SMB video ad spending will surpass enterprise in 2018

David Lee
David Lee
Dec 1, 2015 · 7 min read

Recent research from BIA/Kelsey shows that SMBs leveraging video advertising “have more aggressive plans for media spending over the next 12 months than those that do not use video,” as a result of the outsized returns they’re getting from digital video ads. Meanwhile, every digital ad format is dominated by SMB ad spend today, with the exception of digital video. That’s set to change with substantial disruption in the video ad landscape. The video ad landscape is shifting under our feet today, and this will soon result in SMB video ad spending surpassing enterprise in 2018. We’ve seen this happen before with rapid enterprise adoption of Google’s Image Ad format in the early 2000s. Initially, SMB represented an insignificant fraction of total image ad spending at Google. Despite proven performance that showed that image ads outperformed text ads in 2004, SMB uptake of the format was poor, due to the higher upfront cost of producing image ad creative. SMBs did the math, and it didn’t make sense to spend $500 on ad creative for a $300 image ad campaign. But when simple tools and templates for image ad creative were launched in 2005 (Google Image Ad Builder, the precursor to Canva), SMB image ad spending leapt to exceed enterprise image ad spending.

Digital video represents the ad industry’s fastest growing ad format with 21.9% annual growth.

History is repeating itself. Small businesses see the great results that large enterprises are achieving with video. Digital video ads drive 3X more interactions than still image ads, and digital video represents the ad industry’s fastest growing ad format with 21.9% annual growth through 2020. Until recently, small businesses have been on the outside looking in, because it was unaffordable to produce the video ad creative necessary to run effective video ad campaigns. With the effectiveness of digital video ads proven in campaigns big and small, two critical changes to the technology landscape are enabling the adoption of the digital video ad format by small businesses.

Self-serve video ad inventory is an incredible flattening force, leveling the playing field for small businesses and large enterprises vying for exposure.

First, Twitter, Instagram and Facebook have joined YouTube’s TrueView ad format to open up self-serve digital video ad inventory in SMB-sized increments. Meanwhile, Mark Hoelzel at Business Insider says that, “Dollars are increasingly flowing from traditional ads to digital, as strong growth in mobile, video, and social spending continue to change the face of the US media market.” This trend is an incredible flattening force, leveling the playing field for small businesses and large enterprises vying for exposure to consumers.

Secondly, whether Mark Zuckerberg, Jack Dorsey and Sundar Pichai know it or not, they are already working with a rising crop of SaaS video creation providers like NY-based Animoto, Paris-based Stupeflix, Tel Aviv’s Magisto and Seoul-based Shakr. Now that SMB video ad campaigns are possible at Facebook, YouTube, Twitter and Instagram, the idea of these venture-backed startups is upending the perception that video advertising is just for big business.

Every single one of these video creation startups is inherently a template-driven enabler. Templates are the mechanism used by Canva to overcome the barriers to producing graphic design, and the mechanism used by Tumblr, Wordpress and Squarespace to overcome the barriers to producing websites. Whether we call them templates, themes, or styles doesn’t matter — at the end of the day, Animoto, Stupeflix, Magisto and Shakr are making an increasingly high quantity of increasingly high quality video templates available to small businesses. Overall, there are now almost 1,500 browser-editable video ad templates available to small business marketers. And that number is growing steadily, up from less than 300 templates just a year ago.

Perhaps the only company to provide a dramatically different user experience in video creation is Magisto, with its almost magical automatic selection of the most interesting parts of users’ video clips. Animoto, Stupeflix & Shakr all share the same linear, user-driven media input after selecting a video template. But even Magisto depends heavily on template selection to change the tone and manner of the video output. The overall lack of innovation in the video creation user experience is indicative of the most pressing issue at the end of the day: is the video created using [Animoto/Stupeflix/Magisto/Shakr] a high quality video that can drive big results for small business? Because, just like Slack doesn’t sell saddles, these video creation startups aren’t selling video creation — they are selling the the ability to drive big results for small business using video. Videos made by the users must drive increased brand awareness, more clicks, more transactions, higher average transactions, and more shares. Otherwise, no amount of improving the video creation experience has any meaning at all.

