A "Schumpeter" column in a recent issue of The Economist took an interesting new approach to analyzing expectations for future growth of digital advertising spend.
Looking at investors' expectations of adtech companies' future earnings - as implied by their target pricing of those companies' stock - The Economist points out that "stock prices currently imply that American advertising revenues will rise from 1% of GDP today, to as much as 1.8% of GDP by 2027." The questions worth asking, of course, are whether those expectations are realistic, and whether this growth would turn the world as we know it into an advertising-soaked dystopia.
The Economist argues that these growth expectations are not realistic because people will reach their limit to tolerate more advertising and firms won't be able to afford to spend that much. I disagree; I believe that these expectations are realistic (for better or for worse; probably for worse by most measures).
Recent growth in ad dollars has been and will continue to be all thanks to digital. The digital channel isn't just cannibalizing other channels (like print); it's adding to the overall, absolute total of ad spend. The article points out one good reason for this - the availability of the channel to small advertisers.
But more importantly, it does not mention the fact that businesses can measure financial return on ad spend in digital, which was never truly possible in other channels. Digital advertisers can associate sales to views and clicks, and with a reliable calculation of CLV (customer lifetime value), they know their precise hurdle rate for it to be ROI-positive. For any CPA to which they can optimize below that point, they should have inexhaustible, infinite budgets. If a capital expense has demonstrable ROI, companies will naturally increase that expense because of its directly associated returns. Digital, unlike other forms of advertising and unlike most business activities in general, makes this possible.
As to the question of whether this growth in digital advertising will saturate the world with branding messages to the point where we feel like we are living in a Philip K. Dick novel - probably true. But it will happen so gradually that we probably won't notice the change until we are already living in that world (perhaps this has already happened).
https://www.economist.com/news/business/21735029-stockmarket-investors-are-wrong-expect-enormous-surge-advertising-revenues-something
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