User growth is not a business model. Netflix learnt it the hard way.

For the first time in 10 years (possibly for the first time ever) its user growth plateaued.

Revenue grew by just a single digit in 2022, for the first time since at least 2018. Net income also decreased for the first time. Q1 2023 followed the same trend, with many YoY metrics in the red.

But Netflix is not alone in this. Most tech companies are in a similar situation.

The market has saturated.

What's happening?

Consumers were spoiled by 15 years of (almost) free internet. Now the party is over. It is time to monetise.

Netflix plans its next phase of profit growth with three main initiatives:

1. Double down on advertising:
   A cheaper ad-supported tier was introduced in 2022. By now it counts 1mln subscribers (out of over 200mln in total), but it's growing fast. The company plans to offer more features and increase the streaming quality of this tier to make it more appealing. Long-live online advertising!
2. Crack down on password sharing:
   Netflix estimates around 100mln free loaders on its platform. Soon, subscribers will pay extra to add new users to their accounts. Ideally, free loaders should be converted to the ad-supported tier.This could be key to further subscribers' growth!
3. Reduce spend on content creation:
   This is the largest expense line at Netflix. In 2022, for the first time, less money was put into content creation than the year before.

Instead of fighting for subscribers, streaming platforms will likely specialise in specific genres of content, to retain and monetise loyal customers and save on content production. User growth will not be on their agenda no more.

This is a turning point in the internet how we know it!

The world's largest sea shipping company is based in Switzerland, one of the few European countries without access to the sea.

It is MSC Mediterranean Shipping Company, based in Geneva and founded by Italian entrepreneur Gianluigi Aponte.

It is now the largest container shipping company in the world in terms of transport capacity, with over 750 boats and 150,000 employees.

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MSC emerged as a surprise winner during the pandemic.

Due to the high demand for electronics and other goods related to lockdowns, the shipping business experienced a peak in activity over the past three years.

Tight supply, caused by covid restrictions, led prices and profits to skyrocket during the same period.

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We don't know much about the numbers of MSC, since it's always been secretive about its financials. However, John D. McCown's report shows that the shipping industry as a whole achieved net (after tax) margins of over 40% in 2022.

This is higher than most tech companies!

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But why Geneva??

As every great story, MSC's starts with a love story.‍

Rafaela Diamant Pinas, a young Swiss girl touring Italy, met Gianluigi Aponte while on a ferry cruising between Naples and Capri in the 60s. Aponte was the captain of the ship.

Rafaela's father was a well-known banker in Geneva. He quickly helped Gianluigi find a new job in finance in the city, and likely lent him the seed money to buy his first vessel. This was a dream Aponte couldn't give up on, despite his new life in mountainous Switzerland.

Gianluigi and Rafaela have owned the company fifty-fifty since then, making them among the top 3 richest people in the country.

The future of the shipping industry appears less rosy as the pandemic peak fades. However, while competitors pursue a strategy of vertical integration, effectively competing with their own clients, MSC is still betting on its core business.

The company plans to make huge investments, including purchasing new ships, improving ports' logistical infrastructure, and even breaking into the cargo aviation sector.

The moral of this story?

We're distracted by the latest technological trends, unicorns, and other mythical creatures, that we often overlook more traditional businesses that made Europe the great place it is today!

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To know more: NZZ.

Given the latest developments in Ai and Performance Max campaigns in Google Ads, it's natural to wonder about the future of performance marketing and whether performance marketers will continue to play a role in it.

Spoiler alert: we won't lose our jobs! 😌

But, our work will change drastically. We need to go back to basics, and realise that ultimately we are buyers, not technicians.

Now the question is: what exactly are we buying?

Media slots? Ads? Keywords? Traffic? Users? Sure, some of that too.

➡ But what we're actually buying is data.

How many times we've heard the line: "Google and Meta make profit selling users' data"?

Users' data is what they sell, users' data is what we buy. And data is the fuel of Ai, which in turn is the future of performance marketing.

So, what does this mean in practice?

We won't be able to target specific audiences any more (death of cookies, privacy changes etc). But, ad tech vendors are getting better at showing us how the broad audience that engages with our ads look like.

