The Shrinking FANG, and what it means for Startups

Yasin Kheradmand
January 24, 2023

The golden goose of advertising

If you go back just 5 years to 2017, companies such as facebook, google and twitter were riding high as online advertising expenditure had surpassed television advertising for the first time ever. The two companies had already generated $100bn of ad revenue by that point, and it seemed like things would keep getting better forever.

Fast forward to 2022, and it is a different story. Somehow, the revenue of these companies has suddenly taken a sharp dip, with  facebook, twitter and google all experiencing significant drops in ad revenue.

What happened? There are a few potential explanations for the fall in ad revenue experienced by these companies in 2022. Firstly, the emergence of smaller digital advertising platforms such as Snapchat and TikTok have disrupted the market. These companies are able to offer cheaper prices than their bigger competitors and therefore attract a larger share of the market. And the "Digital Duopoly" of Facebook and Google is no more.

Secondly, the growth of ad blocking is also having an impact. People increasingly choose to block ads on their devices and browsers, reducing the potential reach for each ad campaign. This reduced demand has also added to the fall in revenue experienced by these companies.

Finally, the increasing sophistication of ad targeting is proving to be a double-edged sword for these companies. On the one hand, it allows advertisers  to target ads more effectively and therefore increase their revenues. However, on the other hand, it means that they are also dealing with higher levels of privacy and consumer safety issues. This is reducing people's trust in online advertising, which again contributes to decreased demand.

Overall then, there are several factors that cause the fall in ad revenue experienced by facebook, twitter and google during 2022. The emergence of smaller competitors offering cheaper prices, increased prevalence of ad blocking technology and the issues surrounding digital ad targeting all combine to create an environment where these companies have less demand for their services than before.

It's not just about advertising

The crunch in revenues isn't limited to advertising companies however. Apple has long been seen as one of the most successful technology companies in the world, and its iPhone is considered by many to be the best smartphone on the market. However, they have announced that they will be slowing down and possibly freezing hiring in 2023 due to multiple factors.

One of the main reasons behind this slowdown is an overall decline in demand for their products. Apple has long relied on consumers buying their latest product, but as inflation soars and wages fail to keep up, people are holding on to their iPhones for longer, and not buying the best and the latest every year.

Crunches in their supply chain and difficulties with production due to China's zero-COVID policy have also not helped.

All of these factors combine to create a situation where Apple will have to freeze hiring. It need to focus on reducing costs and trying to revive sales figures, limiting the scope for expansive new research projects.

Netflix has also been losing subscribers, and been forced to decrease expenditure. With competition from Apple TV+, Amazon Prime Video and Disney+, subscribers are picking and choosing which streaming services they care about, and in some cases, the quality of content on Netflix is judged by some consumers to be lower than the other streaming platforms.

Making cuts

In addition to making long-term plans, these companies also need to take short-term steps in order to ensure they remain profitable and that 2022 does not mark the beginning of the end for them. Projects such as Facebook's rebrand to Meta, and the billions that were planned on being put into the research and development for creating the metaverse of the future will come under scrutiny, and companies will need to begin making cuts.

Another thing to consider about these cuts is that they may disproportionately affect entry level employees, who are often the most vulnerable in times of financial pressure.

These employees with close to no experience who have been hired right out of college, and those who have been around a few years but don't get the same level of job security as the more senior employees.

The fall in ad revenue experienced by facebook, twitter and google is likely to have considerable ramifications throughout both the advertising industry, and the wider tech community.

The availability of a large number of experienced talent who are being laid off means that startups will be able to make hires for cheaper as they no longer have to compete with these huge companies, and so the competitive landscape will shift slightly in their favour.

Not all fun and games

Of course, it's no secret that it's becoming increasingly difficult to raise funds for a startup. In fact, according to a study by CB Insights, over 90% of startups fail in their attempt to raise capital.

There are a number of reasons for this high failure rate. Firstly, investors are often risk-averse and are hesitant to invest in untested businesses. Secondly, the process of raising money can be time-consuming and complex, and many startups simply don't have the resources to devote to it.

Finally, there is also the issue of competition. With so many startups competing for limited funding, it can be difficult for any one company to stand out from the crowd.

Startups can compete again

All of these factors combine to make fundraising an uphill battle for most startups. The shift in the tech landscape however means that those startups who have received funding, and those who have healthy revenue streams will be able to grow their products and expand their R&D with less expenditure.

On the other hand, decreased spending on new product offerings or acquisitions at the big tech companies means they will be less likely to step on startups' toes with competing offering or try and buy them out. And so there will be a lot more room for growth.

Many observers have been pointing out that the greatest value in tech was created during the downturn following the 2008 financial crisis. Companies such as Uber, Airbnb, Instagram and WhatsApp were all founded during a time when it was much harder to raise funds, and the future seemed bleakest.

And so people founding or running startups now will be more than aware of the similarities, and will be hoping to take advantage of the newly available workforce, and the precedence of the likes of Uber and Instagram to build the next unicorns and decacorns.

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