Digital Rent and the Brand Wealth Gap

In the past several years, a growing body of work has suggested that digital advertising shouldn’t be considered “advertising” in how it markets and in behavior.

Both or neither may have coined it, but I recall seeing this paradigm from Benedict Evans (Retail, Rent, and Things That Don’t Scale) and Professor Scott Galloway (The Imminent Collapse of Digital Advertising). The idea being, as more of an industry shifts to digital commerce or an omnichannel model, brands are forced to shift an increasing proportion of their investment toward digital tactics that support being easily found in these shopping models.

You can no longer buy an endcap in a grocery store to raise your visibility – you have to buy the first position in paid search results on Walmart’s app. Behavioral retargeting, CRM, and first-party-data–based targeted campaigns operate on similar principles, moving the “shelf space” of shopping behavior away from a point of purchase (in-store or online) incrementally closer to a likely shopper.

That’s not advertising to create demand. It doesn’t make someone excited and interested in your category or brand; it is trying to stand out on a “shelf.” That’s not advertising. That’s rent.

Digital rent is still renting to occupy the shelf space along the existing path to purchase. And it’s absolutely rented, not owned. That bill comes every month, and bigger aisles require bigger rent checks. As in the housing market right now, rents are rising – in absolute costs and as a proportion of household budgets.

Let’s ask Google about the costs of advertising on Google.

61% increase year over year?! 75%?!

That reflects the growing flood of advertisers shifting spend to just a few platforms. Over the last five years, spend in Google (Google and YouTube), Meta, TikTok, and retail media networks has expanded from 30% to 64% of all investment in media in the United States (eMarketer Analysis).

This is a huge problem.

Here’s where the growing body of work explains the issue.

Peter Field has identified a breakdown in one of the fundamental laws of brand growth. Spend (share of voice) and outcome (share of market) are decoupling. We’ve known since 1994 that excess share of voice (ESOV) – investing in advertising SOV proportionally higher than direct competitors’ SOM – will steal market share over time. Half a point of market share for every ten points ESOV is the standard rate.

That rate is now broken. The coefficients are failing. Spend doesn’t guarantee the same growth, because it’s being spent on rent rather than paying down a mortgage.

If intercepting a path to purchase is akin to paying rent, building a brand is more akin to homeownership. Rent evaporates, but equity grows. Getting a healthy mortgage is an investment in future wealth; memorable advertising is an investment in future demand.

Brand is a memory; memories move markets.

Dr. Karen Nelson-Field’s work further explains where rent payments go awry. Most digital formats cannot capture the attention necessary to build a memory. If brands are memories, these formats are by definition unable to contribute to meaningful brand-building. Digital advertising, then, by definition is further burning rent checks.

Before the villagers grab pitchforks, this is not to say that digital doesn’t have value or doesn’t help grow businesses. This is decoupling brand and business. Only building the business never changes your leverage; you stay beholden to paying rent. You never start building equity in the home. You can’t take out a home equity line of credit. And ownership has other privileges. It’s much harder to build an extension onto a property you don’t own: Brands create options when untethered from the uncontrollable cost of rent.

Tom Roach wrote a great piece last year on how you can grow a brand in digital. My build on this thesis: You cannot grow a brand on digital advertising (or at least not digital advertising alone). Brand-building in digital requires building ideas that spread through digital mechanisms. Digital requires IDEAS, ACTIONS, and SYSTEMS, not MESSAGES.

Back to the digital housing market.

The Brand Wealth Gap

The pernicious growth of digital rent is exacerbating a brand wealth gap. The gap exists between brands who are able, or were simply lucky enough, to break this cycle early – and now can leverage strong equity to restrict access to more fruitful markets – and those who have not yet found a strategic and creative way to gain leverage to start building brand equity/invest properly in future demand and are caught in the trap of rent payments.

Recent work from Ehrenberg-Bass in their Market-Based Assets Theory explains some of the core mechanisms of this divide. It seems a bit like circular logic, but in explaining market effects it is spot-on: The biggest brands in each category are big because they are big. The bigger your brand (i.e., the larger your owned home), the less rent you need to pay (i.e., renting more shelf space).

This creates an accelerating brand wealth gap. Becoming freed (in theory) from the necessity of your digital rent payments allows you to reinvest in far higher-leverage tactics, the kind that have proven to work at building both the short-term business and the long-term brand.

Google has over 7 million unique advertisers in the U.S. contributing to its $237 billion in revenue. There are over 8 million unique advertisers on Meta making up its $131 billion in ad revenue. That’s an average spend per advertiser of $33,850 on Google and $16,375 on Meta.

The top 200 advertisers make up more than 58% of all spend on TV in the U.S. That equates to over $35 billion by themselves, or an average of $175 million each (according to the Ad Age Data Center). That’s cherry-picking data to show the extreme ends of the spectrum, but it is an immense gulf.

On a macro level, this also means the projected $369 billion in digital media spend in the U.S. for 2024 is miscategorized.

How do you break that cycle?

Not all at once. Plan for slow, realistic change. The first step is recognizing that digital advertising alone will never have the leverage necessary to build brand equity.

1. Reclassify your digital rent budget where it belongs: as an operating expense.
2. Adjust the math on your ESOV and growth projections to better identify what you need to invest to grow, now and in the future.
3. You need to think creatively about other ways to capture a disproportionate amount of attention. Find “alternative attention investments” that take advantage of different models.
4. Most importantly, find a good Realtor to help.