How Covid-19 Supercharged An Advertising ‘Triopoly’

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.

LIKE MARVEL VILLAINS, most fashion writers have origin stories. Mine began with a navy nylon Prada purse, salvaged from a Boston thrift store when I was a teen in the 1990s. Scuffed with black streaks and sagging, it was terribly beat-up. But I saw it as a golden ticket to a future, chicer self. No longer a screechy suburban theatre kid, I would revamp myself as sophisticated, arch, even aloof. The bag, I reasoned, would lead the way.

That fall, I slung it against my shoulder like a shotgun and marched into school, where a girl far more interesting than I was called out, “Hey, cool bag.” After feigning apathy —“I don’t know, you could use a Sharpie on a lunch bag and it would look the same”—we became friends. She introduced me to a former classmate who worked at a magazine. That woman helped me get an internship, which led to a job.

Twenty years later, I still wonder how big of a role that Prada purse played in my future—and whether designer bags can function as a silent partner in our success. Branded luxury bags took off in 1957, when Grace Kelly posed with an Hermès bag in Life magazine. (Hermès renamed that bag “the Kelly” in 1973.) The term “status bag” was popularised in 1990 by Gaile Robinson in the Los Angeles Times, describing any purse that projects social or economic power. Not surprisingly, these accessories are costly. Kelly bags cost over $10,000; ditto Chanel’s 11.22 handbag. Some bags by Louis Vuitton and Dior command similar price points. The cost isn’t repelling customers—both brands reported revenue surges in 2023. But isn’t there something dusty about the idea that a branded bag carries meaning along with your phone and wallet? How much status can a status bag deliver in 2024?

Quite a lot, said Daniel Langer, a business professor at Pepperdine University and the CEO of Équité, a Swiss luxury consulting firm. Beginning in 2007, Langer showed a series of photo portraits to hundreds of people across Europe, Asia and the U.S., then asked them 60 questions. Those pictured carrying a luxury handbag were seen as “more attractive, more intelligent, more interesting,” he said. The conclusion was “so ridiculous” to Langer that he repeated the studies several times over the next decade and a half. The results were always the same: “Purchasing a ‘status bag’ will prepare you to be more successful in your social actions. That is the data.”

Intrigued, I gathered various Very Important Purses—I borrowed some from friends, and others from brands—to see if they could elevate my station with the same unspoken oomph as a “Pride and Prejudice” suitor.

First, I took Alaïa’s Le Teckel bag—a narrow purse resembling an elegant flute case and carried by actress Margot Robbie—to New York’s Carlyle Hotel on a Saturday night. The line for the famous Bemelmans Bar stretched to the fire exit. “Can I get a table right away?” I asked the host, holding out my bag like a passport before an international flight. “It’s very busy,” he said in hushed tones. “But come sit. A table should open soon.” I sank into one of the Carlyle’s lush red sofas and sipped a martini while waiting—a much nicer way to kill 30 minutes than slumped against a lobby wall.

Wondering if this was a one-time thing, I called up Desta, the mononymous “culture director” (read: gatekeeper) who has worked for Manhattan celebrity hide-outs like Chapel Bar and Boom, the Standard Hotel bar that hosts the Met Gala’s official after party. “Sure, we pay attention to bags,” he said. “Not too long ago at Veronika,” the Park Avenue restaurant where Desta also steered the social ship, “we had one table left. A woman had a Saint Laurent bag from the Hedi Era,” he said, referencing Hedi Slimane , the brand’s revered designer from 2012 to 2016. “I said, ‘Give her the table. She appreciates style. She’ll appreciate this place.’”

Some say a status bag can open professional doors, too. Cleo Capital founder Sarah Kunst, who lives between San Francisco and London, notes that in private-equity circles, these accessories can act as a quick head-nod in introductory situations. Kunst says that especially as a Black woman, she found a designer bag to be “almost like armour” at the beginning of her career. “You put it on, and if you’re walking into a work event or a happy hour where you need to network, it can help you fit in immediately.” She cites Chanel flap bags made from the brand’s signature quilted leather and stamped with a double-C logo as an industry favourite. “People love to talk about them. They’ll say, ‘Ohhh, I love your bag,’ in a low voice.” They talk to you, said Kunst, “like you’re a tiger.”

