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Marketecture: Get Smart. Fast.
Episode 163: Advertising is Growing Faster than the Economy — We Ask Why with Brian Wieser
00:53:44
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A
Market Live is coming up March 10th
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B
and 11th in New York City. With us some, just some of the brands and agencies that have registered thus far. And don't worry, we'll be doing several of these announcements with us. Bayer, BMO, Farmers Insurance, Electronic Arts, the Hershey Company, HP, Huntington Bank, JPMorgan Chase, Kenview, L', Oreal, MasterCard, NFL, PayPal, PepsiCo, Redfin, Synchrony, T Mobile, Verizon, Workday. Ah, agencies. Want to hear which agencies are going
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A
to be joining us?
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B
Assembly, Butler, Till, Canvas Worldwide, Kara Choreograph, Kridera, Dentsu, Digitas, ipg, IPG Media, Brands, Magnet, omd, PMG Publisher, Sapien, Razorfish, Wavemaker, WPP Media, and more. Can't wait to see you there. Go register now. Marketecturelive.com March 10th and 11th. Hey, welcome to the Market Extra podcast. This is Ari Paparo. I'm here with Eric Franchi and we have our frequent guest Brian Weiser from Madison and Wall. Eric, you were, you were trying to debate how often he's been here, like four times, five times. Not sure I want to say.
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A
He's fourth. Yeah. And he's just great. He reads every single stock, filing every single form to ak. He covers agencies, he covers ad tech. So I can't wait to just ask him about trends, ask him about what's going on. He's, he's always an awesome guest.
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B
Yeah. Despite my protests about not wanting to cover stock prices. This is going to be a lot about stock prices. That was a comment.
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A
I realized people would chirp and shout out to Doug. He listens and comments about everything. But we were just so tired. When we talked about the trade desk earnings and the fact that the stock moved, both of us were just like, we have nothing to say. So that was it.
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B
Yeah, I have nothing to say. So the big thing is that next week we're finally going to stop talking about Market Extra Live. And the reason is because it's actually happening. So next Tuesday and Wednesday in New York, we are running out of tickets, so I think we might sell out. We've got something like, I think 85 tickets left or something like that. 75. I told, I told AdTech. God, in the email he's about to send, like, use a weird number because people think it's more accurate. So 72, 74 tickets left. They have 74 tickets left. Oh, wait, I, we just sold one. 73.
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A
Can they still use a code to, to get their, one of their 73 tickets soft?
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C
Yeah.
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B
Yeah. But I'm going to Leave it to them to remember what the code is. We're not going to tell them, so they have to pay full price. Unless they're a regular listener. Just playing little tricks, playing mind games on our listeners now. But it's a stacked agenda. I'm giving the keynote. Eric is part of the Startup Showcase, where we have some amazing companies. We have. I mean, I can't even count the number of people we have on stage. And great breakouts, good sponsors we've got. And we're ending with me talking to Jeff Green, who I'm sure we'll talk about more on this podcast. So it should be a excellent event, worth your time. Also, the best weather of the year. It's gonna be like 65 and sunny. Beautiful New York weather. So hang out. We have a little outdoor terrace. Gonna hang out with your Russian daughter's bagel. It's all shaping up.
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A
This sounds great. I cannot wait. I hope to see every single listener there.
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B
Yeah, so do I. So with that, let's jump in. And as a reminder, so next week, next Friday, we will have the Jeff Green interview on this podcast. So if you can't make it to the event, which you know is inexcusable, but if you can, you can listen to Jeff and I in the conversation next Friday on this podcast. So hope you enjoy that. With that, let's jump in with Brian Weiser. All right, Brian Weezer, thanks for coming.
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C
Thanks for having me.
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B
Did I pronounce your name? Did I get your name right? I always go back and forth with, is it wiser? Is it Weezer? And then I remember that I asked you last time, and I can't remember what you answered. It's like the band. Like the band. Okay. I could remember that. Do you have a favorite sweater?
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C
Oh, well, this one's a pretty nice one. Although I noticed we all had matching kind of colors on our tots here.
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B
Oh, yeah, we have three black zips. You're not wearing a zip, Eric, are you? What you have? More like a Patagonia situation.
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A
This is. Is it. This is vintage.
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C
Check this out.
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B
Moat. Oh, nice.
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A
Shout out to Jonah.
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B
All right, well, only Brian and I are matching, so we. We think. Brian, we think you're the record holder now for most appearances on the podcast, and that's your fault for producing interesting things to talk about so often.
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C
It's an honor. What can I say? This is. It's my only podcast that is a must listen every week, so I'm very pleased to be.
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B
All right, you heard it here. Must Listen. All right, let's dive in. So you cover on Madison Wall newsletter podcast subscription service a lot about earnings. And so what is the state of digital advertising right now? After the latest state batch of earnings,
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C
the ad market is shockingly strong. And when I say that, I mean we haven't finished compiling. We'll have our new forecast update for the fourth quarter and the years ahead, hopefully within a week or two. But the market probably grew close to 15% the fourth quarter for all advertising, all advertising.
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B
So there are winners and losers. But that's like macro.
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C
Yeah, it's really, really strong. And that is despite the macro conditions out there, because the economy isn't actually that strong. So it's really, really fascinating how strong the ad market is at the moment.
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B
So, yeah, so last year you came on right around this time last year and you got us all really depressed about, you know, Trump's tariffs and how everything was going to shit and how, you know, the advertising market was going to get hit really badly. And none of that happened, it seems.
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C
Can you imagine how much stronger the ad market would be if it weren't for those policies?
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B
Okay, I could imagine, but I can't
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C
determine that's the right way to look at it. The ad market has grown in spite of these issues. It's not like anything is less risky now. And to be clear, the way we were thinking about the world this time last year, especially going into so called Liberation Day, was that risks are only more elevated. And they are. And I think that what I advise, and I think I remember. Did I freak you out, Eric? Might have been at, right around this time last year where I said that every company needs to prepare for a world where the US Is cut off from the rest of the world. That is not incorrect advice. Think about if you're a Spanish ad tech company wanting to operate the United States this week, making science as an example.
