Four Key Disruptions Challenging, and Creating Opportunities, for Brands, Retailers, and the Digital Economy

By: Chris Bruderle, VP of Research and Insights at IAB

In the years leading up to COVID, it became crucial to educate the buy- and sell-side advertising ecosystem about the rise of digitally native consumer brands, the digital evolution of established brands, and how both are disrupting the digital advertising ecosystem.

Although those trends continue to evolve, we’ve entered into an era where the role of multiple storefronts (including online, offline and virtual), the creator economy, augmented reality, and web3-based, metaverse tech are changing how consumers shop and how brands drive engagement and loyalty.

As the digital advertising ecosystem continues to face disruption, there are four key disruptions that are posing the most significant challenges, as well as opportunities, for brands and retailers to survive, thrive, and prosper in a competitive marketplace.

1.) “H-Commerce” or hybrid commerce.

H-commerce is the fusion of online and offline shopping where, as opposed to simply being multiple channels from which to shop, those channels are connected and work together to create an enhanced, seamless, cross-channel shopping experience.

The COVID-driven, acceleration of e-commerce growth combined with the reemergence of offline shopping (per the Commerce Department, more dollars were spent offline in 2021 than in 2019) means that consumers now expect the technological convenience of digital with the tactile nature of the physical. ​This started with BOPIS (Buy Online Pickup in Store) and click-and-collect, and is evolving via AR-powered in-store signage, styling, and shopping guides as well as via AR-powered, online virtual displays and fittings. Established brands, DTCs, and retailers who fail to recalibrate their go-to-market strategies and invest in the tech needed to meet the expectations of the H-commerce shopper are at risk of missing out on conversion opportunities, and even worse, driving consumer frustration and abandonment.

2.) The Creator Economy is Overtaking the Hollywood Economy.

There is a shift occurring in the balance of power away from the “Hollywood economy” towards the “Creator economy” that is redefining what has been known as “Must-See TV”.

An integral driver of this shift is mass interest in creators. The top 50 creators alone have a combined follower count that’s 5x the size of the U.S. population, while per the Consumer Technology Association, people 13+ spend more time with creator content than Hollywood-produced TV and Video.

On the heels of this, the production dollars, according to IBIS World, are following as TV production investment is down nearly 20% since 2018, while in the film industry nearly half the number of films were released in 2022 vs. 2019, and consumer box office sales are down by nearly $2.5 billion–31% lower than 2019 per comScore. In contrast, CB Insights reports that production in the creator economy has increased 15x since 2017.

Additionally, ad investment in creator content is growing faster than in TV and streaming content. In fact, IAB proprietary research found that eight in ten brands now use creator advertising—up from ~50% pre-COVID.

With a recent report revealing that YouTube, the “home” of the creator economy, now represents over 50% of ad-supported streaming watch time on CTVs among people 18 and with TikTok launching their own CTV app, creators are infiltrating America’s living rooms. “Must-See TV” is now stemming from those apps and away from the Hollywood/Network TV production engines. These seismic shifts to the creator economy means brands and retailers should consider embracing a mix of creator-driven and professionally-produced content.

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3.) The Metaverse Will Be a Shopping Medium.

The Metaverse is getting a lot of positive and negative press as it carries so many unknowns about how it will affect our lives and when. If you cut through the hype, one key thing the Metaverse will be is a shopping medium. A place where flat 2-D legacy e-commerce experiences will become virtual, 3-D experiences powered by Web3 technology enabling consumers to shop for virtual and real-world products and services.

McKinsey projects the metaverse shopping market to be in the trillions in the next decade. In fact, per Gartner, nearly one in three global companies will have products and services ready for sale in the metaverse by 2026. In preparation, blue chip brands like McDonald’s, Nike, Mastercard, and Walmart have filed to protect their trademarks in the Metaverse.

In reality, commerce is already happening in Metaverse-like environments in the form of selling digital fashion, skins, and other goods and experiences directly to consumers’ avatars.  “Direct-to-avatar”, or DTA, is a key driver of metaverse commerce and is expected to generate $50 billion in sales from skins alone in 2022 according to Juniper Research. Metaverse-like commerce is already thriving via NFTs, which are serving like “metaverse loyalty cards”. Nearly 17 million NFT transactions—worth $18.4 billion—were executed between April 2021 and March 2022, per Citi. Lastly, metaverse-storefronts-as-a-service companies (MSaaS) are building virtual stores for American Girl, Ralph Lauren, Dermalogica, and Coach among others, to transform commerce into lifelike 3D experiences.

The signs are clear that Web3-based tech will transform how we engage with each other, with content and with brands–ultimately refashioning how we’ll shop. Brands and retailers should be testing its potential now and building plans to prepare for shoppers who will be appearing at their virtual stores.

4.) The Privacy Priority: Real-World Repercussions for All.

Previously, brands and retailers were worried about privacy, dealing with diminished addressable audiences, rising CAC and figuring out how to accumulate and leverage first-party data.

But now this has risen to a new level as more pronounced, real-world repercussions are affecting all types of businesses.

 Although Google delayed third-party cookie deprecation until 2024, what’s more pressing is that in January of 2023, five new state-level privacy laws will go into effect and leave brands unclear on their data-driven strategies—making them more vulnerable to privacy penalties.

Due to Apple’s privacy changes (i.e, ATT) alone which curtailed signal loss, digital platforms are expected to lose $16 billion of revenue in 2022. Decreased signal loss has led to lower addressable audience sizes and ultimately increases in CPMs and CAC which has upended the economics of the DTC, social-based GTM strategy, which among other factors, has led to decreased valuation and funding.

Ongoing privacy legislation will further challenge brands’ ability to assess advertising performance and increase the likelihood of lawsuits and penalties. As a result, brands are innovating to recoup lost revenue from signal loss and evolving their go to market strategies in a privacy-compliant way.

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