The world has changed
Who would have thought in 2019, that the only thing we will be talking about in 2020 is the Coronavirus? Who would have possibly imagined that airports that are open every single day will be shut down and that New York City will turn into a ghost town and not just for one day or night, but for months? Also, the world of e-commerce and online advertising has taken a wild turn without any warning or notice.
Although I have a life outside of being a marketer, the question I get asked about the most is, how is business during the quarantine. The stock market is crashing, businesses are panicking, some advertisers are pulling back spend, while others are doubling down.
In some ways, the past few weeks have reminded me of how Facebook ads were five or six years ago. Like you often hear about that busy highway and the stories that say that it was not always that busy. In reference to this analogy, advertising on Facebook during the global quarantine has opened up doors that haven’t been open for a while for businesses. The reason is that so many advertisers pulled back to spend, the advertisers that can continue to operate during this crisis are experiencing massive growth.
Don’t get me wrong, the Coronavirus will be remembered as the worst global pandemic of this century and its ruins have yet to come. Economies will be affected long after this deadly virus is gone and global depressions will follow. This post is not meant to discuss the economic benefits of doing business during the quarantine, but it is to state the current growth and opportunities that have evolved from an advertising standpoint for businesses on Facebook and Instagram. My heart goes to those in crisis and my wishes go to those in need. Now that we have made this clear, let’s examine the reasons why some businesses are experiencing growth and success while advertising during the Coronavirus crisis.
Users spend more time on social platforms, Increased ad inventory
One of the main reasons why advertisers are seeing increased performance during this time is because there is more ad inventory. If a user spends an hour a day on Facebook on average during a regular day, you don’t have to do heavy research to conclude that people are spending much more time on their phones and specifically on social media during the quarantine. Social distancing causes people to turn to social networking and instead of meeting in person, people interact on social platforms. Think about the 8 hours per day that most people spend at work, now they spend those 8 hours at home. When you are home and can’t leave the house, guess who becomes closer to you than your close friend…your phone.
Although Facebook hasn’t released statistics yet in regards to the user data during quarantine, advertisers are reporting growing demand and improved performance in their ads. Advertising platforms have a limited amount of ad inventory that they can sell to advertisers. Every user is served a specific amount of ads that are based mostly on how the user interacts with the platform and how much time he spends on it. If a single user spends 2X the amount of time on Facebook during the quarantine than he normally does, the same advertiser now can have 2X the amount of ad inventory that he can be served. The simple law of supply and demand will teach us that if the amount of demand (ad inventory) increases and the amount of supply (advertisers) remains the same, the price per that inventory will decrease. Thus advertisers will pay less to reach the same person.
Quarantine encourages online shopping
What’s the one thing that hasn’t been restricted in the majority of countries that are under quarantine? Online shopping. Because online shopping doesn’t require direct human interaction, it’s the safer option. This encourages people to shop online over traditional retail. In addition, what else can you do when all the stores are closed and you can’t leave the house? You guessed right! Shop online! Online stores are never closed and they still deliver at insane rates even with the quarantine. When more people turn to online shopping at these times, the demand for goods and services online increases dramatically.
Domestic direct and indirect competitors shutdown
Another main reason that advertisers who are currently able to sell goods and services do well is because of the unfortunate fact that many advertisers can’t operate during the quarantine. Domestic retailers and manufacturers in the US have been heavily impacted and have shut down many of their operations during these times. This leaves the floor open for advertisers that can still operate normally and for international companies mainly in China that are back to work as normal. This creates an unfair advantage for businesses that outsource and ship directly from China as the postal service and shipping companies are still operating and can deliver the goods normally.
In addition to online retail, if you are active on Facebook, you probably noticed many more gaming related ads than before. It has been reported that some gaming companies have been booming and are experiencing their best quarters in their history simply because of the fact that users are spending much more time on social media platforms and competition is lower than it has been for years. Gaming and digital companies couldn’t have asked for a better scenario in terms of advertising performance.
Users are quarantined at home so they automatically spend much more time on their phones and competition has dramatically decreased, it opens up massive doors for growth and expanded reach for them.
It’s important to understand that the effect of decreased competition on indirect competition in your market on social media marketing and its importance. Decreased amounts of indirect competitors can impact your business in similar ways that direct competition can on social media platforms. Because on social media, we don’t target direct search or direct intent, different advertisers from different industries compete for the same ad space. If I am a 30 year old male living in Los Angeles and shop often online, my newsfeed will be filled with different advertisers selling completely different products. Those advertisers will compete against each other to appear in my feed. Yes, if all of them were selling men’s shoes, it will even make it more challenging, but the fact that they all compete for the same advertising space makes it more competitive. If I, as a user, spend an average of $500 per month shopping online from ads that I see on Facebook and see an average of 500 ads per month, that means that each ad drives a value of $1 in revenue. If the number of competitors drops and I now spend more time on Facebook, it means that more ad space opens up, and now the cost per advertising space drops. It also means that less advertising will compete against the $500 I normally spend per month, with my spending probably being higher this month since I am restricted only to shopping online.
This means it’s less advertising competing for more advertising space, more users, and more money. Simple supply and demand laws that will improve results for all advertisers.
With people being told to stay home under quarantine, there has been an upsurge in social media and online usage. Especially in online shopping as people adhere to social distancing and health recommendations. With some businesses having decreased or stopped advertising online during this time means that those who are still continuing to advertise through social media platforms like Facebook are seeing a greater return on their ad spend through less competition and users spending more time online due to being housebound.