KEY DIGITAL TRENDS H2 2019: FIVE TRENDS TO TRACK AS WE HEAD INTO 2020

Consumer demands continue to influence—and alter—the digital advertising landscape. As 2020 nears, big changes are coming, and they’re playing out across a variety of areas, including search, retail, video and social.

November 2019

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TABLE OF CONTENTS

3 Consumer Attitudes and Media Usage Patterns Continue to Alter the Digital Advertising Landscape

5 Trend No. 1: The Rise of Visual and Voice Search Will Create Challenges for Google

6 Trend No. 2: Cord-Cutting Will Continue

8 Trend No. 3: Direct-to-Consumer (D2C) Companies Will Continue Their Migration From Clicks to Bricks

9 Trend No. 4: Consumer Privacy Worries Will Continue to Alter Targeting and Ad Measurement Practices

11 Trend No. 5: Facebook’s Status Among Users Will Continue to Slip in the US (And Will Advertising, Finally?)

13 About This Digital Trends Collection

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US advertisers are continuing to push more ad dollars into digital. Between 2019 and 2020, an additional $22 billion will enter the digital advertising landscape.

People routinely refer to the digital era as one of rapid change—and investment. But it’s more accurate to say the pace of this change is uneven. That’s part of what’s intriguing about making predictions: Some things will be distinctly different, while others will be largely the same.

Where will growth and innovation come from as we enter Q4 2019 and near 2020?

For one, voice technology is a category very much in motion. While smart speakers are still pretty new, there’s good reason to believe that the action in voice technology will quickly move beyond them, creating new opportunities for advertisers to capitalize on voice search. Visual search (performing searches using images rather than text) will also see a boost, thanks to increasing numbers of consumers who first turn to sites like Amazon and eBay, which allow visual search, to begin their research.

These searches are just one part of an increasingly sophisticated customer journey that bridges digital and traditional channels. As the lines between digital and brick-and-mortar retail blur, retailers are working to provide an in-store experience that combines the best of both.

In other realms, digital experiences appear to be displacing traditional ones. Cable TV, for example, is experiencing a mass shift as more and more consumers make the move to over-the-top (OTT) video streaming services.

CONSUMER ATTITUDES AND MEDIA USAGE PATTERNS CONTINUE TO ALTER THE DIGITAL ADVERTISING LANDSCAPE

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Privacy concerns are also on the rise, and they’re going to affect advertisers in big ways, particularly those who don’t take consumer privacy seriously or fail to protect personal information and data. Like the General Data Protection Regulation (GDPR) did in the EU, the California Consumer Privacy Act (CCPA) will undoubtedly impact everything from ad targeting to measurement in 2020.

Signs also point to growing lack of interest in and declining user engagement with Facebook, though these have been developing gradually compared to the sudden digital privacy concerns. Social media’s difficulties are all the more serious because they have been accumulating forward momentum for some time.

How are these trends playing out today and through 2020? Read on.

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TREND NO. 1: THE RISE OF VISUAL AND VOICE SEARCH WILL CREATE CHALLENGES FOR GOOGLE

Google remains the dominant search platform in the US, but in 2020, it will need to cope with the fact that consumers are shifting some search to other platforms—a challenge the company has started to face more this year.

Amazon already captures more product searches than Google in the US. Looking at the universe of such searches conducted via Amazon or Google, marketing analytics platform Jumpshot found Amazon’s share rising from 46% in 2015 to 54% in 2018, the inverse of what happened for Google. And added research from Wunderman Thompson found 79% of US digital shoppers starting their online product searches on Amazon, vs. 47% on search engines.

Google also must deal with changes in how people enter search queries, which are moving away from typed text toward voice and visual search. Thanks to voice assistants embedded in mobile devices, smart speakers, cars, smart TVs and other connected devices, voice-activated searches are on the rise. In 2020, we estimate that 117.7 million people in the US—or 40.9% of internet users—will use a voice assistant at least once a month. Our May 2019 forecast reflects an upward adjustment for voice assistant users due to increases in expected use among all age groups. These revisions also reflect changes in the number of internet and smartphone users.

Visual search remains less developed than voice search, but key ecommerce players Amazon, eBay and China’s Alibaba are among a growing list of companies that now provide visual search tools that allow users to submit images as queries instead of text. This technology is also filtering into social media properties like Snapchat, which now lets users take a picture of an item and buy it on Amazon.