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B
Right.
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C
They're largely seller of Google. If you're them. If you have not organized yourself to separate from the United States from a cash flow perspective, you're at great risk. It doesn't mean that you think. Go ahead.
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B
Are you, are you calling out Spanish because of the Iranian war, because of geopolitical tensions or because of terrorists?
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C
Well, this week there was a threat from Trump that they're going to cut off trade with Spain.
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B
Right. Because the Iran war, because Spain has been pretty against it.
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C
Just an example. Colombia was at some risk lesser. And yes, you can make the taco argument right, that none of this really matters. But I think that the risks are real. And I think that we're looking at any enterprise that needs to plan for the long term. You have to consider that risks remain elevated, and if anything, they're even more elevated. So back to the point. The ad market is strong despite these issues, not because of them.
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B
So the GDP growing single digits as usual, ad market growing 15%. So that means ads as a percentage of GDP is going up, but on the long term, it always is a pretty stable percentage. So is there something that's changed fundamentally?
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C
Well, here's the thing. That is a rule of thumb that's useful to point to, but economic activity is not the driver of advertising by itself. More specifically, keep this in mind. There are three drivers that we identify that drive advertising. One, creative destruction. I don't mean the end of J. Walter Thompson or Putcombe Building. Right. The Schumpeter concept, the idea that new businesses form, replace others who go away. New categories that have advertising that didn't exist, like dating apps, for example, that drives advertising. Second, competitive intensity inside of categories. So imagine you have thousands, if not millions of Chinese manufacturers all of a sudden selling in the United States, catalyzing growth inside of a category that drives advertising. Economic activity is less important, but is a third factor. It's a headwind or a tailwind.
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B
Right. So do you think the competitive intensity in the US is going up because of AI innovation?
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C
That can be a factor. It's. It's a better explanation in the economy, sure.
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B
Okay, let's talk about winners and losers. So which sectors I assume, obviously Google, Meta, as usual, printing money. Where's the strengths and where are the weaknesses in the advertising sector?
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C
Well, okay, so we actually did a fairly extensive analysis of capital expenditures in this broadly defined space and trying to understand, well, what are the right metaphors here? And is there a risk of a boom and then a bust? And I think the best example to point to on the AI topic is to look at what happened with the telecom sector and the circa 19, 1999-2001 era. Global Crossing was a name that I certainly remember fondly in the sense that I worked at Lehman Brothers at the time. We were heavily exposed to working on Clex and all the broadband infrastructure players. The ones that survived out of that and did the best were those that actually had integrated offerings. So if you were US west, at least they had a real business supporting other investment in broadband. Same with AT&T or any of the telcos. And if that analogy holds up, if you're Google, if you're Meta, if You're Amazon. They're just really, really well positioned to persist because this level of Capex is not sustainable. The advertising business underpinning it is not sustainable at these levels. So that's one top of mind way to think about it.
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B
What do you mean the advertising business is not sustainable at these levels? Are you saying because they require so much Capex to continue doing, you can
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C
assume that the ad market grows at 15% every year.
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B
Okay, right, right. And then what about the. So what about all the other companies you cover? The trade desk had a bit of a weak print and they claim that automotive, which goes back to tariffs, was a cause of that. Are you seeing that elsewhere?
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C
Well, it's interesting, the trade desk I don't think fully appreciated how much market share they had taken until very recently. Right. We got those Google court filings and finally we could actually prove, not just assert that the trade desk was actually bigger than Google in the United States when it came to the dsp. Right. I don't think that the trade desk understood just how much share they'd taken. That's the first thing. The second thing with the trade desk to keep in mind is that they're not wrong to say that autos and packaged goods are a headwind. We've started developing and smaller own category level estimates and in fact, yes, we can estimate that there's about a 1 or 2% headwind on growth for the trade debt because of their exposure to those categories. So that's real.
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B
So, so let me dive into your market share question. So you know the trade I think said they, they're doing about 13 billion in gross media. Is that, that's the number. So what, what's the latest Google number? Because the number I saw for Google was like, like 9 or 10 billion. But that was a couple of years old.
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C
Well yeah, but keep in mind for the trade desk, 85% of that of that billing is in the United States. Sure, yeah.
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B
Right. So. So the trade desk is, is likely the number one market share leader in DSP space in the US Overtaking Google and with Amazon fast coming up as number three.
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C
Right, exactly. And Amazon's competition is real. I think that they underplay that in their commentary.
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B
Why do you think they underplay that? I mean other than optics. Do you think it's real that they're not head to head with them on various accounts?
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C
I don't think it's real. I think that's willful optimism.
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B
Right. To what? I mean what about the other folks? You have Vayant you have, you know, the array of double verify, other companies. Anything notable in terms of the trends? Are they all growing 15%?
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C
Well, I mean, yeah. Viet from a very small base is certainly growing. Yahoo, as far as we can tell, seems to be doing quite well, but smaller than Amazon. But I think that the category in generally speaking is kind of mature. So that's important to keep in mind.
- [12:43]
B
Yeah, certainly. And we're having this whole conversation after on Twitter. I specifically said we don't cover stocks on this podcast. So that's kind of ironic. But you know, we make an exception for you. Let's talk about retail media. So I was really impressed or shocked by Walmart's 41% growth in retail media. That's just a really big number. What's going on there?
