The state of eCommerce advertising and the impending eCommerce credit reckoning

In this episode of the Mobile Dev Memo podcast, I speak with Taylor Holiday about the state of eCommerce advertising: why Q3 was so challenging for eCommerce retailers and what is happening across eCommerce in Q4. We also discuss the practice of eCommerce advertising debt lending — in which eCommerce advertisers are able to borrow against cohort value — and why the lending models that worked under a low-interest rate environment might be miscalibrated for rising interest rates and the frictions presented by App Tracking Transparency (ATT). You can find the full transcript of the conversation, which has been edited lightly for clarity, at the bottom of this page.

We also discuss the nature of performance marketing budget allocation, whether eCommerce advertisers have been able to scale new, incremental ad spend on under-utilized channels in the wake of ATT, and why the reversion to pre-COVID engagement and shopping norms is so painful for eCommerce retailers.

Taylor Holiday is the CEO of the Common Thread Collective, an eCommerce growth agency. The company publishes a regular newsletter containing recent eCommerce advertising performance data.

The Mobile Dev Memo podcast is available on:


Eric Seufert: Taylor, how are you? Welcome to the podcast.

Taylor Holiday: I’m doing well, I’m doing well. Excited to be here.

Eric Seufert: I’m excited to have you. I’ve actually been meaning to invite you on the podcast for some time. I reference your data all the time in conversation. Common Thread, for those who don’t know, publishes a weekly newsletter that is just chock full of really helpful kind of performance data across your portfolio of clients that I think has sort of illuminated this digital advertising story really well for the last year or so or the last, you know, 18 months of kind of this maelstrom that we’re in the midst of. So, thank you for doing that. It’s always really a treat to see the newsletter land in my inbox. And I’m excited to have you on. So, the genesis of this specific conversation which we managed to organize very quickly. And I appreciate your flexibility, was sort of a data dump this weekend.

So, I was flying from Helsinki to the US. So, I was just kind of stuck in my seat and a company called Triple Whale released some information about what they’re seeing across their client portfolio. And I think, you know, I read the data and the data was kind of presented in the Triple Whale, people are great. I also love catching their insights on Twitter. But you know, the data they presented was sort of, to my mind, not very optimistic. It was actually like a very, very sort of troubling, I parsed out a very troubling signal from the data they presented, which kind of contrasted with the way it was presented, which was more as like, Hey, here’s some good news. Or actually, I think the wording that was used was like, things aren’t that bad. And my interpretation – 

Taylor Holiday: A little squirrely, a little squirrely I think was the quote. Yeah.

Eric Seufert: Exactly. And my interpretation was, wait a minute, this is actually much worse than maybe I would have even guessed. And I think you came to the same conclusion. And we both posted roughly the same interpretation. And so that was the genesis of this conversation. But so, I’ve just introduced you in the introduction of the podcast. Why don’t you quickly just kind of give some background on yourself in your own words?

Taylor Holiday: Yeah, thanks, Eric. And likewise, been a big fan of yours. I think you have been at the forefront of the battle lines against trying to bring clarity and transparency to what’s been going on with the iOS issue. So, I appreciate your work. But we call ourselves an eCommerce growth agency. We’ve been at this for about 12 years now helping consumer product eCommerce brands grow and hopefully grow profitably, which is a lot of our focus. We came out of being brand builders. So, we’d like to say we’re operators masquerading as marketers. We built our own brands previously, and are still owning and operating our own eCommerce brands today. And so, a lot of what we do is informed from those journeys, which when you’ve had to manage the cash that you’re spending, it just gives you a different perspective on the way that you spend it.

And so, I think we bring a lot of that fiscal responsibility and connection between finance and marketing to bear. We also spend a lot of time on data. We believe that the primary value proposition an agency has is context. When you hire an agency, you’re supposed to be hiring them for everything they’ve ever learned, deployed through each individual. And the only way to do that is to really create a centralized brain for the organization. So, we’ve done that through our data platforms,, which forms our sort of aggregate view of the world and a lot of our strategies and contexts. So that’s us.

Eric Seufert: And I think you know where I’m going with this, but if I didn’t bring up the fact that you used to play for the New York Yankees. And I guess – 

Taylor Holiday: Yeah, yeah.

Eric Seufert: …my question there is, you know, why you just grew around doing that instead of jumping straight into performance marketing?

Taylor Holiday: Yeah, it’s funny. I, it’s performance of a different kind. But I will say that baseball is where I get my roots in data analysis because it is a very data-rich sport. And me and my brother, if you go back to when we were little kids, we have these binders full of imaginary play where we would play Wiffle ball in the backyards, create all these pretend teams and track every imaginary game we played in data format. And so, it’s always been part of, I love the objectivity of it. I love the feedback of it. And so, I think transitioning out of that into performance marketing was actually oddly rewarding and it’s to a similar part of my brain.

