How Covid-19 Supercharged An Advertising ‘Triopoly’
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How Covid-19 Supercharged An Advertising ‘Triopoly’

Google, Facebook and Amazon collect more than half of all ad dollars spent in the U.S.

By Keach Hagey and Suzanne Vranica
Wed, Mar 24, 2021 3:21pmGrey Clock 7 min

When the pandemic upended the economy last year, companies took a hard look at their advertising plans.

Oreos maker Mondelez International Inc. shifted money meant for TV commercials during March Madness basketball and the summer Olympics into digital platforms. A hefty chunk went to Alphabet Inc.’s Google, which offered data on what locked-down snack lovers were searching for.

Athleisure company Vuori Inc. more than tripled its spending on Facebook Inc., spotting a chance to juice sales of its sweatpants to people stuck at home. Office-furniture maker Steelcase Inc. built an operation to sell directly to workers and advertised aggressively on Amazon.com Inc.

The Big Three of digital advertising—Google, Facebook and Amazon—already dominated that sector going into 2020. The pandemic pushed them into command of the entire advertising economy. According to a provisional analysis by ad agency GroupM, the three tech titans for the first time collected the majority of all ad spending in the U.S. last year.

Beneath the shift are changes driven by the pandemic: more time spent on computer screens; more e-commerce; a jump in new-business formation, and a steady improvement in tech giants’ ability to demonstrate a return on ad investment.

Success breeds success for what some call the “triopoly.” The increase in shopping and spending on Google, Facebook and Amazon’s platforms is adding to their already voluminous data on users, giving them even more appeal for advertisers that look to target their messages.

“These companies that are data-science-driven get stronger and faster with a tailwind of usage—and Covid was a hurricane,” said ad-industry veteran Tim Armstrong, a former Google executive and AOL CEO who now leads Flowcode, a direct-to-consumer platform company.

Many of the pandemic-driven changes likely are here to stay, say advertisers and ad forecasters. Still, when the pandemic winds down, it’s far from certain the tech giants will continue to increase their market share gains at this rate. With the vaccine rollout and easing of lockdowns, consumers could spend less time and money online and marketers could diversify their spending.

The growth in online advertising last year came as every other kind of ad spending shrank, with double-digit declines in television, newspapers and billboards, according to GroupM. And those online gains flowed heavily to the tech giants rather than to digital media sites and publishers that sell online ads.

The triopoly increased their share of the U.S. digital-ad market from 80% in 2019 to a range approaching 90% in 2020, GroupM estimates. It’s a surge that comes as the three face scrutiny and litigation from various agencies at home and abroad over their dominance.

Google, in announcing plans to tweak its tools that help publishers and advertisers buy and sell ads, is moving away from targeting ads based on individuals’ browsing activity across the web. But that shift might wind up further strengthening Google’s grip on the online-ad industry, some experts and rivals say, because it could boost the value of the data flowing through Google properties such as Search and YouTube.

Amazon this week said it will begin streaming Thursday Night Football by 2023, giving the company a high-profile franchise to take in ad dollars normally spent on TV broadcasters.

The three giants aren’t collecting just the money spent to advertise in the media but also some of the marketing dollars earmarked for coupons, catalogues and in-store promotions.

“They are not media companies anymore, they are marketing mongrels,” said Rishad Tobaccowala, a senior adviser to ad giant Publicis Groupe SA.

New-business applications in the U.S., which slowly climbed from 200,000 a month to 300,000 over a decade, shot up north of 500,000 in July and averaged more than 400,000 a month for the second half of 2020, according to the U.S. Census data. This proved a boon for the biggest tech platforms, which provide the kind of advertising that is often all a startup can afford. Facebook says it had more than 10 million active advertisers in the third quarter, up from 8 million in January.

Meanwhile, many businesses of all sizes pivoted to e-commerce selling—and turned to digital ads to support that effort.

Before the pandemic, a little more than 10% of retail purchases in the U.S.took place online. That jumped to 16% in last year’s second quarter when lockdowns peaked, according to Census data. Though the rate tapered a bit as the year wore on, the trend strongly benefits the tech behemoths.

“The pandemic zapped us two years into the future on the e-commerce side,” said Nicole Perrin, principal analyst at research firm eMarketer.

Mondelez, the Chicago-based maker of Oreo, Ritz and other snacks, in 2020 geared up to promote some of its brands in the marquee television events of the NCAA college basketball tournament and the Summer Olympic Games in Tokyo. When it became clear neither would be held, Mondelez redeployed the money to digital advertising.