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C
Yeah, we'll talk about winners and losers. I mean, Walmart definitely a winner here. I mean, going back to the competitive intensity inside of a category, the whole premise of retail media is to amplify the competitive intensity. Right. And so it's definitely in a great position when it comes to larger marketers. You can see how Walmart can really go head to head with Amazon on. So that's kind of the main thing to point to. They don't have quite the same long tail set of customers. It's a good, durable business. They will talk about how strong Vizio is and supporting that growth. So it doesn't hurt either. I think they've got a lot of good global opportunities ahead. It's interesting they've done as much as they've done despite having a very federated approach. I mean, it's notable that Seth d' Alaire is only now in a global position. Right. He wasn't global before. And so whatever they've been doing, yes, they've had some alignment, I guess with the U.S. but I think they can actually go even bigger and harder now that they've got a more global organization for that ad business.
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A
You touched on this before, but I wanted to ask you, do you think that Vizio is already having an impact or the impact of Vizio is still yet to come?
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C
Yeah, they've said as much. I mean the numbers that they posted convey that, you know, on a like, for like basis, they're definitely seeing acceleration. So I think safe to say that yes. Now here's where I think there's a bigger opportunity for all sellers of retail media, whether you're them, your Amazon, your Kroger, Best Buy, even any of them. I will argue that Walmart and Amazon can sell Paramount better than Paramount can sell. Paramount. And what I mean by that is I think if the more inventory for video that they have, the more they can monetize it through their retail media channels. And I think they can probably do it at higher pricing overall. Back to the competitive intensity because they can pit marketers against each other essentially and say, oh well, we've got more inventory to satisfy this competition we're now creating for you to have with your competitors.
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B
Well, also the, I mean, obviously the data, you know, so many of the television, traditional television advertisers were CPG or other products sold through retailers. And so being able to close that loop is just hugely powerful.
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C
Absolutely.
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B
So. So I mean, one question that I've always asked about retail media is how much of it is just moving trade dollars around or, or effectively extortion. Like, hey, you want to be on our shelves? Here's the IO, you know, and you and I had an email conversation about this. So what's your point of view on this? Of, of retail media being new dollars versus shares?
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C
Yeah, this isn't as much of a mystery as I think a lot of people think. We have two disclosures to point to because we all read 10Ks and read and everything, don't we?
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B
Sure, we all do.
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C
All of us.
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B
I do.
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C
Okay, good.
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B
Yeah, every day.
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C
So in 2018, Walmart, Amazon gave us a disclosure when they made an accounting change that allowed us to calculate what the effectively what the trade budget is that was funding Amazon and at the time is about a third of the numbers that they were reporting as revenue. Right. Walmart gave us a disclosure separately a couple of years later, which was essentially saying that about a quarter of of what they're booking as revenue is associated with trade budgets.
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B
Okay, Associate. Well, those are two slightly different things. Can you just make sure we understand it? So one was a discount and the other one was a trade budget.
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C
Same thing. I'm saying they're the same thing. The point is that because of the way that they have to treat the accounting is whether it's a trade budget or anything else that's tied to actual contractual sales from a manufacturer to a retailer, that is the trade budget. Right. They disclose what that number was. And so we know that everything else is an arm's length media transaction. Right. So meaning 75 to 80% or so of the spend on retail media is an arm's length media trade.
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B
Right?
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C
Sure.
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B
I mean, arm's length is doing a lot of work in that sense. Right. You know, like it means that it's not Bundled as one deal, but it's the same advertiser and the same publisher and you know, over time like if you didn't spend that money, you would sell less products. So. So it might still be coming from the same budget from the market.
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C
It's possible. But certainly from conversations I've had, I think that the arm length is pretty arm's length like the. But the people who have responsibility for trade budgets have totally different PNLs. They have totally goals and they really are very separate for most marketers.
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B
And what about non endemic? Have you ever seen an estimate of how much non endemic advertising there is in retail media, meaning products not sold on the retailer?
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C
Fun fact, with the recent disclosure from the WPP Richard Foster lawsuit, we actually see exactly how much certain of the top 20 customers at WPP spend on Amazon. So yes, we do have some numbers and it's very small. It's not a shocker. Outside of packaged goods, electronics and apparel, it's very small. Not zero, but it's very, very small.
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B
Right. Yeah, it always non endemic seems like such a big opportunity. But on site non endemic is really problematic because you want the person actually shop, you don't want them to go buy insurance or something like that.
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C
Exactly. And I think it's important to keep in mind that advertising is always a least bad alternatives business. Meaning you're always making bad choices about making the least bad choice. So if you are a an insurance company, it's not that it's not a bad choice, it's not that you don't already have a lot of bad choices, but there are other bad choices that are better than this one.
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B
Yeah, I mean like you could definitely squint your eyes and say like huh? If someone's buying diapers I bet they need insurance but you really have to squint to come up with that connection. And like and there might be better places.
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C
Right. Whereas if you are let's say a diaper manufacturer, where's the least bad place to go spend your money? Well, it's the place where you have all these consequences if you don't. From a loss of share perspective primarily.
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B
Sure. And the diaper company should put like progressive logos on the back of their diapers and get the parents when they're, when they're actually engaged.
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C
Is that a new business opportunity?
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B
Invest in that NASCAR diapers, like just put all the logos on the diapers free. Maybe you can make them free. You make the freediapers.com and the diapers
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C
are just covered in brand messages, media, brand Extensions.
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B
It is a good idea. Okay, let's talk about the biggest topic in Wall street that's going on right now. I think it's the biggest topic, which is the SaaS apocalypse. So, you know, anyone can now use Claude and vibe code salesforce.com. so what are you seeing relevant to what we're talking about advertising and marketing? Is it having an effect and where do you see vulnerabilities?
