It has been a long time coming, but the Covid-19 pandemic has accelerated what was always going to become reality – digital media buying now represents a greater share of advertising budgets than traditional channels.

Furthermore, spending on digital media shows no signs of slowing. Consumers continue to spend more time viewing digital media, while the ability to measure engagement and demonstrate effectiveness through these channels continues to increase.

Performance marketing is now an essential capability

Performance marketing sits at the centre of the digital marketing ecosystem and has fast become a core capability for marketers. In fact, performance-based digital was around 40% of US ad spend in 2020. This equates to $86bn – the single largest segment of media and marketing spend in the US.

However, the sector faces ever-changing dynamics. Brands continue to grapple with the fragmentation of digital channels, increasing competition for digital media inventory, and more restrictive data privacy requirements.

Areas of growth in performance marketing

Plural has identified three key themes that will drive budget allocations in performance marketing over the next three years. Agencies which position themselves to excel in these key areas are likely to outperform their peers:

  1. Creative Performance – Creative and performance marketing have historically sat apart from one another. Large creative campaigns were often focused on traditional media formats, while creative in performance marketing typically consisted of AB testing of keywords and messages. As media formats continue to converge (e.g., through CTV, social display and video), the ability to effectively combine creative and performance will become a differentiator for agencies.
  2. Specialist Performance – Performance marketing has grown in waves. Google search was the pioneer, followed by social media formats (e.g., Meta, Twitter), and more recently marketplaces (e.g., Amazon, Walmart). There is still significant growth across all segments, particularly marketplaces and newer social channels such as TikTok. However, the next frontier will see the importance of specialist performance marketing—and in particular CTV, App Store Optimization, and Digital Outdoor as these media channels become more established.
  3. Hybrid CapabilitiesPlural’s Marketing Spend Report forecasts that 28% of marketers expect to bring their performance marketing activities, including programmatic advertising and data capabilities, in-house over the next three years. As a result, agencies which offer a range of services from in-house development to full-service agency support are best placed to meet the full range of client needs.

Investor strategies in performance marketing

The most exciting M&A activity is being led by private equity-backed performance marketing specialists pursuing aggressive roll-up strategies, rather than the big six agency networks.

For example, Tinuiti, following its investment from New Mountain Capital in 2020, has acquired a series of agencies including Bliss Point Media (CTV specialist) and Ortega Group (Amazon marketplaces specialist). And, UK-headquartered Brainlabs has acquired MediaNet (MarTech capability), Molzi (Amazon marketplaces specialist), and Consumer Acquisition (creative performance agency) in the past year.

Despite the increase in M&A activity, the underlying growth and market dynamics mean that new agencies will continue to emerge. Understanding whether these agencies fit one of these key themes is the first step in assessing the sustainability of their growth potential.

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