, or scaled web 2.0 platforms, from video platforms to social networks are reaching the end of the line. They’re not outperforming total digital ad growth anymore, said Knapp. This was always going to happen. Big, maturing economies don’t grow fast. But the signal loss caused by Apple’s privacy policy and a slowdown in e-commerce sales have brought the inevitable ad slowdown in ad spending into sharper focus, said Knapp. 

“There’s a changing of the guard when it comes to the ad market based on overall economic growth but also due to rising consumer classes,” said Knapp. 

OK. This is really about monopolies of infrastructure, right?

Unlike the last growth cycle, success in online advertising won’t be predicated on having enough scale in media and audiences. It will also be what media owners control or have a disproportionate influence over the pipes that help monetize content and the viewers of it. It’s why there’s such a scramble to monopolize the behind around online advertising through product development, M&A and partnerships. 

“Those companies who don’t do this will lose out,” said Knapp. “It’s going to be a world of exclusivity.”