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C
Yeah, I mean, I do think it's largely overstated in terms of the near term impact. Let's take a higher level view on all of this. There is a relationship between investing or failing to invest and whether or not you grow. In general, I have the view that when I see companies who do buybacks, that tells me they have a lack of imagination about where they would put the money to work in their own business. It ultimately communicates that they aren't as confident in their business as they should be in the core operations of the business. Put that aside. There's nuance to that and all that. All right, so where you have companies who are choosing to not invest against the ways that AI might impact their business, yes, they will die. And it's really as simple as that. This, by the way, holds. When you look at media companies. If they cut their investment in content, guess what'll happen? They lose share to those who do invest in content. And in this world, if you fail to invest in new ways to do things, you will die. Now, I think that the software companies that are used to doing work in a very specific way aren't organizationally fluid. Maybe they've committed to doing too many buybacks or too much, you know, capital returns. That's a risky place to be.
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B
Yeah, but there, there's the ad tech market is weird because so many of these businesses have data assets or some sort of scale advantages that really can't be vibe coded. Like you couldn't Vibe code the trade desk. It's just basically impossible. Right? But you could vibe code, let's say HubSpot. Well, maybe that's a bad example.
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C
I think that there's a lack of appreciation sometimes for how hard it is to go to market and actually persuade people to part their budgets. I think that anywhere you have an actually like a complex offering, even take something like Google and search. Right. I mean, the fact is that took years and years and years and years to actually socialize how to do things and that you should do these things when you could do all sorts of other things. I think that any of these products that actually require Persuading a person to make a choice will continue to require humans. On that. On that note, agencies also. I know your favorite topic.
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B
Not I was about to ask you about it. What are. What. What is Wall Street's opinion about agencies vis a vis?
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C
Mostly incorrect. And I think on that front agencies are. I am increasingly positive about agencies. I used to be kind of on the fence about. I don't know how AI will impact them. And now I'm increasingly persuaded that no, a person plus a machine will beat the machine every time. And parting helping to socialize ideas about how and why to do something is the most important function of an agency. The more complex a market gets, the more choices you have to make.
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A
And.
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C
And most marketers that agencies serve will not let machines make those decisions alone.
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B
Yeah, I actually am also in that camp. I think AI might be the best thing that's happened to the agencies because it brings them to that if they invest, they end up in a hybrid people in tech business, which is. Seems like the sweet spot here.
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C
Here's a bit of irony though, because Wall street is so negative on agencies in particular and date WPP as a specific example. There's always been a fear. Like When I joined OPP in 2019, I assumed they would be blowing up the organization based on what was obvious that they needed to do. Based on what I'd been writing about, what they needed to do, what publicist had already done. It's like, okay, of course we're going to be off to the races. And the conservatism of the company was shocking in the sense that there was no willingness to do the things that needed to happen, I think. And they're not. I'm not saying this was what was specifically on their minds. There was always a fear that if you do things that are too disruptive, you blow up the stock, you put yourself at risk of a takeover. Management gets itself blown out. Okay, here we are now six, seven years later, and the reality is that Wall street does isn't going to touch it. Private equity has demonstrated they're not going to take over it. There's nothing to lose. And they're doing the right things strategically. So they've actually got a good shot now.
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B
Totally. So last thing. So next week and Market Live, we're closing the event with Fireside chat with Jeff Green. What would you ask? What should I ask him? Not that I'm going to, but I just want to hear what sort of the devil on your shoulder would ask him.
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C
How does he encourage dissent within his Organization.
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B
I'm not asking that one. It's a good one.
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C
It's a serious question because I think that's where that has been the biggest single problem for the trade desk that they have not. He's created a reality distortion field and built an amazing business around it. But it's been really clear that nobody wants to tell the billionaire that he's wrong about certain things.
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B
Do you think that you're saying that based on the exodus of various executives over the past year?
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C
I think that there's a lot of comments that he's made in public domain that are just factually incorrect and I think that there's just a lot of things that he said publicly which convey that he's not hearing alternative points of view or not listening to them.
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A
What's an example of that?
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C
Oh, I don't know. We wrote one of our most popular pieces was actually deconstructing like one of his hour long soliloquies which I actually enjoy hearing. But it was like it was just point after point like no, that's not correct. No, that's not correct. No, that's not correct. No, that's not correct. Nope, that actually has no factual basis. And it was just that, that was my observation. Like he believes what he's saying and to be clear, it served him well to build a good business. But I'm just saying that this is just an aggregation of a point of view over time.
- [25:20]
B
So aside from the interpersonal things, if you were the chief strategy officer for the trade desk, what would you advocate doing?
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C
Oh, that's a really good question. I do think that there's a huge untapped opportunity in the integration of marketing tech and ad tech and take the whole cesspocalis such as it is. If that means valuations are depressed, this is the opportunity to actually go for it and actually try to make this thing happen that we thought was going to happen 10 or 15 years ago.
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B
What would you buy? Like HubSpot?
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C
I don't have a hard deal on that. It used to cover Adobe and Salesforce, but I don't know. Eric, what would you buy?
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A
I wasn't thinking as expansively with respect to Martech, I was thinking a little bit more. Are there assets within ad tech, specifically in these higher growth areas like retail media and CTV and maybe tapping into non enterprise customer bases such as mid market and SMB that can just one plus one equals three from both serve the current base and then expand it by going downstream. That's where my head goes.
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C
That makes sense. I just feel like they're kind of tapped out in terms of this market and I don't think that they have the, the DNA to service that mid market in quite the same way. It's not that they couldn't, but it's just there's a more obvious opportunity, it feels like to extend the relationship with their core customer, the marketer. Right. And who can they. How can I get a larger share of that wallet? That would be how I would think about it.
- [26:48]
B
Yeah, you can either go for new customers or more products to sell to existing customers. Those are kind of the two obvious areas. A lot of targets would be available and I'm sure our friend Terry Kawaja has got a deck explaining all this.
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C
Also international expansion because I mean, for example, it's been a huge loss that they have not been able to meaningfully expand in any market outside the United States.
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B
Right. What percentage of their revenues outside the US like 15.
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C
15.
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A
That's really.
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B
Yeah, yeah, there's. But yet even that they're the number three player in Europe. Right. As DSPs go. Right. So, so they're doing pretty well even though it's a small portion. There's a market size problem that the DSP business is not very big anywhere besides the US and the uk.
