Big Technology Podcast - How Apple Upended Digital Advertising — With Orchid Bertelsen and David Herrmann

Episode Date: March 16, 2022

Orchid Bertelsen and David Herrmann are two senior advertising professionals who’ve watched Apple’s anti-tracking changes upend the digital ad industry from the ground. They join Big Technology Podcast to discuss how what Apple’s “ask not to track” notification actually works, how it’s changed the way advertisers do business, how small businesses have felt the impact, and which platforms it's empowered at Facebook’s expense. Stay tuned for the second half where we discuss how Apple, TikTok, and Amazon’s businesses have changed thanks to this massive, underrated power move. This week's direct-to-consumer article: “A Reckoning.” The Direct To Consumer Craze Is Slamming Into Reality.

LinkedIn Presents Hello and welcome to the big technology podcast, a show for cool-headed, he wants conversation, of the tech world and beyond. So before we get into this week's episode, just too quick, housekey. things number one. We would love it if you guys would rate the podcast. There's an opportunity to rate on Apple and there's a new way to rate podcasts on Spotify. So if you're enjoying the podcast and want to give it a rating, that would be amazing. Second thing is that I'm going to introduce a new feature called Office Hours where I'm going to be hosting an audio event to talk about

the week's show and we'll do it as much as we can. And we're going to do the first event of that nature on Friday. That's going to be Friday, March 18th at noon Eastern time, 9 a.m. Pacific. And I'll be taking all your questions. And I'm going to try to get Orpith and David to come to. We'll see how they're going to feel after this week's podcast, which is a great segue to introduce our guests. Our guests today are Orkid Bertelsen CEO-O of Common Thread Collective, which is an e-commerce growth agency and David Herman, who's the president of Herman Digital social media ad agency. Why are they here? Well, in case you haven't been following the headlines, Apple has upended the digital advertising industry by those little pop-up windows. You might see if

you're an iPhone user that's a ask app not to track. It seems innocuous. It seems like a little thing, but it's totally upended the way that digital advertising works, especially on Facebook. So there's this massive battle going on behind the tech giants. hear a lot, you know, about some of the changes, but we rarely actually speak to the practitioners and get a sense as to how this is working on the ground and who's impacted. Well, that ends today because we are going to speak with them. And I am thrilled to have you both on the show. Welcome. Happy to be here. Thanks, Alex. Yeah, excited to be here. I can't promise this is going to be a cool-headed conversation. I think David and I maybe we'll battle it out just to keep things

spicy. All right. We definitely will introduce some debate. So, you know, Before I decided to do an episode like this, I did wonder whether anybody was actually going to care. Like, why would people care that Apple is putting this ass not to track a window out there? What is actually going on? And advertising tends to be, you know, a thing that the broader business industry or community or even the general audiences tend to fall asleep on. But this seems like, you know, pretty big to me.

So, David, can you explain what Apple's done and just how. big of an impact that's had? Yeah. I'll start with, I'll try to make this as simple as possible. Essentially, the internet is run by, I guess, cookies and tracking. That's how we do most of our advertising across the board. If that's anything from social media to affiliate to news organizations and everything. And what has always happened is essentially when you go on to any website, there is a pixel that tracks your data.

And for the longest time, it was sort of this like, okay, if you're visiting the website, you assume that, you know what, this is going to be happening and you're going to get this data and the big behemoth in the world being Facebook is probably going to track me. Apple essentially came out and said, you know what, we are not really happy that this is going on and we are going to essentially sell a value prop to our customers that, you know what, we're going to actually have it where you have to ask. for permission to get your targeting. And so that's what they did, is they're essentially enabling this block that allows a website, whether it be Facebook, whether it be TikTok, whether it be Buzzfeed or whatever it may be, if they have a mobile app,

they have to basically opt into being targeted versus how we normally were, which was always opted. So that's sort of the high level. And what that means is, just to make it as easy as possible, is that if I or anyone else is using advertising like Facebook to target a user, if a user has opted out, we can essentially serve them ads after a one-day period. Now, that means we can still serve ads to people.

It just means that the data that we get back from them and the way that the systems use that data is no longer allowed if they have opted out. And isn't that a good thing, isn't that a good thing, David? like people are creeped out by the way that they get tracked so you know there why isn't this the best thing that's happened to the internet so i think there's there's there's two sides to that there's number one yes in theory i think that facebook has been um i guess probably the biggest element in the room of uh not the best data practices i it's best best way to say it being very Yeah, being very generous. But, you know, a lot of people get confused with this because they assume that, you know, everybody that's using your data actually owns this data is storing it on their servers and goes, you know what? I know that Alex is in, you know, Austin, Texas right now at this event doing this. I have his email, his IP address and everything. And the reality is that's not really the case. A user or a small business that's running ads on, say, Facebook, they don't have like, the

email addresses and all the stuff they can target. It's this itemized, like, random string of numbers that no one can really see for the general user. Yes, there are situations like we know of certain companies that have harvested data over the past that have done some sketchy things with that data, but that has not necessarily really been the case as of pretty much since 2017, 2018. A lot of the practices that were done, Facebook put a pretty big kibosh on and made a lot more difficult for that data. And so that's, I mean, yeah, it's an elephant in the room of like, hey, this is, this is, you know, I don't know, it's against every practice to spy on people.

But the reality is you need to spend money to run an business online because it costs money from like a server issue for news or whatever it may be. And the only way to make this work for brands and for businesses is to at least get in front of the right eyeballs. and so that's really what this does and prevents what on apple side what it basically is preventing them from doing yeah and i think that this is sort of where people have an uneasiness where they start to think they hear people from the ad industry refer to them as eyeballs and not people and that's where some of the discomfort begins with or could you add something to say i'm curious

if you'd like well i want to hear what you had to say and then i also want to throw one at you as well which is, didn't the advertising industry sort of bring this on itself? Like, it seems like this is, you know, people are opting out en masse to Facebook. Isn't it kind of Facebook's fault? Oh, that's a very leading question. So I'll build on that. I mean, I think as a marketer, right, especially as a digital marketer, there's always been this question of just because we can, should we?