While these developments could eat into Google’s core business in the long run, Google has dived into the various touchpoints for voice with different devices that run its AI-driven Google Assistant. It also launched Google Lens in 2017 and continues to expand visual search into new tasks and platforms. Alert to possible threats, Google will continue investing heavily to expand its visual and voice search platforms in 2019 and 2020.

% of respondents, Feb 2019

Where Do Digital Shoppers Worldwide StartSearching for Products Online?

Spain Germany US France UK Netherlands

Amazon 80% 79% 79% 68% 62% 13%

Search engines 47% 58% 47% 47% 39% 54%

Branded websites 37% 18% 23% 34% 18% 30%

Other marketplaces 35% 35% 18% 21% 39% 61%

Retailers 17% 16% 40% 19% 34% 29%

Social media 10% 4% 5% 9% 11% 9%

Note: ages 16+; shop online at least once per monthSource: Wunderman Thompson, "The Future Shopper Report," June 26,2019248586 www.eMarketer.com

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TREND NO. 2: CORD-CUTTING WILL CONTINUE

In December 2018, we predicted the number of US cord cutters, that is, individuals in the US who have cancelled pay TV services, would climb in 2019. This population grew faster than previously predicted, as per our July 2019 forecast. By 2020, one in five US adults will have cut traditional pay TV from their budgets. And by 2023, that portion will jump to nearly three in 10.

Widespread adoption of digital video viewing has enabled consumers to cut the cord from traditional pay TV providers. And there are even more digital video viewers who don’t, and instead maintain their ties to pay TV alongside OTT video subscriptions.

We predict 201.7 million US consumers, or 60.7% of the US population, will stream content via a connected TV at least once a month next year. OTT video service users will total 210.4 million, or 63.3% of the US population, in 2020. OTT is defined as video that’s delivered independently of a traditional pay TV service, irrespective of device, whereas connected TV refers specifically to video watched on a TV with internet connectivity. By these definitions, connected TV is a subset of OTT.

While there’s never been a shortage of action in the video streaming space, things will get very interesting as media and tech giants tee up video streaming services that will launch in late 2019 and early 2020.

Virtually every platform we track has gained subscribers and revenues over the past year. This includes subscription video-on-demand (SVOD) services like Netflix, Amazon Prime Video and Hulu; network-driven services like HBO Now and ESPN+; and linear OTT services such as Sling TV, Hulu with Live TV and YouTube TV. And major players—Apple, The Walt Disney Co., AT&T’s WarnerMedia and NBCUniversal—that are expecting to launch services late 2019 into 2020 have the power to significantly disrupt the status quo, not only because they have the money, expertise and content libraries to make a huge impact, but also because they will increasingly hoard their own

millions, % change and % of populationUS Adult Cord-Cutters, 2017-2023

2017

29.6

42.1%

11.8%

2018

38.2

28.9%

15.0%

2019

46.0

20.5%

17.9%

2020

53.7

16.8%

20.8%

2021

61.3

14.1%

23.5%

2022

68.8

12.2%

26.1%

2023

76.0

10.6%

28.7%

Adult cord-cutters % change % of population

Note: ages 18+ who no longer have access to traditional pay TV serviceSource: eMarketer, July 2019249059 www.eMarketer.com

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content instead of licensing it to the likes of Netflix, Amazon Prime Video and Hulu.

What does this mean for advertisers? Both pillars of monetization—subscriptions and advertising—are healthy and growing, leading industry experts to conclude that one may not prevail over the other. Several incumbents—Netflix, Amazon Prime Video, HBO Now and Showtime Anytime—are exclusively subscription-funded, and upcoming services from Disney and Apple will follow the same model. And then there are services that rely solely on ads, like the Roku Channel, Pluto TV, XUMO and Tubi, which are growing their user base, too. NBCUniversal’s upcoming streaming service will also feature ads. The bottom line: There will be more opportunities—and ad inventory—to reach digital viewers as 2020 unfolds.

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TREND NO. 3: DIRECT-TO-CONSUMER (D2C) COMPANIES WILL CONTINUE THEIR MIGRATION FROM CLICKS TO BRICKS

For years, the biggest players in digital retail were focused on growing their online presences and taking share of consumer spending from traditional channels. But many digital natives are now building out their brick-and-mortar presence to take advantage of the synergies of true omnichannel retailing.

