Member Exclusive   //   November 1, 2022

DTC Briefing: Dismal tech earnings forecast a gloomy holiday for brands that haven’t adjusted to iOS 14

This is the latest installment of the DTC Briefing, a weekly Modern Retail+ column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. More from the series →

This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. To receive it in your inbox every week, sign up here.

As a critical sales period approaches for DTC brands, the digital ad landscape is in free fall.

Digital advertising giants like Snap, Alphabet and Meta reported dismal earnings over the past week, indicating that some of the biggest technology companies are still feeling the ripple effects from Apple’s recent privacy-focused updates, including its iOS 14 and iOS 15 rollouts. 

Meta reported that revenue declined 4% year-over-year during its third-quarter earnings on Thursday, with its stock price plunging to the lowest levels since 2016. Snap reported a 6% year-over-year revenue increase, but that was well below the 57% increase reported during the same period last year. Alphabet’s results were more of a mixed bag, with overall revenue up 6% year-over-year led by an increase in Google search advertising, but YouTube reported a nearly 2% decline in ad sales. 

Put together, these earnings show that the digital advertising platforms — and by extension, many of the DTC brands that rely on them — are still struggling to generate the revenue growth they once did. Apple’s privacy-focused updates over the past year have made it harder for DTC brands to serve targeted ads based on users’ past browsing history. In turn, they’ve had to rethink how they use Facebook and Instagram — with many brands investing more in organic content and influencer partnerships — as well as test new methods of customer acquisition. 

In speaking with marketers and other e-commerce executives, the performance among DTC brands is expected to be bifurcated this holiday season. This key period will make clear which startups have more successfully adjusted to this new marketing landscape, and which ones have spent the last year struggling with new customer acquisition. 

“If brands are struggling with paid — or specifically Facebook — through Q3 and now the start of Q4, they are either going to have to be a lot more promotional as we enter the holiday period, or they are going to have to readjust their selling expectations,” Alex Greifeld, an e-commerce growth advisor and founder of the newsletter No Best Practices told me.

“By this point in the year, people know what brands they are shopping for in the holiday period,” she added. “So if brands haven’t been able to do customer acquisition effectively at this point, it is going to be hard to turn things around in a dramatic way in the next 30 to 40 days.” 

Emily Bajalia, marketing manager at jewelry brand Jane Win, said that the challenge e-commerce brands have been facing the past year and a half since Apple rolled out its iOS 14 update has essentially boiled down to: “How can we make sure that our ads are still efficient and reaching the people we want to reach,” while at the same time “we know it is not going to be the same as it was during the digital advertising golden days.” 

Ever since Apple rolled out its iOS 14 update last spring, DTC brands — some of whom might have previously spent 80% of their marketing budget on Facebook and Instagram — have scrambled to come up with a new marketing playbook. Ask five different marketers how they’ve had to adjust, and you’ll get five different answers. 

Still, across the board, many of the marketers I spoke with said the biggest adjustment brands have had to make is simply approaching Facebook and Instagram differently. That means testing out new creative than they may have in the past testing more frequently, and in some cases, spending more resources on reaching Facebook and Instagram users through influencer partnerships and organic content rather than paid ads.

Deepa Gandhi, co-founder of COO of handbag brand Dagne Dover, said that her company stopped advertising on Facebook entirely earlier this year. Her company is still running paid ads on Instagram, but it is investing more resources on influencer partnerships. 

“Our thesis is social media platforms are still extremely relevant, it is where our customer is. But given what has happened on the privacy side, we have had to find other ways to get in front of our target customer [beyond paid ads]” Gandhi said. 

Lillie Sun, who formerly lead growth at Three Ships Beauty and is now an independent consultant, echoed a similar sentiment. She said that many of the brands she speaks with come to her saying “we want to pull back [our paid social] budget, what do we do with all this extra money we have now?”

She said that they are increasingly looking to reinvest it in organic content creation or other types of marketing — whether that is affiliate or influencer partnerships, or spending more on email and SMS creative. 

That’s not to say that there aren’t brands out there that are still spending a ton of money on paid advertising — Sun said that, increasingly, she feels the brands that are able to still make social work are the ones that have a specialist in-house. Some brands, like supplement brand Obvi, are still spending the lion’s share of their advertising budget to Facebook, while also spending a significant amount on TikTok, the buzzy new paid social channel du jour. 

Greifeld advises her clients that “the way that you approach advertising creative [on Facebook] has to change. It is helpful to speak directly to an audience, versus skipping directly to ‘here is my product and here are my product’s features.” And spreading advertising spend across a greater variety of channels is still popular; Jane Win’s Bajalia said her company was investing more in Google, while Gandhi said Dagne Dover is also now investing in podcast advertising and OTT. 

What this all means is that the holiday advertising landscape will look different this year. Rather than being bombarded with product-focused ads in Instagram Stories, customers might see products from startups pop up more in gift guides and influencer posts.

As Gandhi put it, the way that her company’s advertising strategy will look different this year is that “It is more diversified across different types of advertising platforms.” 

What I’m reading

  • Shopify posted its quarterly results late last week. While it still posted a loss, the bleeding wasn’t as bad as many analysts expected.
  • Speaking of Shopify, Marketplace Pulse looked at sales metrics from e-commerce leaders like the Canadian platform and Amazon and concluded that the Covid-induced bump has now officially ended.
  • The New York Times has a look into the fast furniture world. The waste produced from these home goods leaders like Ikea and Wayfair has increased by 450% since 1960.

What else we’ve covered