I do think there was a period of time where, you know, especially with digital marketing, everyone's like, all the marketers are like, well, we can measure absolutely everything. We can track everything. We can know all these things about a person. I was like, yeah, but like, do you really need all that information to sell a frozen pizza, to sell a backpack? Right. And so we kind of went from this like glut of information where we didn't look at whether or not we should have it or whether or not we could action on it, but just this idea of more. And so I think like, you know, towards the end of my time at Nestle, actually, which was where I was before, common thread, really embraced this idea of data minimalism, right? You kind of

to eat what you kill. And so when it comes to consumer data and to getting the right message in front of the right person at the right time with a right value proposition, what kind of information do you actually need? How much data do you actually need in order to get that done? So I do think, I think to your point, of course, you got a little spicy with that leading question of did the ad industry bring it out on itself? Yeah, I mean, I think the cynical side of me will say, yes, we did, right? In that just because, you know, we could acquire information, we did. We never really stopped to think about, all right, what is this in service of? And is this in service of the consumer? So yeah, that's kind of my little not so spicy take on it, but certainly

my perspective. Right. And so let's talk about how it practically is changing because people have opted out like crazy when you're asked, asked, not app not to track through apple many many people say yeah why would i want that app to track me and so they opt out and so i want to hear how practically this has changed the uh the practice of buying ads online are you able to uh to to buy ads as effectively as you could and then a corollary to that what's going on on Facebook because another leading question, David, you told me that, you know, you can now optimize about about 50% as good as you used to be able to on Facebook.

So how has that actually changed the way that ad buying is working? Yeah. So in terms of like what has kind of transpired, I think there was a data set that they said like 93%. I could be off a little bit, but it's like 93%. of people have opted out. And, you know, what that does is, it's just a, I guess, a train work when it comes to ad optimizations because suddenly a company that's just used Facebook as, or meta, as we should call them, the elephant in the room, the big one, is that, you know, suddenly this company

that has all these data sets for their ad targeting has suddenly lost essentially all of it overnight. And that does a number on the ad auctions. That does a number on anything from optimizations because suddenly no data is coming in. That goes all the way from the third party stuff, which if people don't know, essentially third party data is companies would sell their data to Facebook for, you know, whatever, how much money. And then we would pay for it through the CPM costs, right? And CPM is cost for a thousand, thousand eyeballs. Yep. And so that practice essentially was...

There I go. I just said eyeballs. David, you've converted me. Because for a thousand people that you reach. Go ahead. Sorry. Yeah. So, you know, that third party data was, I think sunset, I believe it was 2018, was the date that Facebook got rid of that.

I could be wrong with that date. But essentially, they were already sunsitting some of this data post all of the Cambridge Analytica stuff. And so, you know, now that we're in sort of. of, you know, we're almost coming up on the year anniversary of the iOS 14 point, because iOS 14.2 sort of drop is the data sets that Facebook has are not nearly as good as they used to be. But there's another side of this. It is the attribution side of it. So in, if a lot of companies, they're using Facebook ads manager or TikTok ads manager as really their source of truth, right? They've gotten by for years and years and years where

they've just trusted Facebook. Oh, well, there's 12 sales and they all came from Facebook. Therefore, we have a 3x on Facebook. Let's scale that ad set, right? Right. And I just want to stop you for a second, yeah, because just want to talk through the mechanisms of this. Attribution means are my apps leading to sales? And so what they would see was I got, you know, Facebook, when the app could track off of the app before Apple came in and put this barrier there, people could see that their ads concretely led to sales and they could optimize based off that. But now, sorry, now you can pick up. Yeah. So now the data that Facebook has is only limited to within that one day optimization. So because of the way that the Apple tracking works, Facebook only has 24 hours

to essentially track them. Well, most people, the way that the system works, is most people are not making that initial purchase, right? The higher the price of it is, they're not buying them that one day. So what Facebook is doing is Facebook is essentially modeling the data for you within an ad platform. Now, if you know anything about data and modeling data, there is so many errors that could happen in that scenario because you're allowing a system that is not really able to see your back end anymore, legally anyway.

they're having to make assumptions based off that data. And so where we are essentially a year into this is a ads manager, let's just use Facebook. That's essentially broken. In some instances, we'll have weeks where the data within that platform is off by upwards of 60%, where we'll have ads. We'll see that purchases are coming in,

but they're not being attributed to anything in platform. And we just have to assume that they're working because that's just the reality situation. And what that creates is a domino effect because you're not able to scale what you think is probably working because you're going to have to make a lot of assumptions. For a brand that's spending, you know, I work with brands that spend anywhere from $10,000 a day up to $70,000 a day, that's a lot of money to make assumptions on. And so, you know, you're needing to basically build essentially first party data as one

aspect of this, which we can get into the nuances of first-party data, but essentially like Google analytics. Yeah. Yeah. And so you're basically making a lot of assumptions here. So that's the reality of the law brands are facing right now. And so that's where we're at. So Orchid, what does this mean for e-commerce businesses that are relying? You know, because here's a thing. We always hear this line from Facebook. Think of the small businesses. And it seems when you hear someone like Cheryl Sandberg say it, it seems like a little bit like you're, you sound like a midrate politician talking about like, you know, mom and pop businesses on mainstream, but it does seem like Apple's changes are actually having impacts on small businesses ability to run successful businesses

online. So what do you, what's, what's actually happening? Yeah, I mean, I think, I think that's partially true, right? I mean, growth is hard to find regardless. Obviously, e-commerce has grown quite a bit, especially through COVID. But we're talking about limited budgets, like impacts like this are felt on smaller budgets and they are on larger budgets. So the big brands can continue to place their big bets. For years, they really haven't had much of an attribution model. They kind of acquiesce to MMM, which is mixed media modeling, which is a lagging indicator

