Digital advertising growth tapered off last year after breaking records in 2021 amid the pandemic rebound, according to the latest annual report from the Interactive Advertising Bureau (IAB) and PwC. While gains for digital remained in the double digits in 2022, pushing the sector past $200 billion in revenue for the first time, a raft of ongoing challenges related to data privacy, measurement, geopolitical strife and economic uncertainty have reset the playing field, with incumbent platforms more vulnerable than ever.

“Looking ahead, there is definitely still growth to be had, but it will be harder to achieve and likely less than we have become accustomed to,” said IAB CEO David Cohen in a statement attached to the report. 

The research is the latest to indicate that digital marketing is turning a page following years on a blazing upward trajectory that seemed to reach its zenith earlier in the pandemic, when people spent more time indoors glued to their screens. A separate report from PQ Media recently found that the average consumer’s time spent with media reverted closer to pre-pandemic levels last year after skyrocketing in 2020, while once-hot categories like mobile are forecast to see their engagement growth rate shrink as smartphone adoption nears saturation. 

Some of 2022’s most significant headwinds, like inflation, could ultimately be viewed as short-term for marketers. But there are clear signs that new regulations, including an outpouring of state-level privacy laws, and policy changes from firms like Apple are shifting the power balance of marketing for the long haul and in a way that may require a substantial revaluation of strategy. Much of 2022’s growth stemmed from a “diversification into new ad formats,” according to representatives from the IAB. 

“For the first time since 2016, we're seeing a decline in market share for the top 10 ad revenue-generating companies,” said Jack Koch, senior vice president of research and insights at the IAB, during a livestreamed webinar discussing the 2022 findings Wednesday afternoon.

An uneven picture

Breaking out the IAB numbers, total internet advertising revenues were up 10.8% year-on-year in 2022 to reach $209.7 billion. Those are relatively healthy figures, though they pale in comparison to 2021’s take, when growth was more than 35% YoY. Much of the momentum also weighted toward the first half of 2022, before the economic fallout from the Ukraine war and soaring inflation roiled the markets. 

Growth was 21.1% versus the year-ago period in the first quarter, before dropping to 11.8% YoY growth in Q2, 8.4% YoY growth in Q3 and 4.4% YoY growth in Q4. While researchers were careful to emphasize that the ad industry overall showed resilience in light of myriad obstacles, a pronounced slide in the back half was noteworthy, particularly given the weaknesses around the holiday window. 

“[Q4] tends to be one of the highest-growth quarters due to holiday spend, political spend and other factors,” said CJ Bangah, a principal in PwC’s marketing strategy and operations practice, during the presentation. “This year really was an outlier.” 

As the digital landscape stands at a point of transition, winners and losers are becoming more apparent. Programmatic held steady in 2022, up 10.5% YoY to a $109.4 billion total. Non-programmatic digital formats got a boost due to the search for cookie alternatives. 

Mobile ad revenues climbed 14% YoY to achieve a record high of $154.1 billion in 2022, bolstered by podcasts and 5G wireless technology. However, social media — once in mobile’s vanguard — unsurprisingly ended up victim to policy changes implemented by Apple two years ago that make targeting ads at mobile users more difficult. 

Growth for the social media segment in 2022 was at the lowest levels seen in the past decade, according to Koch, with gains plateauing in the second half. Firms like Meta Platforms and Snap Inc. are betting on short-form video to hook more users and brands, following TikTok’s lead, but the format tends to be less well-monetized than traditional feeds.  

Retail media is also stealing more dollars away from social as it promises a clearer view into performance and to address the signal loss stemming from cookie deprecation. Gauging retail media’s true impact on the ecosystem is an uphill battle, researchers acknowledged, as many retailers do not disclose the revenue of their networks. 

Despite retail media’s strengths, it’s also experienced sharper growing pains and struggles with differentiation. Gap in March pumped the brakes on its retail media network offering, which was only in the market for a year. 

“We definitely see folks trying to enter it and trying to be effective and also learning from their own mistakes along the way,” said Bangah of retail media. 

AI on the mind

Revenues for search advertising, one of digital’s more mature channels, were up 7.8% YoY in 2022, but were increasingly “cannibalized” by digital video, the IAB and PwC revealed. Digital video revenues landed around $47.1 billion on the year, while connected TV (CTV) was positioned as another potential benefactor of the shift away from third-party cookies in 2023. 

“We continue to see very healthy growth in digital video and audio channels [and] spending flow into media like CTV and podcasts,” said the IAB’s Koch. 

Search has received renewed optimism of late as leading platforms like Google and Microsoft upgrade their search engines with generative artificial intelligence (AI), which has quickly emerged as the buzziest tech word of 2023. Experts cautioned that the monetization potential of AI-powered search and other formats could be a ways off. 

“It’s important to remember, every year for the past decade there’s a new technology set to revolutionize the advertising ecosystem,” said Luke Stillman, senior vice president of global intelligence at Magna Global, on the call. 

Stillman, who presented category-specific findings from Magna to complement the IAB research, pointed to other fads like blockchain, augmented and virtual reality and the metaverse as points of comparison with generative AI. 

“All of these are real and they are happening, but there’s a big gap between the hype cycle and budgets moving years later,” Stillman added. “Most brands are, by nature, conservative.”