Recently, I was impressed with the TikTok Ads reporting, to give an example.

Thanks to ads, we can gather advanced interests and demographic data, search behaviour, comments and sentiment, from users that we didn't know before.

We can then compare data of users who engage with our ads, with that of users who purchase on our sites or apps. These findings are crucial for planning the next marketing strategy, the next set of creatives, UX improvements, or even new products and business models.

Conversion tracking is key to this process, and it's becoming increasingly complex.

Future performance marketers will need to ensure spotless conversion tracking to buy high-quality user data, which they can then use to improve and grow their products.

Do you agree?

In China, it's already huge. iResearch estimates a market size of $200bln in 2020, projected to account for as much as 25% of all online sales in the country in 2023.

In the west, numbers are much smaller, but growing rapidly.‍

According to Statista, livestream commerce in the US accounted for $6bln in sales in 2020, $11bln in 2021 and projected to more than double in 2023, to $26bln.

Beauty, fashion and luxury are the strongest product categories. TikTok in the west and Taobao Marketplace in China are the most popular platforms.

What are the advantages of livestream commerce compared to regular eCommerce?

1. It generates immediate sales.
   The whole point is for users to act in real time.
2. It reaches new consumer segments.
   Livestream commerce resonates particularly with the under 24s. This demographic might have had enough of old-fashioned eCommerce websites, so this is an excellent way to reach them.
3. It's perfect for new product launches.
   Luxury brands can quickly sell their whole (limited) stock in a single livestream.
4. It educates consumers on how to use the products.‍
5. It generate buzz and a sense of community.

‍Hosts are not necessary big socialmedia influencers. Especially in China, it is common for store salespeople to host the livestreams, effectively building a bridge between offline and online. Obviously, employing current employees instead of celebrities is also cheaper.

Also, not every brand likes to livestream on the main platforms. Marketplaces (e.g. Amazon Live) and custom-built solutions are entering the market, to give merchants more control over their audience and user data.

Although livestream commerce in the west is still experimental, a new industry is already being built around it. I'm curious to see which brands will be the best at it.

Any ideas?

Last week, Alphabet Inc. announced its plan to become an AI-first company, in response to competition from OpenAI and Microsoft.

But several challenges are holding the search giant back:

1. ‍Search accuracy vs frequency.
   ‍On the one hand, Google wants its users to find the best answer to their queries as quickly as possible. But on the other hand, it needs them to stick around and make as many searches as possible to sell more ads.
   Ai is able to return the correct result in seconds, with no need to come back for more searches. This is clearly a trade-off.
2. ‍Innovator’s dilemma.
   ‍Following up on the previous point, search ads represent the bulk of Google's profits. An advanced Ai would make ads irrelevant.
   How to innovate while keep milking the cash cow?
3. Costs.
   ‍It's notorious how much computing resources and cash ChatGPT is burning. And it's not even searching the internet, yet!
   Morgan Stanley estimated that answering a search query using language processing costs about seven times as much as a standard internet search.
4. Regulatory concerns.
   Google's growing power has made it a target of data-protection and government bodies.
   Since generative Ai is inherently prone to abuse and misinformation, it could be a risky venture for the search giant. Racists or biased results could cause a huge backlash when placed near the Google name.

👉 Conclusion 👈

‍Alphabet Inc. will continue to integrate its Ai models, like PaLM or LaMDA into its existing products, in a way that is hardly visible to the common user.

The reality is, Google is already an Ai-first company. You just don't see it 😀

I analysed the Alphabet Inc. Q4 2022 earnings report, so you don't have to 😀

Knowing what's going on at Google is important for anyone working in digital marketing and advertising.

Why?

Because what happens at Google, will soon happen to the whole industry.

Let's dig!

• In 2022, total revenues increasd by "only" 10% YoY.
• Q4 was particulary negative, with a growth of just 1%.
• Google Ads increased revenue by 7% in 2022.
• However, advertising revenues decreased 3.6% in Q4 YoY.

Q4 is historically the strongest quarter for online advertising, so these figures are particularly concerning.