on which channels were effective for you. But they also, those large companies don't also have to, you know, make sure. sure that they have cash in day in and day out in order to pay their staff or make sure that their business is afloat. They're really, really looking and focused in on cash flow for the small businesses. And so, yes, I mean, totally agree with David, right? It's like, hey, one of the biggest propositions for digital marketing is the agility, is attribution, is saying, is the ability to say, all right, if I have another dollar to spend, where should I spend it? And so on a cash flow important business, you know, having lack of insight into where you should spend

that next dollar is extremely impactful. I think part of it, too, is that your pool that you're fishing in is much smaller as a small business. You have more of a specificity to find the right people who will guarantee product market fit, who maybe are similar to the founder who actually created the product because they wanted to solve a problem for themselves. Whereas for the big guys, it's less of a worry because, you know, I used to joke that for the large food and bev manufacturers, their target was anyone with a mouth because they had nationwide distribution, you know, full coverage in every region. And so it almost didn't matter, you know, who they were advertising to because they were advertising to the masses. But when

you look at all the new companies, the new e-com native companies I'm cropping up, they solve a very specific problem for a very specific type of person. So I do think that, you know, ultimately smaller businesses, smaller than the big guys are impacted by this and a negative. way. Right. And let's talk about the... But there's also opportunity, which we'll get into. There's also upside. I want to talk quickly before we get into the upside about like how this is specifically impacting one crop of businesses. So it can bring this concretely a little bit into focus, which is the direct-to-consumer e-commerce businesses. So we're talking about companies and I wrote about this in big technology last week, but I just want to expand on it. We're talking

about companies like Warby Parker and Allbirds and Hems and Herds, you know, companies who said, we're not going to set up brick and mortar, we're not going to set up physical shops. Most of them ended up, you know, putting a couple together. They just walked by an Allbirds and a Warby Parker store in Austin this weekend. But they still rely mostly online. And because they don't have these big, you know, physical footprints, what they need is, you know, to build these businesses based off of online ads where they can reach people on places like Facebook for cheap, sort of substitute the real estate cost for advertising costs and you can run

a new age business. So how is something like the Apple changes there? When they lose their ability to track well, you know, spending on Facebook ads, what's the downstream impact? Like what happens to these businesses? Yeah. So I think I think there's a couple factors. Number one is, you know, you're paying a lot more for the same people that you were a year ago. So the economics of this just suddenly got way more expensive. You know, I think Common Thread has a really good, what is it called? Again, the reporting tool you have for the CPMs and you're like... Statless?

Statless, yeah, this aggregate of like this data. And it's a really cool stat because it shows you just the increase in CPM costs year over year as it relates to just the iOS 14 Apple changes. And so that's number one. We're not able to scale quite like they were and get their dollar to go further than they were. But there's a little caveat to that, right? Because we had a unique year and a half to two years

where everybody was stuck at home. And naturally, the CPM costs were really cheap. 2020 was completely ridiculous. And we're trying to now have to go back to 2019 to make any comparison of like, you know, the data you're, you know, in this time frame. But that's the big, that's the big thing is, you know, before we would get, you know, CPM costs would be, you know, five to six dollars on some of these campaigns that you're now looking at $14 to $20.

And it's just, you know, it's just that. It's like we're not able to spend as much to get this. You know, like a good study was like Purple Mattress, right? Like everybody saw the Purple Mattress ads in, you know, 2017, 2018. Like they're everywhere. Well, those ads that they were maybe spending a penny a video view suddenly are maybe three cents or four cents. But in the grand scheme, I think that adds up pretty quickly.

So I think that's the biggest issue that we're seeing right now. Were these businesses actually strong businesses if they had to like rely on Facebook to reach people and like just a. A small increase in the price to advertise to people can do such damage. And then the other thing that we're dealing with also is shipping costs, which have gone up from somewhere around $2,000 a container to get it in from China. It's now $20,000. But again, like the fundamentals of these businesses,

like it obviously makes sense so on the Internet. But were the fundamentals of these businesses strong if they could get hammered as hard by, you know, a simple tracking change? Barkin, you're up. that's a fantastic question i think i think that's the right question right because like when we talk about the heyday of warby parker um of you know those early guys of d to c like that was a very very different time um so you could i mean their digital spending was not as large as it is today cpms were lower like they they kind of got by um on a lot a lot of different things that you know kind of rode the tide

of their favor but right now i mean what is what is that saying it's like You know, you don't know who's naked until the tide goes out, right? I think this is what we're seeing is that, you know, cheap CPMs no longer being available or cheap CPAs or cost per acquisition. Then you really look at like whether or not the business model is sound. Like, do you actually have lifetime value baked into your product or your brand or are you a one and done? Right. So an example is if you sell a $300 wallet where your proposition is that this is the last wallet you will ever buy, then yeah, you have to continue to look for new customers. But if let's say you're a supplement company, right, with like a high return, a high average order value, really excellent product, shipping costs are low because those supplements tend to be pretty lightweight, then your business is, you know, if you found the right people and you have a really strong retention strategy and customer base, you might be able to ride this out. And so I think what we're seeing is like we are, and this is my cynical view of it, but, you know,

realist, depending on your view. But I think the long tail of e-commerce, right, a lot of these companies that were built on a whim with, you know, really high cogs, no real value proposition. I think they're going to go by the wayside, right? Yeah. Yes, exactly, exactly. Sorry, all the acronyms, death by acronyms. Yeah, DBA. DBA. Sorry, go ahead. But I think, I think they're going to go by, I think they're going to go by the wayside. And so right now, though, I think the strategy in order to find growth and to win is that you're going to outsmart. You're not going to outspend like you used to. Right. So I just want to share a quick story because it's pertinent. So after my story about what we're just talking about, about how these direct-to-consumers companies have