For high-stakes jobs that rely on commissions—sports agents or sales reps, for instance—a fancy handbag can help establish credibility. “It says, ‘I’m succeeding at my job,’” said Mary Bonnet, vice president of the Oppenheim Group, the California real-estate firm at the centre of Netflix reality show “Selling Sunset.” As a new real-estate agent in her 20s, Bonnet brought a fake designer bag to a meeting. To her horror, a potential buyer had the real thing. “I work in an industry where trust is important, and there I was being inauthentic. That was a real lesson.” Now Bonnet rotates several (real) Saint Laurent and Chanel bags, but notes that a super-expensive purse could alienate some clients. “I don’t think I’d walk into [some client homes] with a giant Hermès bag.”

Hermès bags are supposedly the apex predator of purses. But I didn’t feel invincible when I strapped a Kelly bag around my chest like a pebbled-leather ammo belt. The dun-brown purse cost $11,800, a sum that prompted my boyfriend to ask if I needed a bodyguard. Shaking with “is this insured?” anxiety, I walked into a showing for an $8.5 million apartment steps from Central Park. I made it through the door but was soon stopped by a gruff real-estate agent asking if I had an appointment. No, but I had an Hermès bag? Alas, it wasn’t enough. The gleaming black door closed in my face.

“What went wrong?” I asked Dafna Goor, a London Business School professor who studies the psychology behind luxury purchases. “You felt nervous,” she replied. “That always makes others uncomfortable, especially in a high stakes situation,” like an open house with jittery agents. Goor said recognisable bags from Louis Vuitton and Christian Dior are also often faked, which can lead to suspicion if not paired with “other signals of wealth.”

“You can’t just treat a bag as a backstage pass,” said Jess Graves, who runs the shopping Substack the Love List. Graves says bags are more of a secret code shared between potential connections. “I’ve been in line for coffee and a woman will see my Margaux [from the Row] and go, ‘Oh, I know that bag.’ Then we’ll chat.” Graves moved from Atlanta to Manhattan in 2023, and says she’s made some new, local friends thanks to these “bag chats.”

I had my own bag chat that night, when I brought Khaite’s Olivia—a slim crescent of shiny maroon leather—to a house party thrown by a rock star I’d never met. In fact I knew hardly any guests, but as I stood in the kitchen, a woman in vintage Chanel pointed to my bag and asked, “How did you get that colour? It’s sold out!” Before I could tell her my name, she told me the make and model of my purse. Then she laughed about her ex-boss, a tech billionaire, and encouraged me to buy some cryptocurrency. The token I picked surged nearly 30% in about a week. Now I was onto something—a status bag that might bring not just status, but an actual market return.

Thanks to their prominence on social media, certain bags have gained favour among Gen Zers. “TikTok and Instagram make some luxury items even more visible and more desirable to young people,” said Goor. I experienced this firsthand on a stormy Saturday morning, when a girl in a college hoodie pointed at my Miu Miu Wander bag as I puddle-hopped through downtown New York. The piglet-pink purse is a TikTok favourite seen on young stars like Sydney Sweeney and Hailey Bieber. “Your bag is everything!” yelled the girl from the crosswalk. “Thanks, can I have your umbrella?” I shouted back. She laughed and left. My Wander had made a splash—but it couldn’t keep me dry. I ran to the subway, soaked. The bag looked even better wet.

Changing the Status Bag Quo

Everyone loves an ingénue—fashion insiders included. Perhaps that’s why at Paris Fashion Week in September, newer handbags from Bottega Veneta and Loewe jostled for space and street-style flashbulbs.

“These bags, especially ones by independent labels like Khaite, are quieter signals of cultural access,” explained Goor. “Everyone knows what an Hermès Kelly bag is. So now there need to be new signals” beyond traditional status bags to convey power.

Sasha Bikoff Cooper, a Manhattan interior designer, says there’s a less cynical explanation for why these bags have captured celebrity fans—and more important, paying customers. “They’re fresh and also beautiful,” she said. “Hermès is always classic. It’s like a first love. But you want newness, too.”

The Wall Street Journal is not compensated by retailers listed in its articles as outlets for products. Listed retailers frequently are not the sole retail outlets.

How Covid-19 Supercharged An Advertising ‘Triopoly’

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

Some designer handbags like the Hermès Kelly have implied power. But can a purse alone really get you a restaurant table—or even a job?

Changing the Status Bag Quo