• Ad clicks increased by 10%, while CPCs decrased by 1%.It seems there's still a growing demand for advertising, but it was harder to monetise.
• Google Cloud had the highest revenue growth among all segments, +37% YoY in 2022.
• It also increased its share of revenue from 7% to 9%.
• Meanwhile, search ads and YouTube Ads decreased their share of revenue by one percentage point each, to 58% and 10% respectively.
• Operating income was down across the board, -5% YoY in 2022, at a margin of 26%, down from 31% in 2021.
• Google Services, which include ads, Youtube subscritions, Google Play and hardware sales, was particualry impacted with a -6% in operating income for the year.
• Google Cloud was still in the red, but the loss got smaller.

What is Alphabet Inc. planning to focus on, to revamp its numbers?

1. ‍AI.
   ‍Google will become (already is?) an Ai-first company. This will unlock new revenue streams, but most importantly, will improve efficiency of existing products. Ads will deliver better ROI to customers and so generate more revenue. Cloud solutions will become smarter and integrate better in the Ai-thirsty customers' systems. Improved APIs will be instrumental to this vision.
2. Google "Other" to be pushed.
   YouTube subscriptions (YouTube Premium, Music, CTV etc) will be more in focus. Also, hardware like the Pixel phone will receive more attention.
3. YouTube content & monetisation.
   Google is the only platform where creators can create content in every format. From long-form landscape videos on YouTube, to shorts, to blog content and more. A new revenue-sharing agreement on YouTube shorts will foster higher quality content, and new ad formats will secure its monetisation.
4. Shopping.
   Google wants to establish itself at the core of consumers' shopping journeys. From Performance Max campaigns taking over Google Shopping, to new shoppable placements on YouTube, "adding value to merchants remains a top priority".
5. Efficient hiring and infrastructure management.
   The days of unlimited growth have ended, now it's the time of efficiency. Slower hiring, smaller office space and improved data centres will be key.

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Conclusion 🔚

We'll see a stronger focus on monetisation of existing products.

Consumers will be bothered with more ads and paywalls, while advertisers should take advantage of more ad placements.

Alphabet Inc. recently laid off 12,000 employees. Is it enough?

According to Christopher Hohn of TCI Fund Management, a British hedge fund, it is not.

He recently sent two infamous letters to Sundar Pichai, Alphabet Inc.'s CEO, stating his disappointment for the company's poor financial performance over the past year. Costs are growing at a faster pace than revenue, with salaries being a significant chunk of expenses.

I have no expertise to agree or disagree with Sir Chris Hohn, but I find the letters' content fascinating.

Despite a though market, Google added around 34k employees in 2022 alone. From around 156k to around 190k. It is impressive! Not only that, headcount has more than doubled since 2017. And if this wasn't enough, median salary was nearly 300k/year in 2021, 67% higher than at Microsoft. So, if you're a Googler who make 200k, beware you're in the lower half!

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The letters also suggest an EBIT margin target for the Google Services segment of 40%. Spoiler alert, they didn't make it 😢

Google Services, consisting of advertising, YouTube subscriptions, Google Play and hardware sales, recorded an EBIT margin of "just" 34% in 2022 vs 39% in 2021. Search Ads is the largest contributor of this segment. So Mr. Hohn expected more from such a mature product with high margin potential.

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He also hints at the massive cash reserves that Alphabet Inc. holds on the balance sheet. $116 billions that should partially be used for share buybacks, to pump the stock price up. In fact, large-scale M&A is out of question due to strict regulatory scrutiny.

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Conclusion:

For a public company that doesn't distribute dividends, revenue and profit growth is the only mean to keep investors happy. They expect the stock price to keep growing even in challenging times. But as the market matures, growth has naturally slowed. So, after share buybacks and headcount reduction, what will come next?

Retail media is one of the hottest trends in digital marketing for 2023.

It is also considered the "third wave" of online advertising, after search ads disrupted the industry in the early 2000s and social media in the 2010s.

The idea is simple:

Large online retailers own a lot of data about the shoppers' behaviour, which they use to sell ads on their platforms. Usually, this happens in the form of "sponsored" products on search pages or banners on the homepage.

Amazon and Walmart lead the industry, effectively challenging traditional publishers and Big Tech.