struggled because of these rising ad prices because of the inability to optimize because their tracking is broken and therefore they can't attribute their sales to their ads effectively and because of the rising shipping costs I heard from one of the stories that's right one of the companies in the story and they were like look like our revenues going up and our subscriber base is going up and you're you know your your your um citing about our margin contraction is misleading and here's why and I was like I'd been tracking all the all the data and so I was like all their earnings reports and they're like and here's a link to our earnings reports and i went in and i looked back at every single quarter since they went public and the

data beforehand and i was like first of all your losses have gone up five x between 20 you haven't yet between 2020 and 2020 losses are up 5x so congratulations you're growing your revenue your losses are growing you know by multiples and then second of all you haven't turned a profit since you turn public. So it seems like a matter of interpretation that you're doing well as a company because right now the numbers don't really seem to back that up. Yeah. So that's a long way I know. It's a long way of me. Exactly. It's a long way of me saying that some of these businesses just are fundamentally weak. So I just want to like while we end, you know, before we end this half, I want to talk, you know, just go concretely about about two things.

is this actually hurting small businesses and what's the impact been on Facebook? So let's just like, you know, we kind of have danced around it a little bit in the beginning of this conversation, but let's go concretely. Like, is this actually a big problem for small businesses in the U.S. right now, you know, what Apple's doing. And I guess like a corollary to that is like, due to privacy benefits outweigh the damage that might be done to those companies. David, you work with them all the time.

So go ahead. So to answer your question, number one, yes, it's hurting small businesses. It is. We see it every day. I'm hit up constantly by businesses that are drowning that have fired three different agencies and they're just like, we're just like, hey, you know, you're a small team. Can you come in to help us because all these agencies can't? And, you know, the reality is, you know, you built a business off Facebook's algorithm.

You didn't build a business off really a neat. And, you know, I don't want to be the bad. guy in the room, but sometimes I need to say it. And it's uncomfortable to say it, right? So, yes, it is hurting those businesses. And what was the second part of that? Well, I was going to ask if the, I did ask, if the, if the damage, we know that small businesses are the lifeblood of the economy. Is the damage to the small business is worth it for the privacy protection that Apple's customers gain? This is a really, really good conversation. that I think could be a podcast in and of itself because the reality is is you know the data that

we have been given is again it's it's not like we're given this data that we can actually go and target these people outside these things and the economy of the internet will have to fundamentally change over the next 10 to 15 years if we're literally just going to go we're going to block all of this stuff because right now Google's solution is already proven to be backfiring with how they're doing things. And Facebook's trying to figure this out in the middle of millions or billions of dollars advertising. They're essentially trying to build this, rebuild their ad platform that was built off data. And the only one, well, I would say the only two that are really benefiting right now is TikTok and Amazon. And, you know, what you're seeing

now is a lot of these small businesses have just abandoned Facebook altogether. And they're like, let's go to TikTok now and you're like well you're really not solving your problem you're just jumping from platform to platform but not really solving the fundamental issue which is you don't really have a product outside of niche and maybe you're better just to you know try something else or go back to email lists or whatever but that's really i think the fundamental element of this is like we as an advertising agent like the industry as the industry as and of itself did not have any say in what Apple is doing. Apple decided this in and by themselves. They just said, we're going with this without consulting anybody. Now, Google, on the other hand, which basically

is their entire business is advertising, is consulting advertising, the industry and saying, like, what is the best solution to this? And I do think that's the proper way to go about this because there is so many hands in this business, not only just from suppliers to, you know, all the way down the rabbit hole of small businesses that essentially, for lack of, I'll just say it, like we've kind of held the economy together in 2020, right? Like everyone's shut inside. It's D to C brands that are just like,

hey, I would have to create another toilet paper company. I have a supplier. Let's do this, right? Like, they kind of kept things together for a few months there. And there is that element of like, I'm not trying to be, not trying to say like, oh, we're the greatest thing ever. But like, there is an element of, there is a vital importance to this.

And I would hate to see our industry fall way back to the old days because there's going to be a lot of damage and it's going to be reflected in the economy pretty quickly because a lot of these businesses look at a firm, right? A firm is a big, took a big element of this, right? So all these companies that have been based off of D to C, Shopify, if this continues to go the way it's going, you're going to see a lot of revenue falling out of Wall Street, which is going to affect kind of everybody. So I think that's really what we're looking at here. Right. Orkid, you said something that I want to pick up on, which is that it's not about spending

more, it's about being smarter. And I want to put another question to you as we piggyback off of that. Maybe this is good for the advertising industry. I have not really been inspired by any of the ads I see in my Facebook news feed. And advertisers at their best, when you speak to people who work in the creative side of the business, tell a story and they make people feel emotion and that connects them to a brand. I'm sure you did a lot of this at Nestle. And when you rely, and this is, you know, early in my career, I did buy ads. So it's just sort of talking a little bit about, you know, maybe some of the scars I have from back in the day. But when you buy based off of data, you can lose some of that storytelling aspect of it. And perhaps this takes us back to the heyday of

advertising where it goes back to connecting with people on, you know, this emotional level, creating feelings as opposed to doing behavioral advertising. That's like, hey, you just walked out of a Kmart. You could go back in there and get this couch. I'm just spitballing. What do you think, Harvey? Well, I mean, you definitely can do that. I remember back in 2013, there was a lot of conversation around Beacons, right, and getting push notifications on your phone while you're wandering around Walmart, which I would not recommend. But I think to answer the question, you know, these changes, these changes are going to actually spur a lot of innovation in the space. Alex, I know you are in at South By right now. And so you are being inundated in Web3

conversations. But I think, you know, this Facebook, this iOS change and Facebook change, I mean, this was bound to happen, right? The conversation around consumer data privacy was already happening. A big value proposition for Web3 is this idea of being anonymous or pseudonymous online and, you know, allowing people to have access to your identity and being able to monetize off of that, right? Personally, not from a corporate perspective. So I do think like this conversation was going to happen regardless. Maybe the timing just got sped up through COVID, right? Similar to the adoption of e-commerce and the rise of e-commerce was accelerated through COVID. But, But I agree with you, right? It is this return to storytelling. It is a return to value propositions