Eric Seufert: Oh, that’s great. What position did you play?

Taylor Holiday: They tried to hide me on defense, Eric, I can hit and run, but I played all over the diamond on defense. So that was definitely not my strong suit.

Eric Seufert: And well, I mean, I asked as if I know anything about it. But let’s, let’s just jump right in. So, what did you see in the eCommerce market in Q3? What are you seeing now in Q4, just to kind of level set going into Black Friday. So, we’re recording this on Monday, the 21st. Black Friday is coming up. What are you seeing now in Q4? What did you see in Q3 just to level set?

Taylor Holiday: Yeah, so for us, Q3 was easily the hardest quarter of the year. We saw July really being the month where things really got squirrely to borrow this terminology that we’re now applying to disaster, ah, as a synonym for disasters. But that was the hardest time of the year for us was coming out of Q3. We did some work around looking at the relationship between the Consumer Confidence Index, and marketing efficiency. And really, when inflation narratives were peaking, you know, the iOS stuff continuing to wreak havoc, Q3 was really hard. We’re starting to see better recovery actually in Q4. We’re starting to see a little bit more stability and things working better over the last couple of months. We published our data today, alongside the Triple Whale data.

So, the Triple Whale data you referenced earlier came out, and I think they had, you know, spend up 56% in revenue, down 26%. Up 56, down 22, which is like, you know, a net disaster. And so, we looked at it and our data is a lot more optimistic, a much smaller sample for sure. I think they are about 6500 stores, and ours is about 230, I think in reference here, but we had, let me make sure that I’m going to state the exact numbers. We had store revenue up 5% year-over-year in Q4, and spend up about 2%. So actually, improved efficiency about flat to year-over-year up 5%, which is pretty consistent for the annual numbers as well, with Q3 being the worst of all the quarters.

Eric Seufert: Got it. Okay. And just to clarify, I’m not trying to impugn Triple Whale. I’m always an enthusiastic consumer of their data. And I believe it’s very credible. I think it was just more of the interpretation that we both shared that was the reason for having the call.

Taylor Holiday: Yeah.

Eric Seufert: Okay, so you’re seeing Q4 about flat year-over-year, but sequentially up from Q3. What do you think accounts for that?

Taylor Holiday: Well, so I think that people are in this sort of ongoing battle, right, which is there is a complexity related to, I would say, primarily the core growth lever of eCommerce faltering, which is Facebook advertising, right? So that is a battle that began back in May of 2021. And if you look at sort of, you mentioned our data index that we track, like, I’m looking at a graph right now, that basically is year-over-year, Facebook grow as, and it just falls off a cliff in May of 2021, and basically doesn’t recover to the tune of about a 30% decline, since that moment forward. And for a lot of businesses, that’s the difference between profit and no profit, right? Like not many businesses can sustain at 30% reduction in their marketing efficiency. And so, I think that’s been an ongoing battle. And then I think that there are additional macroeconomic environments that are contributing to it as well. And so, when those things sort of combined to each other, you end up in positions that are really, really difficult. Then, you layer on some of the stuff that I outlined in my thread, which are, you have people who are sitting on excess inventory, because they planned for growth rates that were going to match 2020 and 2021. Now you’ve got a balance sheet problem, which creates a cash problem. And so now you’ve got all these things compiling together to force your hand forward sets of behaviors that can be counterproductive, which includes attempting to continue to press on the spend throttle in ways that maybe are not serving your business.

Eric Seufert: Okay, there’s so much there that I want to unpack. Let’s just sort of hover over that 30% row as deterioration really quickly, because I think that’s one thing that’s kind of very misunderstood. I mean, Ecom in particular, it’s so sensitive to row as and one of the sort of threads of resistance that I came up against early on when I was kind of screaming from the rooftops about how disastrous ATT was going to be was people saying, well, look, people just shift their spend away from Facebook, they don’t need Facebook. And that’s just that’s not how performance advertising budgets are set, right? I mean, performance advertising is an exercise in exploitation. You find a channel, you exploit it to the greatest possible extent, sort of relative to some ROAS standard. ROAS, meaning Return on Ad Spend. And then you move on. Then you move on to the next channel and you exploit that stuff where it’s possible.

So, the thing is, if you have a performance marketing machine that works, that’s a money printer. Why wouldn’t you exploit the channel to the greatest possible extent? That’s a money machine. There’s nowhere else that you could deploy X millions of dollars in a month and get a 10% return in 90 days or whatever, 180 days. There’s almost no other place where you could do that. And the compounding that you get from that just can create a very, very sort of like lucrative, attractive business. Talk to me about that. Why is that so challenging for when you lose row as why is that so challenging, especially given like the thin margins that a lot of these businesses operate against?

Taylor Holiday: That’s right.

Eric Seufert: Why is that so challenging for performance marketing teams in Ecom?