Some numbers and facts about retail media:

• Retail media is expected to see the fastest ad spend growth in 2023 in the U.S, +26% vs 2022, outperforming ad champions like Meta and Google.
• Amazon Ads has become the third-largest digital advertiser in the U.S., behind just Alphabet and Meta. In the third quarter 2022, ad revenue jumped 30% YoY.
• For comparison, ad revenues at Meta, fell 3.7% over the same period.
• Amazon's revenue from advertising was higher than fees from its Amazon Prime membership, audiobooks and digital music combined, in Q3 2022.
• Walmart's ad revenue is expected to climb by 42% in 2023, Instacart's by 41% and Amazon ads by 19%.
  

Who said online advertising was in trouble?

Retail media is emerging as a key driver of revenue and profit growth for online retailers and technology companies, particularly in the face of economic hardships and layoffs.

But let's look at this from the perspective of brands and advertisers.‍‍

Pros of retail media for brands

1. Reach potential customers when they are already close to purchasing.
   Users browsing Amazon or Walmart are looking for something specific to buy soon. Can you think of a better moment to showcase your products?
2. Operate in a first-party data context.
   Retailers sell their own users' purchase history data, which advertisers can use for efficient audience targeting.
3. Measurability.
   Retailers have long charged for prime product placements, such as placing items at eye level in large grocery stores.
   However, the latest innovation in retail media is the ability to accurately measure the impact of those premium placements on sales. Because the whole process (from ad buying to the user purchase) takes place on a single platform, the latest limitations on third-party cookies and tracking don't apply.
4. Trust.
   Consumers will trust your ad message more when it's delivered on a platform they already love.

Cons of retail media for brands

Unfortunately, retail media also comes with risks. Some of its advantages can turn into liabilities if not thought through properly.

1. Commoditisation.
   When advertising your products among hundreds of others, it may highlight their strengths but also reveal weaknesses, such as a lower rating or higher pricing.
   In contrast, a good organic ranking is typically a result of your products naturally outperforming others.
2. Ad tax.
   Brands not only pay a commission to sell their products on a retailer's platform. Now they also pay advertising fees if they want their products to be seen by consumers.
3. Giving up data and paying to get it back.
   When a brand chooses to sell its products on a marketplace like Amazon, it loses access to valuable customer data. In fact, the customer belongs to Amazon, not to the merchant.
   However, in today's digital economy customer data is extremely valuable. As a result, brands are essentially paying to regain access to this data through targeted advertising.
4. Privacy concerns.
   Ever wondered why retail media is more popular in the US than in Europe? One of the reasons is GDPR.
   Advertisers are generally attracted by the first-party context of retail media and how they can avoid third-party tracking and targeting limitations.
   But, as Mariano delli Santi, data privacy campaigner at the Open Rights Group, puts it while talking to the Financial Times: "the fact that this is being done by a centralised platform [Amazon, for example], instead of bits of data gathered across the web [third-party cookies], changes little to the [privacy] risks."
   Also, according to Jill Smith of Kroger, a US retail giant, "the fastest-growing part of retail media is off-site advertising, where brands like Coca-Cola use Kroger audiences for reaching households on social media, CTV, or programmatic display outside of Kroger.com." This means that first-party data is actually being used in a third-party context.

Bottom line

Retail media is undoubtedly one of the biggest trends in online advertising, poised to deliver years of revenue and profit growth to retail giants. However, it comes with risks that brands should carefully consider.

The online retail industry is arguably living its worst time in a decade.

However, two new products by Shopify might secure a bright future to the Canadian-based company, as well as to the eCommerce sector as a whole.

1. Commerce Components by Shopify
2. Shopify Audiences
   

But they're not re-inventing the wheel, it's all taken from the Amazon playbook. Let's see why!

Commerce Components by Shopify

After over a decade spent building a world-class eCommerce infrastructure, Shopify now plans to "rent out" that same infrastructure to new customers.

Even retailers that don't currently use Shopify, will be able to purchase individual components and install them onto their own systems. Components include Shopify's high-performing checkout, a fraud-protection system, a tax platform and more. See the full list of available components.

This is a game changer.

‍Why?

For a start, it allows prospective customers to get a taste of Shopify's features without committing to a whole new platform. Once they're hooked by the great performance of individual components, they'll be more likely to switch fully to Shopify.