to brand propositions and a reason to believe. And so, you know, we also at Common Thread service a lot of, you know, smaller clients. And a lot of them as they're maturing from being D to C only and trying to go up market, right, to a mass audience. Like, that's actually what they have to figure out, is that they found out product market fit pretty early on in terms of like a very, you know, very small audience. Sometimes it's, it's a commodity wrapped in branding that actually looks pretty good. But a lot of them now have to figure out like what they stand for in the world. Like why is their hat, right? Even though it's well made, how is that differentiated from the rest of the market? Why are people going to come back time and again to come by their

product? What is the differentiator? So I do think you're going to see a return to that. Now, that's not going to be right for every single brand. But you certainly see that as part of the brand story and the brand journey as they mature beyond DTC into broader e-commerce and then finally to take on their final Pokemon form as an omni-channel company. Orkin Bertelsen and David Herman are with us too terrific ad practitioners. It's great. Be on the line with them talking about the impact of Apple's changes. I want to talk on the second half about how this impacts Facebook. We try to get to that in the first half. We touched on it a little bit. Let's go deeper into that. And then also, who wins? What's going to happen at TikTok, Amazon, and Apple? So we will

cover that on the second half of the podcast. Hang around and we'll be back right after this. Hey, everyone. Let me tell you about The Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than two million professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. Now, they have a daily podcast called The Hustle Daily Show, where their team of writers break down the biggest business headlines in 15 minutes or less and explain why you should care about them. So, search for the Hustle Daily Show and your favorite podcast app, like the one you're using right now.

And we're back here on Big Technology Podcast with Ork and Bertelsen, the C.O. of Common Thread Collective and e-commerce growth agency and David Herman, president of Herman Digital Social Media ad agency. You can see both of their comments in my story. about direct-to-consumer stuff in big technology last week. So I'll drop that in the show notes in case you're interested. But now we have some other stuff to talk about. We have to talk about how Apple's changes are going to shift the competitive balance in the big tech world when it comes to add dollars.

You know, it's so interesting. Advertising is looked at, you know, kind of like people in tech tend to scorn it. That's just what I've seen in the past. But if you look at the business models, right, you got Facebook is ad. supported, Google is ad supported, TikTok is ad supported. Apple might be getting into that game again, and then Amazon, $31 billion in advertising revenue in 2021. So newsflash, the advertising industry is dominant part of the Silicon Valley narrative. It's important to focus on it. And I'm kind of glad we're getting into the nitty-gritty on the show. It's about time. So let's talk a little bit about

Facebook because, you know, the first thing that I want to know is how badly this has hurt Facebook. They say that there's going to be a $10 billion hit, at least in the near term, of revenue that they will not make because of Apple's changes. Does that sound right? And actually, David and Orkin, have you heard from Facebook representatives about the stuff? How panicked are they about what's happening right now? So I wouldn't say, you know, for one, I would say they're probably right and I might actually think it might be higher than that in terms of 10 billion. That seems like a lot, but I think it's probably, if not right, right around there, but it might be a little more. Regarding our representation from Facebook, you know, they're not going to come out and say

they're going to twill the company line, right? They're not going to come out and say they're panicked. But I will say I've had more conversations with Facebook reps who have been a little bit more transparent about what's going on there, for lack of a better way saying it. And we've had calls where they've essentially told us they have no clue, what's going on. And yeah, it's a little bit of a, okay, this is, what it seems like the wind has kind of come away from their sales. And they're for the first time, essentially in the company's history, they're being essentially beaten in a few different places, and they don't have any ways to combat that. And secondly, the way that they have, I guess, handled a lot of the situation with attribution

and with just being forthright about kind of the changes have been a little bit less than transparent. They were very good leading up to the changes, but since then, the platform has been broken so many times where it's really hard to as a as someone that manages media i mean you know i'm i'm spending anywhere from eight to twelve million dollars a month on on facebook ads that's not a small number for a lot of people right i mean that's a lot of money and to not have a clue from your from your reps um really this this what's going on we've had situation after situation where facebook's double counted numbers on us and you know without having a strong back end and understanding the true numbers, you know, we would have scaled that

all day. And that's a, that's a, that's a huge problem to be doing that, right? And so I think that's kind of where. So, so I don't mean to interrupt you. So you said, they had, they had been double counting and you would have scaled that all day. So what I'm hearing from you is a small error in, in Facebook metrics can actually cause you to pump money into that platform. And when that stuff goes off and it's starting to happen now without clear communication, that could really cause, you know, large spend to go and where should. I'll give you an example about a month ago, Facebook's deduplication, which is essentially the way that they are, it's going to get really nerdy for a second, but we have two different

ways that Facebook is able to look at the data. We have a thing called aggravated events manager, which is essentially the people who opted out of targeting, Facebook is able to see that data and essentially point it to the pixel data and make sure that the same people aren't being counted twice. It's because they're now having to be lumped in two different places because of Apple. Well, that system essentially broke. And for about two weeks, there was no deep duplicating happening. And Facebook wouldn't acknowledge it, but suddenly, our CPAs, our cost per purchase or cost per acquisition, was suddenly looking like it was in 2020 and we're like, this isn't right, right? When our MER, our media efficiency ratio and

our return on ad spend looking at our blended numbers across our revenue to our spend are not getting better, you know what the problem is. And Facebook, after about three weeks, two to three weeks, finally acknowledged the problem. But that's a long time for a system to essentially be broken for. So that's the issues. And, you know, when you have a brand that is coming to us as the experts and saying, where should we put our money, it's hard to say, let's put it in Facebook because it's just these issues that are happening.