- [27:29]
C
That's fair.
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B
All right, on that note, let's take a quick break and we'll come back with a lot of news. Kind of interesting stuff going on with ads in AI and other topics. So we'll be back in a second. This episode is brought to you by State Farm. Listening to this podcast.
- [27:50]
C
Smart move.
- [27:51]
B
Being financially savvy.
- [27:53]
C
Smart move.
- [27:54]
B
Another smart move. Having State Farm help you create a competitive price when you choose to bundle
- [27:59]
C
home and auto bundling.
- [28:01]
B
Just another way to save with a personal price plan like a good neighbor. State Farm is there. Prices are based on on rating plans
- [28:07]
C
that vary by state.
- [28:08]
B
Coverage options are selected by the customer. Availability, amount of discounts and savings and eligibility vary by state.
- [28:14]
A
All right everybody, we're back with the refresh and we love Brian, having Brian on for this stuff because you've got a POV on everything. Maybe before we get into all the AI talk. Paramount, Warner Brothers. So it's done. What are your thoughts? Start with Brian.
- [28:30]
C
Well, the point I made earlier about investment in content being critical to supporting long term growth remains true and they are going to be the dominant player in the United States from an advertising perspective. They are not the dominant player necessarily from a content spending perspective because there are many non ad supported or Low ad supported players like Netflix out there that they still have to compete with. So they have to continually invest. I think that it's reasonable to assume that they can cut and they will cut a lot from. In terms of people. This will be a bloodbath compared to a Netflix combination that could have occurred. I think they'll be fine. The vision that Ellison has is fine. But here's the thing that always I think is a problematic commentary that's out there around the whole. Will they have 30 titles released in cinemas every year that they've committed to? It's a meaningless number. The reality is that what matters is how much you're spending on content, whether it's distributed through a theater or to the home. That is really what matters. If you're trying to understand the health of the business, whether it goes to the cinema, I think is irrelevant.
- [29:37]
B
Yeah, I'll, you know, I don't have that much of a thought on, on the production side of things theatrical obviously consolidating. I'm kind of trying to think about who's left around like what is the streaming world look like and who's got scale and who doesn't. So you have Comcast with Peacock, subscale us only, but has really good content and also has really good ad sales. And ad technology versus Paramount. No ad technology at all. They're. They're just a sort of a demand taker. And then you know, Disney, Hulu, which is still merging and they've built their own ads ad stack. So it's kind of an interesting group of companies. I could see further deals and consolidation to kind of rationalize some of this.
- [30:27]
C
Keep in mind the largest sources of ad inventory in streaming and ctv. In particular it's Pluto and Tubi. Pluto from Paramount, Tubi inside of Fox. Now that's just because they're running full ad loads essentially relative to their content. Much more so than the traditional streamers and especially where they have fast content. With Pluto, they do have an opportunity to sustain these high ad loads in a way that others can't. So that's positive for them.
- [30:54]
B
Yeah, I think it'll shake out where you have more, more of these companies, these giant conglomerates sort of copying each other and, and then trying to have kind of all the pieces on the board that to give a complete solution to advertisers. And meanwhile Amazon has its own approach. Right. You know, powerhouse in ads, but less so on the content side.
- [31:14]
C
Yeah. And I think that that is the key thing. Will they actually invest if you're Amazon and you want to become bigger again, investing content audiences absolutely will follow.
- [31:24]
A
Yeah, I think it's interesting the pieces that you mentioned, Ari, they all seem to have some combination of, you know, just like a high volume fast offering. You can consider maybe Prime Video being that for Amazon, a premium content offering. Paramount's got, you know, its own stuff is now as well as Warner Brothers and then something going on with live Amazon and YouTube with you know, kind of like, you know, sports Paramount with that UFC deal which again super impressive. So seems like these are the necessary assets for any scaled player to have. And then you can tell I think a complete story.
- [32:05]
C
But here's a critical thing to keep in mind. Subscription revenue and consumer based revenues are going to be really important for any video based product to, to succeed. Because marketers want to shift their budgets away from premium video. What they say is one thing, what they do is another. They will continue to shift their budgets away from video based advertising. Connected tv, for all of its positive attributes that it has, is still a very small share, not a budget. It's about a third of total advertiser budgets right now on TV. Despite only having around 13% of inventory on our estimates. That means you can argue it's either over earning or it's demonstrating its value already. The growth opportunity for CTV is not there. So let's keep that in mind too.
- [32:48]
A
Would you, would you say it's the latter? Because I believe it's the latter.
- [32:51]
C
What that is declining?
- [32:53]
A
No, no. That it's performance, that it's just better.
- [32:55]
C
I, I think it's a mix of things. I think there's fraud, I think there's over performance and you know, there's different segments of marketers allocating budgets differently. But I think some markets are over allocating for sure as well.
- [33:08]
B
Yeah, I just want to go back to like Peacock being the odd man out here like because Comcast was the third bidder on Warner Bros. And they were outbid significantly and dropped out. And they have political problems as well. And now they're sitting there with, with Peacock. It definitely subscale probably the smallest of the major streaming services. It's a question about what happens to that.
- [33:31]
C
Yeah, and it's amazing how much they've been emphasizing Peacock without investing a lot in original content. They're certainly porting over a lot of their NBCU content. How this evolves. Given the shift of verse into a standalone company, it feels like they're losing access to live inventory as well. I think they need to just again choose to invest or get Out Makes sense.
- [33:50]
A
All right, let's, let's move on. Let's talk about AI. So we'll start with some of these partnership rumors and announcements coming out of OpenAI. So I was surprised to see this one earlier this week. Critio is the first ad tech partner to OpenAI. There's talk of a pilot without a lot of specificity in terms of what. But this is signaling an interesting move. A lot of us thought that they would just be like building it direct, sold incrementally, kind of brick by brick. They seem to be going both the direct and the partner route in the beginning here. Also reportedly OpenAI was talking to or is talking to TTD. I know this isn't a stock show, but the stock ripped after that news came out. This is pretty interesting. What do you guys think?