For example, Amazon continues to expand its brick-and-mortar portfolio; in addition to its Whole Foods Market acquisition and rollouts of Amazon Books, Amazon Go and Amazon 4-star, the company reported plans to introduce a more mainstream grocery concept. In March 2019, Wayfair announced its intention to introduce its first brick-and-mortar store outside of Boston this fall. And dozens of D2C brands, including Warby Parker, Bonobos, Casper and Glossier, are opening stores around the US.

These digital natives have come to realize that physical retail can introduce the brand to consumers in a more tangible way that both creates awareness and drives incremental sales. Shoppers that have been introduced to the brand online can try out products in person, while new online customers can be acquired through offline exposure to the brand.

This omnichannel flywheel effect has been magnified by the big-box retailers leading the charge on click-and-collect, or “buy online, pick up in-store” (BOPUS). According to Rakuten Intelligence, the share of online sales being picked up in stores has increased substantially every year, from 18% in 2016 to 33% in the first two months of 2019.

Over time, this encourages even more ecommerce transactions, which are fulfilled through delivery or in store—and the clicks-to-bricks flywheel continues.

% of retail ecommerce sales

US Buy Online, Pick Up In-Store Retail Sales ShareAmong Top 10 Digital Retailers with Brick-and-MortarLocations*, 2016-Feb 2019

2016**

18%

2017

22%

2018

27%

Jan-Feb 2019

33%

Note: represents activity on Rakuten Intelligence's platform, broaderindustry metrics may vary; *includes Apple, Best Buy, Costco, Home Depot,Kohl's, Macy's, Old Navy, Nordstrom, Target and Walmart; **Feb-Dec 2016Source: Rakuten Intelligence, "Forward deployed inventory: the future ofe-commerce?" April 10, 2019247233 www.eMarketer.com

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TREND NO. 4: CONSUMER PRIVACY WORRIES WILL CONTINUE TO ALTER TARGETING AND AD MEASUREMENT PRACTICES

Data-driven marketing remains key for customer experience initiatives, but those efforts are being shaped—and limited—by consumer privacy concerns. Thanks to heightened media coverage of data breaches and misuse as well as the continued rollout of privacy regulations worldwide, including the US’s own California Consumer Privacy Act (CCPA) in 2020, most consumers agree privacy is a big deal.

And companies now agree as well. A poll of marketers worldwide conducted by the CMO Council during Q1 and Q2 2019 found the greatest portion of respondents cited data security, privacy and accountability as one of the most critical demands of the modern connected customer. Trust, transparency and adherence to local regulations was also mentioned by 36% of respondents.

As CCPA enforcement looms ahead in 2020, the mandate to offer consumers more transparency and control over the use of their personal information will only grow. As this happens, marketers will be forced to reevaluate many targeting and measurement practices.

For ad buyers, greater focus on which data they can or should use for audience targeting has already brought more focus to consented, first-party data vs. a reliance on third-party data for which partners may or may not be able to collect consent. This has led many to rethink the role of behavioral targeting and more strongly consider contextual targeting instead.

% of respondents, Q1 2019-Q2 2019

What Are the Most Critical Demands of the ModernConnected Customer According to MarketersWorldwide?

Data security, privacy and accountability57%

Always-on service and support51%

Relevant experiences based on regional or local language orculture

46%

Unified and uniform experiences cross channel45%

Strong brand advocacy and purpose39%

Personalized communications38%

Trust, transparency and adherence to local regulations36%

Price transparency34%

Recognition of purchase history, loyalty and longevity30%

Moments of surprise and creative delight26%

Omnichannel experience options23%

Savings, perks and rewards18%

Note: respondents selected their top 5 responsesSource: CMO Council, "Reshaping Global Engagement Operations" inpartnership with Worldwide Partners, June 11, 2019247943 www.eMarketer.com

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But regardless of which targeting road advertisers travel in 2020, all will be required to pare back the types of data they collect and use as they engage with consumers. The same will go for publishers.

“We’ve seen advertisers voluntarily opting out of using platforms that are still legal,” said Christoph Bornschein, co-founder and CEO of consulting firm TLGG. “It’s creating a new awareness in advertising platforms and with advertisers about what data they proactively avoid using, even though they’re legally allowed to do so.”