So that's kind of where we're at right now and all this. Yeah, that did get nerdy, but I appreciate you going into that amount of detail. It is important. So I'm going to get to your. I'll add something to Alex. Just really quick. I mean, this is the hardest that Facebook reps have had to work probably in their 17-year history, right? Because I think historically, they would kind of lean back. And like, you know,

a lot of the guidance, especially in big companies, was that if you have a dollar to spend in social, your first dollar is going to go to Facebook. So now they kind of have to work for it. But I think it's also like inaccurate for them to. And I know they're not, but like to blame this entirely on iOS, the reality is that they've had a lack of product innovation within their for a long time. They reported the first negative user growth in 17 years. And although TikTok in terms of a user base is still about a third of what Facebook is and about half of what Instagram is still the fastest growing app and like the time spent on it is going up because they actually have compelling content from creators who are bought into the product. So, you know, I'm hoping

that they're not hiding behind this. But the reality is that Facebook has had a lot of issues as a platform for a very long time. Right. And so let's get into the, the money side of things. David, what's the spend looking like in terms of your agency? Are you moving money away from Facebook? And if so, where is it going? And then same question to you, Orchid. Yeah.

So I would say right now, well, if you asking this question a year ago, I'd say about 70% of our budgets would be on Facebook slash Instagram. Now we're probably down to about 55%. on Facebook, Instagram, and that extra 15% has gone to TikTok. TikTok has, put it this way, TikTok has quickly transformed into one of the best discovery channels out there. But YouTube has also really, really gotten good. And so some brands, where they have a lot better video content, that's more storytelling.

We're putting ads on YouTube. and the ones that have embraced creators and really embrace that that 9 by 16 vertical videos are on TikTok and we now look at things we look at everything and again to get a little nerdy here we look at everything on a one day click database I have our system set up where it says

one day this is the type of return we get per channel right now Facebook is basically on par with what we're seeing on TikTok and YouTube in terms of one-day performance. And up until probably maybe this year, we didn't, it was always Facebook would be number one by a long shot. And so it seems like the quality of the traffic mixed with the conversion data is just

not nearly as strong, but TikTok on YouTube, on the other hand, seem to have gotten stronger. And so I think that's really where things are. So yeah, that's kind of where I'm at. market yeah and for us i mean it really is more about the conversation that we're having as we're renewing a lot of contracts with our clients right is which is last year everybody was all too happy to continue to focus on facebook instagram a little bit of google search and that was kind of the conversation right maybe some retention depending on the maturity of the business now every

single conversation is how do we diversify our media channels especially ticot right so now in addition to the core social platforms. Now we're also talking about Amazon Marketplace. YouTube has also entered back into the chat, right? And so for us, a lot of the conversation isn't about Facebook or TikTok. It's Facebook and TikTok. Because again, right, it's like you fish where the fish are. Facebook still has the lion's share of audiences. So the last information that I pulled, Facebook is at what, about 3 billion monthly active users. TikTok is about 1.1. but what you're not accounting for is a U.S. audience or like including China or not including China. But the reality is that there's a lot of momentum and force and time spent on TikTok.

And like 92% of TikTok users actually do it like complete an action. So if you'll remember two years ago, TikTok announced Shopify integration. And they had largely done not a lot since then. And now they have in beta that you can actually have a very native shopping experience in app. So TikTok is growing in space. They're continuing to innovate. I think attribution is not as accurate as Facebook historically. But for us, it's definitely much more channel diversification so that you can kind of spread your risk out a little bit.

And I think it makes teams more creative and having more levers that they can pull. So we talked about TikTok a bunch. It seems very clear that it's becoming a preferred alternative to Facebook. So two questions about TikTok. One, does the ad platform in terms of the data? data you can target with on TikTok look anything close to Facebook because Facebook has people raising their hand and telling them who they are. TikTok is largely, you know, it's, well, it's, we raise our hand and tell TikTok who we are in a different way, which is that the algorithm

starts to know our personality and our interests, probably better than we do in some cases. So how does it look like from a data targeting standpoint there? And it's kind of interesting, actually. Maybe Apple by cutting off Facebook's data is actually now driving us to TikTok, which might do even more data collection. So I'm curious what you think about that. And then, too, when it comes to the creative, right, is the creative, it's very different on TikTok. On Facebook, you could have like an image and a headline on TikTok.

You know, you have to, it's much better to have a person. You can't like have a lucky charms box talking to people, although maybe that would be interesting. Like, it's generally like, TikTok creative needs to be unhinged. Yeah. If it's unhinged, it will succeed on TikTok. Right.

Okay. So actually, yeah, I won't put my opinion. on it. So, so let's go, A, the, the, um, targeting, uh, B, the creative. How does that change? And how is TikTok holding up next to Facebook? Or can you, you started so, so you can pick this one up. I'll start with the creative. I'll, I'll, I'll pass it over to David for the, for the, for the targeting. Yeah. I mean, you know, I am, I am someone who is far too old to be spending the time that I am on TikTok. I won't put it that way. It's so addicting. But what is interesting, it's so addicting. The algorithm's so right. And so, I mean, I guess I will speak to targeting a bit.