- [34:40]
B
I'll take this one. So in order to generate a business like Google search business, you need supply and demand and demand supply OpenAI has because they're the leading AI chat system still. They're losing share, but they're still the leader. And demand is the thing that's hard. That takes years and years. So Criteo showing up in the front door with, you know, thousands, tens of thousands of advertisers is a great hack for OpenAI to get going. What's interesting here though, in my opinion, we'll get to the trade desk in a second, is that Criteo, as I think everybody knows, is focused on a demand that is cookie based, you know, identity based. And that is a real interesting bogey here because Google has never allowed user based targeting and search in any meaningful way because they've had this whole feeling about it needs to be private. And you know, they never would sync cookies from google.com with anyone. They do to some extent on YouTube. So if Criteo is actually retargeting people, that would be fascinating. That would be a very different thing than just pushing in retail media demand.
- [35:49]
C
So I don't know the specifics about how creative is planning to do this, but keep in mind that they had to invest an awful lot of time and effort for a cookie less world. They arguably invested too much, they would even say, because they were counting on Google deprecating cookies right away. Right now also, retail media is where the whole focus of their business is. It's not about retargeting per se. So those are elements I'd consider when you're thinking about the source of demand that they might want to be trying to bring in.
- [36:16]
B
Yeah, I mean, if they're Just using their retail demand side platform. It doesn't use identity. It's almost all contextual. So that would be a lot cleaner. But it's a much smaller business. Right. Compared to retargeting.
- [36:28]
A
This is a way for it to be a big business.
- [36:30]
B
Yeah. The Trade Desk. What is this? The rumor didn't seem to make it sound like the Trade Desk would be selling on behalf of OpenAI. I just didn't understand this at all.
- [36:41]
A
Just a rumor.
- [36:42]
C
Well, it's. Yeah. Reporting from the information right now, I take that as meaning that it just means that they're giving access to inventory, nothing more than that. And whether that's just simple ads that are just lightly targeted that the Trade Desk can say that they can access as one of their thousands or tens of thousands of possible sources of inventory. It's not that big a deal.
- [37:04]
B
But yeah, but it's very incompatible with Trade Desk's approach previously because Trade Desk doesn't bid on search, doesn't bid on social, doesn't doesn't bid on retail media. SKU based at all. Right. So this is much more like those things. And so the Trade Desk doesn't have any of its usual data for targeting. Fair.
- [37:24]
C
But maybe it's trying something different. For example, they want to be able to have with Open Path or some direct line straight to the publisher. Well, OpenAI is a publisher in this context.
- [37:33]
A
It represents the most important inventory of the future. Right. Like they, everybody has to be there. So I would not be surprised if they were aggressively going after this as a next channel for them.
- [37:48]
B
It could also speak to OpenAI potentially not entirely following Google's playbook. So the team at OpenAI is largely Facebook meta executives and they may have more of a full funnel thought process around advertising as opposed to Google which is kind of stubbornly stuck at the bottom of the funnel.
- [38:08]
A
Yeah. Or just to me it's a little bit more about just like the thought around sequencing with their revenue.
- [38:15]
B
Right.
- [38:15]
A
Like typically for the big platforms it has been walled off, direct sold only and then at some point open it up to external partners. I just find it interesting and maybe this is informed by their meta experience, the Instacart experience. But building from day zero with channel partners, I love it. It's just somewhat unique and it's a faster way to get to market.
- [38:36]
C
Obviously go, go back to this bigger point that because this capital expenditure requirement they have is, is arguably unsustainable, they need to demonstrate revenue growth wherever they can get it as fast as they can get it. They Want to go public because they need to raise capital going public. They need to have as many sources of demand coming in as soon as possible.
- [38:57]
B
So Brian, what do you think? What do you think their advertising run rate will be in their S1?
- [39:03]
C
Depends when it comes out. But they could be the billions. I don't doubt that. I mean it's just not. Billions isn't necessarily that big relative to the scale of the enterprise. Right. Think about Microsoft. Bing is in the tens of billions. They'll be lucky to get to a fraction of that, which is still a big business. I mean, I'll take that.
- [39:24]
B
Yeah, I was assuming later this year. I don't think they'll be in the billions.
- [39:28]
C
But run rate, it depends. I think that the appeal is there. It depends on how many partnerships they can get and how quickly they can activate it. Could you say imagine end of year billion dollar run rate meaning 250 in the fourth quarter. It's not impossible. Maybe not likely, but not possible.
- [39:45]
A
Stay on trade desk for a sec. OpenTTD. Have you figured it out yet, Ari? You seem.
- [39:50]
B
Yeah, well, there was a very nice landing page that said open TTD and then when you went down the list, it was all things I'd heard of already like so opensensera and things like that. Pretty confident from, I think Ad Exchanger reported on this that it's really just kind of a single sign on, you know, UI type convenience integration. You know, I'm old enough to remember when I launched the first app store for advertising at AppNexus and it was kind of similar, you know, let the customers choose a data provider and then single sign on to get access to it and stuff like that. So yeah, it doesn't seem like a big deal.
- [40:25]
C
My only observation here, as one of my team members pointed out, what's the deal with the use of open everywhere is that like the new plus, the new Macs, you've got too many entities that have open and they're arguably not that open.
- [40:38]
B
Who's Open Plus? Does anyone have Open Max or Open plus
- [40:42]
C
architecture extension?
- [40:43]
B
I'm gonna. I'm about to register the domain like openplus AI
- [40:49]
C
Max Grover,
- [40:52]
A
you would. And redirect it straight to your mad Dally. I know that's exactly what you would do.