Not only Commerce Components will help find new customers, it will also generate revenue in the meantime!

Most importantly, Commerce Components has the potential to be extremely profitable.

Many of the components are already included in the regular Shopify subscription. Now, they are being detached and sold individually, making the marginal cost of every new sale potentially very low.

‍What does Amazon have to do with this?

‍Commerce Components by Shopify reminds me of AWS, Amazon's cloud product.

Amazon had built a huge infrastructure to serve its eCommerce business. Why not making this infrastructure publicly available for a fee?

Today, AWS is one of Amazon's most profitable business units.

I envision a similar future for Shopify!

Shopify Audiences

Today's mantra in the advertising industry is "first-party data".

First-party data refers to what your consenting users provide when interacting with your products, as opposed to data "for sale" sourced by third-party providers.

Initiatives like the Apple-Tracking Transparency (ATT) prevents third-parties from accessing users' data. This makes online advertising less effective. In fact, the likes of Meta and Google strongly rely on user behavioural data collected on third-party websites and apps.

Although this is good news for users, it can be bad news for advertisers, who in turn rely on Meta and Google advertising.

Shopify decided to do something about this, with the launch of Shopify Audiences.

Merchants using Shopify can generate a first-party list of their most valuable users. After that, a machine-learning algorithm expands this list, creating a larger lookalike audience.

Finally, merchants can upload this list onto Meta and Google's ad platforms and use it as their advertising target audience.

The Problem

‍Shopify Audiences helps advertisers target more valuable users on Meta apps and Google. I also envision their lookalike algorithm to improve over time.

However, it doesn't solve the campaign optimisation part, which is still impacted by ATT.

In fact, with ATT, third-parties can not track when a user eventually makes a purchase after a click on an ad.

This is a big deal, because ad platforms learn what type of ads work best with what user, after analysing their post-click behaviour.

So, Shopify Audiences is not a game changer (yet). Rather, it is the first step towards a new ad tech ecosystem.

The size of the Shopify's merchants network is large enough to be an ad network by itself.

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Once again, this is plain Amazon playbook! In fact, Amazon Ads is built on the huge network of Amazon sellers.

Once the advertising journey starts and ends on the same platform, no ATT can ever stop it.

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Will these new products make Shopify the next Amazon?

Here are 5 online advertising trends I'm definitely going to watch in 2023:

1. CTV
2. Programmatic OOH & Contextual Advertising
3. Retail media
4. Audio ads
5. Shorts

CTV

Connected TVs, or TVs that are connected to the internet, are becoming increasingly popular. With the recent introduction of ads on platforms like Netflix and the expected rollout of ads on Disney+, the CTV market is set to open up great opportunities for advertisers.

Programmatic OOH & Contextual Advertising

In the summer 2022, Google announced that advertisers could buy digital out-of-home ads through Display & Video 360. This is when I realised that programmatic OOH advertising will become mainstream.

Programmatic OOH will not scan people passing by a billboard to serve personalised ads. Rather, it will use contextual and geo-location data to show dynamic content, like a shop-specific sale, football real-time results, and more.

Contextual targeting will be increasingly common in online ads too. New privacy regulations are making personalised advertising harder to perform and less effective. Plus, the general sentiment around it couldn't be more negative. Advertisers will need to get more creative using contextual data!

Retail Media

Why would retailers sell their customers' data to third-parties, when they can use it to sell ads directly?

Retail giants like Amazon and Walmart already embraced this trend, with their ads business expected to grow by 19% and 42% respectively, in 2023. Watch out, Alphabet and Meta!

Even Marriott is launching a proprietary ad network to serve ads on its websites and on guests' TVs.

Audio Ads

Spotify ads' business will grow by 30% in 2023. With podcasts being a massive growth category, there's more and more room for audio ads. Online radio and other podcast platforms will also increase ads sales.

Shorts

Short vertical videos, such as YouTube shorts, Instagram Reels, and TikToks, have become extremely popular. I don't know which one of these platforms will come out on top in 2023, but one thing is certain: short ads will become a major trend.

Advertisers will need to get creative in designing video ads specifically for this format. I think we'll see some very cool ones!