I mean, targeting is really interesting because it's like, you know, there's human behavior and then there's what humans tell you, right? And so like the running joke was always that, you know, for me, so I turned 40 in July. So Facebook launched my sophomore year of college. I'm pretty sure a lot of the interests that I put in there are still from my sophomore year of college. So you see like a lot of bands like live. I was super into live. I don't know why. It's also into fish, like, please don't judge me. And so, you know, I would say the targeting for TikTok feels like more, like they're going to give you more relevant information because they know what content actually resonates with you. And so the content that we've seen, you know,

of course is also wildly different because, you know, those glossy, very finished ads, you know, don't really work on TikTok. What works well on TikTok is, you know, everyday creators, everyday people giving a testimonial or introducing a product because if you tap into human behavior, people like to feel like they're the first to discover a product that they will then tell their friends about, right? There's always like this idea of discovery. And so what's interesting about TikTok is that you can't always hop on trends as an advertiser, right? Like I'm pretty sure we couldn't get the rights to like the Yasified Shrek in a like, you know, latex cat suit dancing in the background. And if you don't know what I'm talking about,

please go look up. So we're trending music, right? You can't necessarily pay like, you know, the exorbit amount that comes with licensing that music. So you do have to be a little more creative. Now, a lot of clients are also asking like, hey, what about organic TikTok? And then, you know, some of them will reference the duolingo owl. And so like that takes a lot of time and effort too, right? But again, like when you have like just a really diverse and wild set of creative on the platform, where you ultimately end up Testing isn't necessarily like minor iterations, but it's actually like large categories of like different creative, right? Do you have someone in the background with a big block of text that

you have to read through? Is that a format? Is another format like actually a creator like doing an unboxing experience? What does that look like? Is another one where you try to hop on a trend without actually like, you know, breaking any legal rules around it? So we're seeing like, we're having a lot of fun on the creative side, but not like there's no one thing right now that works for every single brand across every single category. Do marketers have the capacity? I just want to throw one more follow up to Orkid. Do marketers have the capacity to scale up the creative needed to be effective on TikTok?

And I'm asking this with a particular eye on whether TikTok can actually be competitive with Facebook. I mean, Lord forgive me for saying this, but it doesn't take a lot of creativity to put up a banner image and a headline on Facebook. It takes a ton of creativity to put up a video on TikTok that people are responsible. fun too. So I'm just trying to think about TikTok's ability to ramp up its revenue. And that will obviously take marketers being up to the challenge. Are they? It depends. I know that's like the answer that most people hate from marketers, but it truly depends. So I agree with you. I think a lot

of like direct response or e-commerce ads that just feature a promo of like 30% off is not wildly creative, but you can run through a lot of those. And I would still argue there's still a place. and time for creative like that, right? Now, with TikTok, you know, we have a large UGC department, and so we're seeing a lot of our brands are coming to us. Yes, sorry, user generated content. So where we reach out to creators and we, you know, we source them, we give them a brief, you know, they actually like send back creative to us. So we have a lot of brands who are at that stage where they do have an internal production arm, but they need to augment it through other services. So we do help them scale up that way. Now, the thing that I think that we're feeling now,

and I think I'm either a millennial or a geriatric millennial, is that when I started in advertising, right, I was like the young kid who they would like invite to all the rooms. They're like, tell me more about people like you. And I was like, this is so easy. I just talk about myself. And now, you know, for a lot of us in leadership, now we're talking about Gen Z, which is an entirely different, you know, sentiment around a generation. They want different things. They think humor's, you know, different types of humor are funny than like the millennials, right? And so now all of a sudden you have these marketers who like just don't have a grasp, right, of what this generation wants and what resonates with them. And so that's kind of the bridge that we have to build is to say,

all right, of all of these things that we are testing, right? For CTC, Common Thread, it is a, what are we seeing in the broad category? What are we seeing for brands similar to you? And then how do we apply it so that we at least shorten the learning curve rather than start from net new and starting from like 30 different ad types, right? We just kind of narrow it down to 10. So it is difficult. It is a new challenge, but, you know, the rewards are there.

Yeah, I'm going to take what I'm hearing and say it's going to, I think creative is going to be the hardest part, ad creative would be the hardest part for advertisers to handle on TikTok, and I think that will be the biggest impediment for TikTok's ability to grow and compete with Facebook in a real way. David, your thoughts on the targeting. Yeah. Yeah. So the way that TikTok's targeting basically works in the ad platform is in a variety of ways. Number one, they do have select interests. It's growing every day. And the way that they compile those interests is based off the algorithm. So the algorithm is feeding those interests. So, you know, you can find things such as like as basic as, you know, iPhone, but you can get really detailed

on it, actually. And while Facebook has reduced their amount of interests, TikTok has increased them. Outside that, though, they have things such as creator content. You can target creators based on their content. You can target with hashtags. Hashtag targeting is very, very, very, very deep. in fact oftentimes we will use hashtag targeting for a lot of the niches and it will get very down into the nitty gritty um you know and so you know i'm as someone that i've been on ticot's platform since their beta in 2018 in terms of like playing around the ads and everything like that and night and day difference between where they were even two months ago to where they are now in building something and you know but to kind of echo what we were talking about earlier with the content is that it is a behemoth

and most brands are not mentally prepared for the amount of creative is needed on the platform just to give you an example um i work with one brand that we are spending anywhere from 15 to 20 000 in and ticot ads and type of company we it's d to c uh dc skincare brand And we cycle through anywhere from, I would say, 18 to 20 pieces of creative a week. And we have four full-time creators, two full-time editor, or one full-time editor. And then we're trying to get more and more and more because we're trying to scale more. And then we are also executing with landing pages and all these things, right? It's really becoming a, it's a content game at this point.

It's not necessarily, you know, who can make the best offer because offer isn't really the issue here. It's who can get on the 4U page, who can make these ads go viral and kind of go from there. And that's really where I think TikTok shines the best between, say, Facebook and TikTok. TikTok, it's even on the organic front. So TikTok is rolling out business audiences, which is essentially now we're able to target followers. We're able to target organic video views, which Facebook.

doesn't have. I can't target Instagram followers. I can't target in, uh, Instagram organic video views. So TikTok has really basically taken what Facebook has been kind of sitting on the sidelines with and gone like, oh, well, we're just going to go do everything that marketers have been asking for. Um, but we're also going to do it in a privacy kind of way. And that also comes down to some of the people that, that TikTok has recruited from Facebook to come work for them. Um, and so that, that, That's, I think, where I'd end this is, is that the product itself is night and day difference, and it's fun. Like, TikTok is fun.