- [40:57]
B
Exactly. Open plus.
- [41:00]
A
All right, let's stay on the platform side. Amazon. Two things from Amazon this week, both super interesting. So the first is we talked about this idea that I think neither of us are too hot on building an ad network for chatbots. Amazon seems to Be building an ad network for chatbots, huh?
- [41:19]
B
Yeah. I mean this is, goes right to what I said a minute ago about supply and demand, which is that if you have a lot of demand, which Amazon does, because they have what, ten tens of millions of SKUs with advertising budget behind them, it's a lot easier to access supply. And a startup going from zero trying to create that dynamic is really a tough upsell.
- [41:42]
C
I mean, I started thinking about this for what we do. Like I realized there are probably people who, clients of ours who consume our research using AI to summarize it. And I've realized like, oh yeah, we start, need to start publishing for AI to consume it. I don't know that anyone producing research is thinking those terms. Maybe they are, but I realized that we all have to think in terms of bots to bot communications.
- [42:05]
A
Yeah, we had Nate Elliott on.
- [42:06]
C
Was that last week actually couple weeks
- [42:09]
A
ago or the week before?
- [42:10]
B
Yeah, two weeks ago.
- [42:11]
A
Yeah, yeah, he's, he was just, it was, it was a great conversation. It was like super long. He, he is super long. This idea of AEO and GEO and it being like really, really important for everyone. I think that's a little bit more of what you're talking about, Brian, which is making sure your content is, you know, properly structured for discovery, but it's less about discovery.
- [42:31]
C
And I'm thinking more about my, my, my wife described a situation where she has a client who's only consuming emails in a corporate setting through AI. And how do you prepare the report knowing that in an individualized context that your content is only going to be consumed and then translated through an AI? It's like, oh yeah, like that's, that's a little bit different. It is a similar concept, but it's not about putting out for discovery. It's about known customers who only want to consume you that way.
- [42:59]
B
Yeah, I, I'm obsessed with this idea of trying to upsell the AIs. Like, let's say you have content that you really want the AI to show to the human being. Like, you kind of have to convince the AI that it's important. Now you could be like, here's the basic content. And by the way, if you really care about this, you should really watch this video explaining how our product works and you can explain all the benefits of the benefits of watching the video because the AI might be convinced.
- [43:24]
C
You have to convince the AI one way or another. And it's not the same as AOG ideas I've seen out there.
- [43:31]
A
Got it. I see the difference. I think this is a cool idea to the extent that humans will still be in the in the mix and consuming content on chatbots. I would imagine publishers, platforms, they're all going to have chat experiences and Amazon can just kind of quickly make this a new surface that they can serve ads into. Seems pretty direct.
- [43:48]
B
It does. And it seems like I wouldn't be surprised if OpenAI does this. I think there was some reporting elsewhere that OpenAI is looking into this. Anyone who has a lot of demand could very easily create an SDK for anyone who's offering AI to show the ad.
- [44:01]
A
Agreed. Also on the Amazon front, small announcement. Notable Amazon DSP customers as of next quarter, which is like less than 30 days away, can apply Amazon audiences to Netflix ads. So all of these, like, super cool, targeted, relevant ads you're seeing on Prime Video, they're coming to Netflix.
- [44:22]
B
Demand, demand, demand.
- [44:23]
C
Amazon is just finding all sorts of great ways to build these partnerships. First they did with Roku, certainly done a lot with Netflix. I mean, it's just what we have to be cautious of is how much of the demand that they're actually able to realize or how much of their imprint do they end up booking as their own revenue. In this case, it's not Amazon buying on Netflix necessarily, but we're mindful of all these partnerships that they're forming across the industry, which is great for Amazon's durability, but really tricky if you're us and you're trying to assess, like, how's the industry doing?
- [44:55]
B
Yeah. I just wonder, like, should Walmart be growing faster than 41%? Like, if you're, if you're Walmart and you're like, you know, we could be as big as Amazon's advertising business. What, what would we have to do to become a $10 billion business in the next two years?
- [45:09]
C
They'd have to establish themselves in China and Vietnam in a bigger way.
- [45:13]
B
Is Amazon big in China with these advertising dollars?
- [45:16]
C
The demand from China, it's almost certainly bigger than Meta's as a percentage.
- [45:20]
B
Well, the demand, the demand from China, but it's running for us. Consumers are seeing the ads.
- [45:24]
C
And then actually, this is one of the interesting disclosures in, you know, in Meta's filings. I mean, Vietnam's a huge market for them now. I think it's a lot in Singapore, this was really interesting in the 10k. For the first time, Singapore was listed as one of Meta's largest markets. That can only mean Chinese advertisers relocating where their billing addresses were.
- [45:45]
B
Well, so in the case of Amazon. I don't know as much about meta. This is marketplace revenue, right? So these are merchants who are selling products on the marketplace now using the advertising tools. And my understanding, maybe you know better than I would, is that Walmart has much smaller marketplace revenue.
- [46:02]
C
Absolutely. And that's exactly the point. But when it comes to large brands, Walmart is probably pretty close to on
- [46:08]
B
par with Amazon in terms of what, dollars from advertising as a percent of gmv? Yeah, that's interesting. So you don't think that. So absent changes in their retail footprint, you don't think that Walmart is underachieving versus Amazon and advertising?
- [46:24]
C
I mean, keep in mind Walmart is Already a top 20 seller of advertising globally.
- [46:29]
B
Interesting. I still think there's a, there's, with the Vizio acquisition, there's billions of dollars of additional growth available that, that either are inorganic or through, you know, embracing TV more aggressively, could be available to Walmart.
- [46:46]
A
Does Walmart have an O and O dsp? Like could you just go by like do Walmart connect? Does it, does it have a front end that's a competitive dsp?
- [46:55]
B
Yeah, it's a white label version of Trade Desk.
- [46:57]
C
Right, exactly, it's the Trade Desk. And I think they started partnering with someone else as well.