When asked which types of data and targeting tactics he sees advertisers shying away from, Bornschein offered cross-device targeting, particularly probabilistic practices, as one use of cookies that companies are rethinking.

“Some of the largest newspaper outlets and platforms have moved away from platforms and cookie distributors that go multiplatform, even though it’s legal,” he said. “But they just felt that this way of financing their content wouldn’t be accepted by their audiences anymore.”

Also hampering targeting and measurement efforts: a growing number of changes browsers and platforms are making in the name of digital privacy. Mozilla’s Firefox and Apple’s Safari are just some of the browsers that are either actively limiting the flow of third-party cookies and tags or about to do so.

Even Google is getting on the privacy bandwagon, though in a less all-or-none fashion. Google’s May 2019 announcement that it will require developers to specify for Chrome the types of cookies they use—and allow consumers to opt out of their use—will undoubtedly continue to upset the balance of third-party data usage across the digital advertising landscape. Under this new specification, all third-party cookies must be labeled as such. The update will also limit the use of digital fingerprinting tactics, which many identity graphs and targeting firms use to probabilistically identify devices as belonging to specific individuals or households.

The bottom line: 2020 will require exceptional balance and tradeoffs from marketers in terms of what they want to track and use to target consumers—and what consumers and browsers will deem appropriate to do so.

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TREND NO. 5: FACEBOOK’S STATUS AMONG USERS WILL CONTINUE TO SLIP IN THE US (AND WILL ADVERTISING, FINALLY?)

Facebook’s problems are mounting. Although ad revenues for the mammoth social network are still rising, users are getting restless. And in 2020, advertisers will most likely get restless as well.

Thanks to privacy concerns and media scrutiny, consumer attitudes toward Facebook have worsened.

More than eight in 10 US internet users surveyed by Clever Real Estate in March 2019 said they were concerned about how Facebook used their data. The level of concern was highest among respondents ages 55 and older and lowest (but still quite high) among respondents ages 18 to 34.

Privacy was one of the top concerns US Facebook users cited as a reason to use Facebook less often or not at all, according to a May 2019 poll fielded by Edison Research. The top reason, cited by 60%, was their dislike of rants or comments that were too personal, followed closely by negativity (59%), too many political posts (58%) and concerns about privacy (57%).

Edison also found a significant portion of users (46%) said they either used Facebook less often compared with when they first signed up for the social network or have stopped using it altogether. Only 15% claimed to use it more often.

Privacy concerns and intense media scrutiny are some of the factors damaging Facebook’s reputation with consumers and driving less usage of the social network. We expect time spent on Facebook among US adults who use Facebook to drop by a minute next year, from 38 minutes in 2019 to 37 in 2020. (See chart on page 12.)

Despite these challenges, Facebook’s precise targeting, abundant reach—and a heavy amount of inertia—have kept advertisers locked into Facebook for years. However, they are paying more attention than ever to how the company is navigating its challenges, and their concerns are growing.

“If consumers use the platform less, or they use the platform in different ways, or they view the platform differently, that does change our perception, because ultimately that’s why we’re there,” said Brandon Rhoten, CMO of Potbelly Sandwich Works.

% of respondents

US Internet Users Who Are Concerned with HowFacebook Uses Their Personal Data, by Age, March 2019

18-34 74.0%

35-44 80.8%

45-54 82.3%

55+ 86.0%

Total 80.6%

Note: ages 18+Source: Clever Real Estate, "Marketing to Millennials in 2019," April 15,2019246868 www.eMarketer.com

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“We’re there to reach and hopefully influence consumers in a positive way. So, if we see a demographic shift occur in the platform, if we see reach change, if we see efficiencies shift, those are things that give us direct pause to say, ‘hey, we’re not so sure about this as the primary mechanism of advertising.’”

While changes won’t happen overnight, it’s unlikely Facebook’s current audience targeting capabilities will remain exactly as they are through the end of 2020. Regulatory action, such as the $5 billion fine that the Federal Trade Commission levied in July 2019, may play a role, as will the CCPA and other impending regulations. And we expect that Facebook will continue to make its own changes in an attempt to stay one step ahead of regulators. For advertisers, the big question will be whether or not those changes are enough to make them reconsider their commitment to the platform.

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ABOUT THIS DIGITAL TRENDS COLLECTION

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