It doubled down on Google ads to capitalize on interest in online recipes among those homebound. It used Facebook-owned Instagram to host a Pictionary-like game in which an artist made images out of the cream in the middle of an Oreo cookie. For the first time, Mondelez spent more on digital ads than on TV commercials last year. Google and Facebook were the biggest beneficiaries.

This year, digital advertising is projected to account for more than half the roughly $1.1 billion Mondelez spends on media world-wide. It was only about 30% as recently as 2017. TV’s share of the company’s ad spending continues to decline.

When Mondelez invests in digital advertising, it gets a 25% better return than with TV ads, the company says. It has found that its Google and Facebook ads do especially well, generating 40% higher returns than an average digital ad. The two now account for roughly 60% to 70% of Mondelez’s digital ad spending, up from less than 50% in 2017, the company says.

The tech giants share data that allows Mondelez to understand its customers better, said the snack maker’s chief marketing officer, Martin Renaud. Google data showed Mondelez, for instance, that people tend to search the internet for healthier snacks in the morning and for more-indulgent treats as the day wears on.

When the pandemic struck, Google provided updated data that helped Mondelez craft relevant ads. The company switched from showing college-age consumers an ad about eating lunch in the library to one that read: “Made it through an online class? Treat yourself.”

Mondelez has been working with Google and Target Corp. to figure out how likely someone is to buy Oreos or Ritz crackers from Target stores after being served ads for them on Google’s YouTube.

“I can’t go to CNN or other platforms and be able to get that intelligence,” said Jonathan Halvorson, Mondelez’s global vice president of consumer experience. Big advertisers like Mondelez still spend a lot on TV commercials, and most consider TV the best way to reach a mass audience, rather than any particular segment of consumers.

As it directs more ad money to the tech giants, Mondelez isn’t working with as many digital publishers in the U.S. In 2017, Mondelez worked with about 150; it now works with fewer than 10.

For direct-to-consumer businesses, the pandemic provided an opportunity like no other.

Activewear company Vuori distributes through stores, but its main focus is selling via catalogues and the web. Facebook is a key part of its strategy. Besides enabling Vuori to monitor the performance of its ads, the platform’s tools let Vuori upload lists of its customers and then use Facebook’s algorithm to find look-alike audiences, testing and pivoting in real-time.

When the pandemic arrived, Vuori CEO Joe Kudla noticed something interesting in the data: The prices of Facebook’s ads were dropping at the same time as people were clicking at higher rates on Vuori ads for items like its $80 sweatpants. That combination sent its return on ad spending through the roof.

Vuori stopped traditional marketing such as catalogues and direct mail and shovelled every dollar it could into Facebook. It doubled its April 2020 media spending from what was budgeted and saw sales quadruple. Facebook’s ad prices have since recovered, and Vuori has diversified its ad spending somewhat, but it has continued to increase its use of Facebook ads.

A surfer and yoga practitioner, Mr Kudla seeks to create products for people with the kind of active lifestyle he and his friends in Encinitas, Calif., have. But for finding customers, he says, Facebook beats his instincts.

“We could identify the age, demo and behaviour, but ultimately the algorithm is much more powerful in terms of identifying people who demonstrate certain shopping behaviours,” Mr Kudla said.

Performance-obsessed small advertisers such as Vuori are the reason Facebook revenue never stopped growing last year, despite the pandemic’s hit to the economy and then a summer boycott by some prominent advertisers over the platform’s handling of hate speech and misinformation.

In the three years leading up to the pandemic, Suzy Batiz, founder of the toilet spray company Poo-Pourri, was focused mainly on building out the network of retail stores that carried what it calls a “before-you-go” spritz of essential oils.

Then Covid-19 hit, and one distributor refused to take a multimillion-dollar order already produced. “That was pretty painful,” Ms Batiz said. “But as one of my mentors would say, crisis precedes transformation.” The company shifted focus from driving customers to stores to driving them to its e-commerce site and others’ shopping sites.

That meant cutting all marketing spending that wasn’t digital, such as payment for placement at Bed Bath & Beyond stores or for promotional events. Ms Batiz redirected the money to the web, especially Facebook. Sales on Poo-Pourri’s website surged 300% in the second quarter versus a year earlier and more than doubled for the year.

“This is our future,” Ms Batiz said. “I don’t think we will ever go back.”

Steelcase, which makes desks and other office furniture, spent roughly $1 million on advertising in 2019, primarily for print and digital ads in business publications to target facility managers, architects, developers and company executives. Most of its revenue came in direct sales to corporations or from its dealer network, which has showrooms around the country. Its business of direct selling to consumers was minuscule.

