Comment by tsunamifury
21 hours ago
As someone who leads large parts of ad tech for TikTok and worked at Google for 10 years, it’s the K shaped economy that is pressing SMBs out. Pure and simple
Everyone can make up some complex theories but I see it in the numbers every day. Spend distribution is now k shaped and SMBs simply can’t compete at top end performance levels.
This seems one of the more important comments here - a K shaped economy (Rich get richer up the rising arm of the K and the rest of us are on the down arm) dominates everything (ie asset price inflation means if you had assets in 2020 you probably still do else good luck) and this just is one of many ways the playing field has tilted towards the richest.
And it is always a choice - we choose platforms and regulations and spending priorities. If “we” choose a different set of tech regulations the K shaped economy can be put back in its box.
For me the problem was most clearly outlined by Cory Doctorow “developers did not unionise or rebel in time because they thought of themselves as temporarily embarrassed entrepreneurs”.
Presumably with apologies to Steinbeck: “Everyone was a temporarily embarrassed capitalist.”
There is probably an element of truth in that however when I looked at the people who outbid me on keywords half were selling high value products where they had enough margin to make it viable. The other half seemed to be spaffing their money up the wall.
Can you share any numbers ie roughly how different the spend is? SMB spends $1k on ads but grandes spend $1M or something? Idk how it works.
SMBs broadly spend 200-400 dollars a month on ads and see marginal to negative returns against 10 million in spend for large clients. Even 1000-5000 see marginal returns at best unless the target small demo high return (local premium services). They lack the budgets for learning and optimization let alone optimal price per placement.
This combined with SMBs targeting everyday joes with increasing less demand availability for anything it leaves them crushed on both sides.
Wow so 10,000-100,000x spend difference. That is a wide K.
Do you think there’s any hope for SMB? Eg I’ve seen some companies tout AI advertising optimization for SMB but when I looked into one for investment the numbers weren’t very compelling.
What is the proportion of spend of SMBs vs large clients? Would you say that large clients are responsible for most of the advertising revenue? I always assumed that would be something like a 50/50 split, but these numbers made me question that assumption.
I have a colleague who runs growth for a big consumer company driving value through their apps. They spend over $100m/year on install ads.
And the fact they price smbs out should be unsurprising: they're better at making money from a user; users are worth more to them; so they pay more.
Wouldn't the K shape only affect targeting of affluent users that are desirable to luxury brands?
It affects everyone. It's always been the case, also in traditional advertising. As soon as a company gets rich it defaults to massive marketing (at a loss) to stay on top and drown the underdogs. That's why I think marketing spend should be capped by revenue by law. The current system stiffles competition
I lke it. It would be wonderful if the cap was gradually reduced to 0.
Not all companies that have massive budgets only sell to affluent consumers. For example, walmart, amazon, most streaming services, coca-cola, pepsi, mcdonalds, etc.
Think through the net margins of the bottom of the K left to them. And then the spend against their own K economy on the business side.
Makes sense, thanks