- [47:01]
A
But yeah, that's right, they lost the exclusive.
- [47:05]
B
But I don't think they're out there on the street trying to convince people to use the Walmart dsp.
- [47:11]
A
That's my point. Do they get aggressive in the way that Amazon got aggressive and do they either use this white label or do they build or buy a dsp? And all of a sudden, you know, are we talking about Walmart as the number four and not Yahoo as the number four next year?
- [47:27]
B
Right. They could buy Yahoo DSP too. It's not. That would be a bite sized chunk chunk for them.
- [47:32]
A
True, true. No, it's interesting. Hey, one more especially Brian, while we have you, I thought this was really interesting. So in Ad Week there was an article about agencies Vibe coding AEO Geo products, speaking of, in a matter of hours and taking them to clients and selling this to clients, which I think is, it's kind of fascinating, right? Super hot category. There's billion dollar valuations. Agencies are just Vibe coding this.
- [47:59]
C
But I also took away that this
- [48:01]
A
was an article, maybe less about, you know, Vibe coding your way to a, to a new product, more about how aggressively anthropic is, you know, coming for this category and doing enterprise deals with agencies. And this feels important. It feels like almost underreported and buried in this thing, did you have a
- [48:18]
C
chance to look at it? No, but, I mean, this is a topic. We've been speaking to a lot of the main principals at agencies who are focused on the AI solutions in general. I think every agency group is doing something very similar with respect to their AI offerings, meaning they're all putting out a platform, they're all creating the equivalent of an app store, or the capacity to come up with agentic solutions that have applicability to different kinds of clients and different kinds of situations. The challenge is figuring out the right commercial model for any of this. But I think that the role of agencies, whether they're vibe coding or they're actually code coding and to sell that through to clients is real. It's just no one's quite figured out how to do it in a way that replaces the legacy model quite yet.
- [49:05]
B
Yeah, I mean, the AIO Geo category, which I really need to narrow down the name at some point, is kind of hard to defend. Like, basically it is. It's a technique, it's technical. But as of right now, there's no kind of historical data asset being collected. Over time, you'd expect the data asset to be more valuable because you could see trends and things like that. And there is an institutional knowledge benefit where you may, as an AIO provider, have more insight as to what the results mean and how do you affect them. But that's kind of reproducible over time as well. So you got to kind of wonder if this is a defensible category long term.
- [49:50]
C
The thing that's defensible when it comes to agencies is ultimately the relationships and knowing how to navigate the marketer relationship. That is the single most difficult to do thing. And we're a long way from a lot of, you know, service providers, you know, machines being able to do that.
- [50:09]
B
Hey, there's a. I have breaking news. Just someone texted me. Probably by this time. This comes out tomorrow, Friday, people have already heard it. Jeff Green, our favorite future guest on the pod, just posted to LinkedIn. Quote, over the last few days, I made the biggest purchase of my Life. I bought $150 million of Trade Desk stock. Tomorrow I'll explain why.
- [50:30]
C
Well, confident for him. That's. That's the sign you want to see.
- [50:33]
B
If you're an investor, that is definitely the sign you want to see. So shout out to Jeff.
- [50:38]
A
I like that.
- [50:39]
B
I like that. Yeah, it is a very, very, very good sign.
- [50:43]
A
Yeah. Hey, I heard a name for the AEO Geo category that I quite liked. AI visibility.
- [50:51]
B
Hey, I Like that. Yeah, yeah, that's good. AI visibility. Aiv.
- [50:55]
C
Aiv. Aiv.
- [50:57]
B
I'm writing it down.
- [50:58]
A
AIV doesn't need to be an acronym, boys.
- [51:01]
B
It does.
- [51:02]
A
AI visibility. Come on. All right, a few more things here. Anything you want to touch on? We call it a day.
- [51:11]
B
Quick callback to last week with Eric Suefer. So we talked about Meta's business AI, which was a product I hadn't heard of, where Meta is helping optimize landing pages for advertisers based on their data. This week it was pointed out that Google got a patent on this. So Google has a patent on AI based landing pages. And I don't believe, I don't know if Google has a real product out that does this right now. They did announce in their retail announcements in January a kind of a white label chatbot concept where you could put it on your. On your site and it could answer questions about your products, but that's a little different. It's a little less comprehensive. So, patent aside, I'm not sure exactly what they're in market with, but it totally makes sense. If the demand is coming from a platform that knows a lot about the consumer, why lose all that context as soon as they click out, Right? So I think we'll see a lot more of that.
- [52:07]
C
Agreed.
- [52:07]
A
All right, let's call the day here.
- [52:10]
B
All right, this is an amazing conversation, Brian. Thanks for being our most frequent guest, maybe our most popular, but we don't track that.
- [52:17]
C
I'm waiting for the jacket.
- [52:19]
B
Waiting for the jacket. Keep waiting. And next week will scare the crap
- [52:23]
A
out of us this time.
- [52:24]
B
So thank you. Yeah, that's right. Last time we left selling our entire
- [52:28]
C
portfolio, then I probably failed. You should be still quite afraid. But we'll do that another time.
- [52:34]
B
All right? All right, so next week we have a special episode. So for those of you who are coming to Market Sector live next Tuesday, Wednesday, come over, say hello. I will pretend I remember who you are. And say hi to Eric as well, who will be judging our startup competition. And I will be interviewing Jeff Green, who we've talked about quite a bit on the show. So next Friday you'll hear that interview on this podcast that's kind of a special episode. So if you can't make it, you'll be able to hear what he has to say anyway. And I'll have to prime up some questions on why he bought so much stock and what we should be doing with our portfolios. So look forward to that. All right, thanks, everyone for listening.
- [53:12]
A
Thank you for subscribing to marketecture.
- [53:14]
B
New interviews are added every week at marketecture TV and your favorite podcasting app.