As states’ stay-home orders spurred an exodus from offices last spring, Steelcase’s sales plunged. The Grand Rapids, Mich., company ramped up its small direct-to-consumer business, increasing its staff for that to 25 people from two.

It stopped advertising in business publications and began buying search and social-media ads. Steelcase radically increased its ad budget last year and spent $5 million to $6 million on digital ads targeting people setting up home offices. About half of that went to Amazon search ads.

“Everyone focused on Amazon, whether you needed toilet paper, spices, a Cuisinart mixer or an office chair,” said Allan Smith, the furniture maker’s vice president of global marketing. “We decided to shift there as well, and it paid off.”

For every dollar Steelcase spent on Amazon ads during the holiday season, it made $30 in sales, the company says. Sales for its business aimed at consumers are up 500%.

Steelcase plans to double its Amazon spending this year. Its research indicates the pandemic has changed work-life for good, predicting that about 72% of businesses are likely to take a hybrid approach of working from both home and office. “The hybrid future is here to stay,” Mr Smith said.

 

Reprinted by permission of WSJ. Magazine. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: March 19, 2021



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The Loneliness of the American Worker

More meetings and faceless chats. Fewer work friends. How the modern workday is fueling an epidemic of isolation.

By TE-PING CHEN
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More Americans are profoundly lonely, and the way they work—more digitally linked but less personally connected—is deepening that sense of isolation.

Nick Skarda , 29 years old, works two jobs in logistics and office administration in San Diego to keep up with his bills. After a couple of years at the logistics job, he has one friend there. He says hi to co-workers at his office job but doesn’t really know any.

“I feel sort of an emptiness or lack of belonging,” he says. Juggling two jobs leaves Skarda exhausted, with little energy or time to grab drinks with co-workers . “It makes it harder to go in and give it your all if you don’t feel like anyone is there rooting for you,” he adds.

Employers and researchers are just beginning to understand how workplace shifts over the past four years are contributing to what the U.S. surgeon general declared a loneliness health epidemic last year. The alienation affects remote and in-person workers alike. Among 1-800-Flowers.com ’s 5,000 hybrid and fully on-site employees, for instance, the most popular community chat group offered by a company mental-health provider is simply called “Loneliness.”

Consider these phenomena of modern work:

It is a marked shift from even a decade ago, when bonds fostered at work helped compensate for declining participation in church , community groups and other social institutions. As the American workday becomes more faceless and scheduled , the number of U.S. adults who call themselves lonely has climbed to 58% from 46% in 2018, according to a recent Cigna poll of 10,000 Americans.

The faceless workday

The disconnection is driving up staff turnover and worker absences, making it a business issue for more employers, executives and researchers say. Cigna, the health-insurance company, estimates that loneliness is costing companies $154 billion a year in absenteeism alone.

“Work is social, it’s a lot more than a paycheck,” says James McCann , founder and chairman of 1-800-Flowers.com.

Earlier this year, 1-800-Flowers.com moved from three days in the office to four to boost a sense of connectivity among workers. It has also begun tapping workers across teams to serve as designated hosts during lunchtime, encouraging people to sit with colleagues they don’t know in common areas and chat, and suggesting conversation topics.

While today’s workers have more ways to connect than ever, “there are only so many memes and jokes you can send over Slack,” says Maëlle Gavet , chief executive of Techstars, a pre-seed fund that has invested in 4,100 startups. “We tend to have more and more people with back-to-back calendars, more meetings and less connections.”

Gavet says that is especially the case for hybrid workers on in-office days, which they tend to use to dash from one meeting to the next.

Paradoxically, meetings can make people feel lonelier—and even more so if the meetings are virtual, behavioural researchers say. A 2023 survey by employee experience and analytics company Perceptyx found people who described themselves as “very lonely” tended to have heavier meeting loads than less-lonely staffers. More than 40% of those people spent more than half their work hours in meetings.

In Cincinnati, Kelly Roehm says she came to chafe at the meetings—sometimes as many as 12—consuming her day after joining a consulting company in 2021. She would often feel her eyes glazing over as she multitasked on other screens.

“It’s like you’re a zombie, there but not there,” says Roehm, who lived 10 minutes from the office but worked mostly remotely because she says few colleagues typically came in. It is a more common setup as companies distribute teams across more locations: At Microsoft , 27% of the company’s teams all worked in the same location last year, compared with 61% in 2019.