And I, it's, and people are going to play with it, right? It's fun. So, yeah. We have just a couple minutes left. So let's just do a little bit of a lightning round here. Well, it won't be as exciting as a typical lightning round, but I do want to cover two more companies briefly before we go. There's Apple, this is another big question that we have to ask. does Apple's big play to restrict Facebook's ability to sell effective advertising

lead up to Apple creating an advertising platform of its own that does a lot of the things that marketers use Facebook for? For certain categories, yes. So like apps, yes. For consumer package goods, probably not, is my guess as of today. Yeah, I'm so in the fence on it. Apple search ads are definitely good for mobile apps, but they're not scalable at this time.

So there's still a ways away. This is anything. Okay. Wow, that's good. We're moving lightning right through. Okay. And then the last one is Amazon with a direct-to-consumer or any e-commerce company. You know, some try to build their own websites and they rely on the Facebook ads to reach people.

And it's like kind of nice because there's an illusion of independence there. But they don't want to go through Amazon. Amazon is just another middleman. But Amazon has the logistics. Amazon has an ad platform. Amazon just made $31 billion in advertising last year. Is Amazon the biggest beneficiary of these changes? Yeah.

Well, yeah, I would say they're one of the biggest, for sure. Yeah, I was going to say, I was like, I don't know if they're the biggest, but it was really at the top. Yeah. Why is that? Yeah. I mean, so here's what we're seeing is a couple of things. Number one is a lot of brands are still using Facebook, but driving to their Amazon stores.

A lot of people are just saying, you know what? Our targeting on Facebook sucks. So let's just drive to the Amazon store and see what happens. Have you done that? And how does it works? So we do it a lot with TikTok, not with Facebook. And it actually works very well. You use an Amazon instant page.

So you create an instant page that looks like. Amazon. And then when they click, they click right to checkout and drives them right to check out on Amazon. It works surprisingly well. Again, you're not going to see that data in platform, but you're seeing it on the back end and you're making a bet that that person probably has Amazon Prime. But there's there's a lot of, you know, Amazon is a is sort of in D to C especially is kind of an ugly place because a lot of people don't want to play there for a variety of reasons. Number one, it's with our with the expense as it is already of running ads on these platforms, then to have Amazon take their cut as well, suddenly it's not

as profitable than running on Shopify. Number two, there's a lot of people and a lot of brands that are very, especially if they have a brand that isn't patented, they're running the risk of Amazon just ripping them off, which tends to happen. So there are these things where people just don't want to be on Amazon for, or they take their excess inventory and throw it on Amazon call it a day. And so, yeah, so I think there are those Amazon businesses. and then there's those Shopify businesses. I don't see a world in which we are going to have, you know, Albirds or, you know, some of these brands that are coming up,

say like an Albirds, that are going to put all of their inventory on Amazon and just run Amazon ads because they want to control the brand still. And so that's one thing I would call out. Orkin, how about your clients? Yeah, so Amazon's definitely one of the top beneficiaries, but it's just like it's that age-old argument of like, do you go direct to consumer or do you go retail, right? You kind of fish where the fish are. So if you think about, you know, if you only have a D to C channel, then all your advertising

is probably around like education, right? Because a lot of the new brands are, you know, creating a market, right? They're not like really going into an established one. And so the question then is like, all right, what is your retailer strategy? You know, a lot of the criticisms we have about Amazon about not having access to data or not owning the consumer experience. those are still criticisms of traditional brick and mortar retail. And so even when you look at retail like Target, like Walmart, like Kroger, I mean, all those guys have massive ad platforms as well. So I think Amazon is going to be, at least for our clients,

we're recommending it as an and, not an or. I do think that there's this question about price point, right? At what point is your product so high end that it actually is like dilutive to the brand by having it on Amazon? So again, I think it only works for certain product categories. But one thing we don't talk about enough either are all the like Zappos, right, all the other platforms that Amazon owns. Because if you have, if you're selling your shoe through Zappos,

like it's automatically going to be pulled in to Amazon when you search for that brand anyway. And so I think this is more actually about a D to C versus a retailer strategy than like, hey, like, you know, how much of, you know, the e-commerce world is. this play, and obviously it's a part of e-commerce, but it is that traditional argument of DDC versus retail. Amazing. Well, look, I love an advertising conversation for many reasons. I'm in old school ad nerd, so I can't get enough of the industry.

And I also think that as we've shown probably over the last hour, is that when you start talking about advertising, you really get into the way that the businesses of some of the biggest companies in the world function. I talk about Apple, Amazon, Facebook, Google, TikTok. This is where it comes down to. This is sort of where the business rubber meets the road, and it's always good to really get in and explore. And instead of talking about high-level numbers,

actually speak to the practitioners and hear about how these systems work and how the impact is felt on the ground. So Orkin and David, thank you so much. I really can't thank you enough for being here today. And hope you'll come back sometime soon. Absolutely. Yeah, sounds great. I'm waiting for your next book, Alex.

Then we'll host another book club. I know. I have to get to writing. Maybe we'll do one about these tech giant wars. Again, if you enjoyed the podcast, want to talk a little bit more about it. We'll be hosting office hours on LinkedIn. You can just go to my page,

just Alex Cantorowitz on LinkedIn, and I'll have an audio event. It's Clubhouse style. And that is going to be at noon Eastern and 9 Pacific and the other times, you know, in the middle on Friday. March 18th. And again, if you enjoy the podcast and want to rate us on Apple or Spotify, that would be amazing. Thank you, Nate Guanty, for editing the audio. It was really nice to see you in Austin this past week. That was cool. Nate and I've been working together for a long

time and finally got to meet the person. So that was awesome. Thank you, LinkedIn. It's a pleasure being part of your ad, well, your podcast network, which includes advertising. Let's keep it up. And thanks to all of you, the listeners. Appreciate you coming back every week. And I hope you join us next Wednesday for a new conversation with the tech insider or an outside agitator. Until then, take care.