The bread and butter of most social media platforms is advertising revenue. But now, more content platforms are expanding to capture this important revenue stream — with a big focus on the little guy.
While social media has opened up a completely new world when it comes to access to digital marketing, it has also created a ton of confusion for small businesses wanting to capitalize on the opportunity to reach more people. Now, it looks like companies like Spotify, Hulu, and more are vying for small business budgets, too.
Where Most Advertising Revenue On Content Platforms Comes From
Platforms like YouTube, Max, and Spotify all offer ad-free experiences for users who want to pay for premium subscriptions. But they also have free "ad-supported" tiers, as well as hybrid versions that combine a smaller monthly fee for fewer ads. Similarly, platforms like Twitch allow users to subscribe to individual streamers in order to avoid seeing ads on their channel during their streams.
Regardless of the platform, most digital advertising revenue tends to come from the same places. That's why you probably get ads for Spectrum no matter where you go on the Internet. The biggest spenders in the digital advertising space shell out billions of dollars every year to stay in front of your eyes and in your ears. Companies like Amazon, Comcast, Samsung, Ford, AT&T, and General Motors are pretty much inescapable online.
But interestingly enough, most actual advertising revenue comes from segments like retail and consumer packaged goods. The telecommunications and automative industries only account for about 15 percent of ad spend combined, yet half the list of the biggest ad spenders come from those industries. That's because they are essentially oligopolies, while sectors like retail span everybody from goliaths like Walmart and Amazon to your local shop just down the street.
And it's those smaller companies that many content platforms have their sights set on.
Spotify Focuses On Small And Medium Businesses (SMBs)
Spotify reportedly wants advertising revenue to make up 20 percent of its total revenue, a pretty tall task for a platform that is also trying to convince people to pay for premium subscriptions. The company is likely banking on overall user growth to lead this charge, and so far has seen some promising growth. Advertising revenue accounted for 12.6 percent of the company's overall revenue in 2022, up from 10.2 percent in 2017. Additionally, the company hired away Snap's former global director of small and mid customer sales, who also has experience at Meta and Google.
We've also seen Spotify treat artists and labels as sources of advertising revenue, creating products within Spotify Ad Studio that help artists get in front of more listeners. While these campaigns generally yield mixed results compared to other methods of getting in front of potential new fans, Spotify is continually working to create a multi-pronged effort to its revenue by making customers out of just about every aspect of its ecosystem.
Other companies making a major push to attract smaller companies and smaller budgets include TikTok and YouTube, who have both poured a lot of resources into educating SMBs on the value of the platform. TikTok is also going heavy on its new e-commerce platform TikTok shop, while Google is expanding opportunities to for people with online stores to sell directly on their YouTube channels.
In the vast majority of cases, these users are considered small and medium businesses, quite distant from the typical Coca-Colas and Proctor & Gambles of the world.
Why The Focus On SMBs For Advertising Revenue Matters
There are plenty of potential reasons for content companies to look beyond the massive budgets of global brands and try to attract smaller companies with more modest ad spends. For starters, we've seen what can happen when a platform loses advertiser trust like X (formerly Twitter) did when Elon Musk took over.
If a company's overall book of ad accounts is more diverse, it's less likely to run into massive losses during things like potential boycotts and major shifts in economic tides. But beyond that, these content companies are likely realizing that while social media has opened up the world, consumers are becoming more selective about which companies they support and why. Seeing a local or small business on your feed may actually help humanize the ad experience, opposed to seeing nothing but major brands you recognize.
But it also matters because it means a lot of creators who are interested in advertising on these platforms will have more resources. Because any creator that wants to advertise their content, music on streaming platforms, special downloads, merch, and more can easily benefit from running ads on these platforms. TikTok, Facebook, and YouTube have all created resources dedicated to helping small businesses strategize. Oh, and a lot of them create some cool advertising incentives that include credits on ad spend.
And while that obviously includes getting them to set up ads on the platform, there's also plenty of discussion around fan engagement and content strategy in general. If you're a content creator or manager, don't just think of "SMBs" as companies selling physical products. Content creators can also benefit from this push.