She compares that experience with her time more than a decade ago at a company now owned by AstraZeneca . There, she enjoyed lots of social outlets at work: a Weight Watchers group and a lunchtime crochet club.

“Now if I were to think about asking, ‘Hey, do you want to participate in something like this,’ it would just sound weird,” says Roehm, who left this year to focus on her own career-consulting business. “There wasn’t that emotional attachment that made it difficult to say, it’s time to move on.”

The power of small talk

Office chitchat, sometimes an unwanted distraction, seems to provide more benefits than many people realise, says Jessica Methot , an associate professor at Rutgers University who studies social ties at work.

In a study of 100 employees at different workplaces, Methot and fellow researchers surveyed participants at points throughout the day. They found those who had engaged in small talk reported less stress and more positivity toward co-workers.

Even exchanging pleasantries with a co-worker you barely know can help, says Sarah Wright , an associate professor at New Zealand’s University of Canterbury who studies worker loneliness.

“We used to think loneliness has to be overcome by developing meaningful relationships and having that degree of intimacy,” Wright says. “More and more, though, we’re seeing it’s these day-to-day weak ties and frequency of [interactions] with people that matters.”

Such interactions are substantially harder to replicate in a virtual environment. “The default now is, I have to schedule time with you, even if it’s five minutes, instead of just picking up the phone,” says Katie Tyson , president of Hive Brands, an online food retailer founded in 2020 as a fully remote company.

The frictions add up, she says. Last fall, the company added an office in New York where employees voluntarily gather a couple of times a week to foster more cohesion.

Coming to the office, even on a hybrid basis, tends to yield a roughly 20% to 30% boost in serendipitous connections, according to Syndezo, which analysed survey data and email and messaging traffic from more than two dozen large companies.

Yet there are diminishing returns to time in person, says Philip Arkcoll , founder of Worklytics, which analyses workforce data for Fortune 500 companies. Coming in once a month provides a significant boost in ties; two or three times a month adds a little more, Worklytics data show. Once or twice a week results in a smaller increase, though, and working in-person four or five days a week makes almost no difference.

A business priority

Ernst & Young has asked managers to use the first five minutes of team calls to engage in conversation “as real human beings,” says Frank Giampietro , whose title, chief well-being officer for the Americas, was created in 2021 to help support employees during the pandemic.

The professional-services firm is also training employees to spot and reach out to co-workers struggling with issues such as isolation. To date, more than 1,600 employees have taken the training.

One challenge is that American workers have sacrificed connection for productivity, says Julie Rice , co-founder of fitness chain SoulCycle. These days, with more business contacts preferring video calls, she finds breakfast meetings and coffee dates on her calendar have been replaced with Zoom. Though efficient, such video calls are less likely to yield conversations that can turn into useful professional connections or lasting friendships, she says.

Julie Rice says that her work schedule, once packed with coffees and in-person meetups, is now an avalanche of Zooms. PHOTO: CHRISTOPHER GREGORY-RIVERA FOR THE WALL STREET JOURNAL

“Even people I’m meeting with here in New York, we’ll just Zoom,” she says.

Last year, Rice co-founded Peoplehood, a company that runs “gathers” to improve connectivity and relationship skills, and employers are signing up. One, a beauty-services business with hundreds of field employees who never see each other, asked Peoplehood to host a series of gatherings for workers to meet and share job advice. Another, a marketing company with far-flung employees, requested help after surveys showed staff wanted to feel more connected.

“Whatever relationships we had pre-Covid have sort of run out of gas,” Rice says.

Good luck prodding employees to socialise, though. Nearly all the 150-odd staff at the Pleasanton, Calif., headquarters of Shaklee, the nutrition-supplements company, used to attend annual Earth Day gatherings, which involved community service, lunch and breaking early for the day, says Jonathan Ramot , the company’s North American human-resources director. Office happy hours, bowling outings and “mix and mingles” were also robustly attended.

Now that the workforce has gone remote, last year’s Earth Day event attracted 20 staffers, even though most workers live nearby.

“We have a lot of people asking for in-person events, but when we plan them, they don’t show up,” Ramot says. “Then they complain they’re lonely.”

This past April, Shaklee instead held a mandatory get-together with the chief executive, who had relocated to Florida during the pandemic and was in town. About 100 employees gathered at a brewery for food, drinks and conversation—and no speeches from the bosses.

There was a buzz in the air, Ramot says, as staff hugged and delighted in seeing each other, some for the first time. “People were saying, I miss this,” he says.

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