As the current crop of video creation SaaS providers are growing into the realization that they’re not selling saddles, we’re beginning to see a rapidly growing supply of video ad templates of far greater quality than anyone conceived would be possible for small business advertisers. Dealer.com, America’s largest automotive marketing agency, ran a test with DIY videos made using online video creator Shakr to achieve the same clickthrough rate and reach as videos made by a professional designer. Meanwhile, we’re also seeing success stories like The Wire, a pizza & pasta restaurant that saw a 30% increase in revenue as a result of $200 spent on Facebook video ads, including the cost of producing the video ad creative. The small business owner that operates The Wire multiplied her return on investment by using the video ad creative from her Facebook video ad campaign as digital video signage content in her restaurant, helping drive awareness of seasonal specials with higher margins. In an in-depth case study interview, the owner of The Wire expressed that video ads outperform sponsored food blog coverage, the advertising medium that historically drove the biggest results for her. These results are unsurprising, given that digital video ads outperform image ads, with a clickthrough rate 4 to 7 times higher than conventional image advertisements. Animoto CEO Brad Jefferson points out that “Video marketing is exploding in popularity, and with good reason: According to a report from Vidyard, more than 70% of marketers say that video produces conversions better than any other type of content. Additionally, an Animoto survey last year showed that 73% of U.S. adults are more likely to make a purchase after watching an online video explaining a product or service.”

Money is flowing clearly in the direction of video ads over other formats. Average annual ad spend for video SMBs is $43,635, compared with $15,223 for non-video advertisers, according to BIA/Kelsey. The gap in dollars spent on advertising is a reflection of the multiplying results-driven faith in digital advertising. Meanwhile, “over the past year, video SMBs spent 35.9% of their advertising budget on digital and online and project they will increase their digital budget for the next 12 months to 38.7%. Non-video SMBs plan to spend 32.2% of their advertising budget on digital/online in the next 12 months.” And over 80% of SMBs that advertise with digital video report some level of e-commerce sales, compared with just 59.7% of non-video SMBs.

With SMB digital video ad spending set to surpass enterprise digital video ad spending in 2018, perhaps the biggest beneficiary after the small businesses themselves will be Facebook, where SMB represents 60% of their digital ad revenue overall, but an insignificant portion of the Facebook video ad revenue subset. A survey of SMB video advertisers shows that 71.4% will leverage a Facebook page to distribute their video ads, followed by 65.7% using their own website, and just 55.2% leveraging YouTube. At the most recent F8 Developer Conference, Mark Zuckerberg told the audience that video would soon overcome photos as the most shared media format in the newsfeed. “People love the format of video. It’s long been used to reach people in a compelling way, and we can do targeting in a way that’s really unique,” according to Facebook COO Sheryl Sandberg. Combined with Facebook’s 2015 Q2 revenue growth being driven by the sudden surge from video, and it’s clear that the world’s largest media company is serious about video; and since SMBs represent such a large portion of Facebook’s revenue overall, it’s even more evident that Facebook can no longer stand by idly while large enterprise benefits disproportionately from the most effective ad format, video. The same applies to other video advertising platforms that have a large SMB advertiser base, including Google, Twitter, Yahoo! and AOL.

But for the world’s largest internet platforms, including Facebook, to tap into their latent SMB video ad revenue, they’ll first need to embrace the best of the SaaS video creation solutions out there. Otherwise, small businesses will remain locked out of the lucrative video advertising format because of the high upfront cost of video ad creative. Given what we’ve seen happen before with SMB image ad spending, combined with current market trends, it’s clear that companies like Facebook, Google, Yahoo! and AOL will find a way to deeply integrate the SaaS video creation ecosystem into their ad campaign creation workflows within the next 18 months. This lays the foundation for SMB video ad spending to overtake enterprise video ad spending by 2018.

David Lee

Written by

David Lee

Founder of Shakr.com