Taylor Holiday: Yeah, so there’s, there’s two things that you’re hitting on. One is that people don’t appreciate that Facebook is the greatest marketing engine ever created. And the idea that you’re just gonna go subsidize that in an alternative channel is just not reality. Because to your exact point, if there was another channel that had the potential to produce incremental profitable dollars, you would have been taking them already.

Eric Seufert: Exactly.

Taylor Holiday: This market is very efficient. If TikTok was this massive ROAS generating machine, we’d all be spending there independent of whatever is occurring with Facebook. But here’s the thing that people don’t realize. Like the Apple privacy restrictions are in effect on every app in the App Store. This is not a Facebook issue. TikTok and Pinterest and Snapchat and Twitter are all affected in the exact same way. You had Facebook, who already had a marginal ability to produce better marginal ROAS across the board. Now you deplete the entire system, in the same way that there isn’t this place to just go subsidize those dollars. That doesn’t exist, that’s not real, and so it can’t happen. So, what happens is, that means that top line revenue and total dollars are just coming down for these businesses. And some of them do not have the operating margin to offset that kind of decline in marginal revenue. So that’s either because they have OpEx they have to cover, that’s probably bloated, given the, you know, the massive growth over the last two years, or they have debt obligations, which is a huge underlying factor in our industry as well. So, this idea that you just move the dollars somewhere else is not a reality in this world.

Eric Seufert: I mean, I feel like every – we’re going back and forth every single time. We’re never going to move on in my list of questions, because I think there’s just so much interesting stuff that’s getting kind of ping-ponged and volleyed back and forth. But okay, so I want to get to the debt in a second. But let’s – 

Taylor Holiday: Yeah.

Eric Seufert: Because I think that’s easily the whole conversation. Another misconception that I, you know, butted heads with was like, well, okay, this is – this hurts app advertisers, but it doesn’t hurt the web. And it’s like, no, that was the initial understanding when Apple published like the sort of initial – at WWDC 2020, they positioned this like it was only like an app install related policy and what was clarified later, and it was clarified by Facebook in like December of 2020 was that no, this is a broad policy that applies to any advertising that takes place in a mobile app, whether that ad leads to a website, or a mobile app, another mobile app.

Taylor Holiday: That’s right.

Eric Seufert: That’s app install campaigns and web campaigns, which means Ecom retail. That misconception kind of persisted, even after Facebook clarified it because they did kind of dump that – they dumped it right before Christmas, or I think it maybe was in between Christmas and New Year’s. I mean, this was like, you know how people release news on a Friday if they want to bury it.

Taylor Holiday: Yeah. Exactly, exactly.

Eric Seufert: Like they released it on like a Friday between Christmas and New Year’s. I don’t remember the exact timing. But I remember I was staying up late. I was in Europe. I was staying up late and it was like around Christmas time. So that meant Okay, well, then this applies to all advertising in mobile. And another misconception is, you know, mobile advertising is like, you know, kind of one segment of the digital ad space. And then desktop advertising is another segment. And yes, that’s true. But mobile advertising is far bigger at this point. Facebook’s ad revenue is 95% mobile. The majority of digital ad spend runs through a mobile app. And that means – 

Taylor Holiday: That’s right.

Eric Seufert: … the majority of digital ad spend was regulated by att. And that’s why this was such a disaster, and it has been and it continues to be a year after the initial introduction. And maybe a little bit later, we can talk about why it’s still a disaster a year later, but I want to kind of move on to one more point that you made, and then we’ll get to the debt. So, you talked about excess inventory. And I think that’s a really interesting point. I have been banging on this drum for the last couple of months, which is sort of promoting a counter narrative, which is that actually, att is a factor in the deterioration we’ve seen in performance as well as macro. I don’t believe that macro plays no role. Of course, it does. The inflation number is what it is. It’s, I’m not going to dispute that. Of course, it plays a role. But if you’d followed like the earnings of the last two quarters, especially the social media companies sort of explained performance. They didn’t even mention ATT. I mean, Facebook did to some extent, but like, really what they were trying to highlight was macro factors. And the point that I was trying to – I’ve been trying to make is like no, ATT explains a lot of this. Not all of it, of course, macro plays a role. It explains a lot. Now I’m starting to believe that in Q4, macro plays a bigger role than it previously had. But what I was trying to draw attention to is the fact that you know, these companies are trying to downplay the role that ATT was playing, and they’re trying to blame it all on macro and my – 

Taylor Holiday: That’s right.

Eric Seufert: … hypothesis was, the reason for that is well, you know, the macro follows a business cycle. You know, we’ve got peaks and valleys. We’re in a valley, we’ll hit a peak at some other point in time. This is a femoral, this will pass ATT Permanent structural and that’s why they don’t want to explain the degradation as being a result of att. Right. So that’s been my narrative, but and so I’ve been following not just the tech earnings but also like the retail earnings because I think that would help explain some of that, right? And so, what we saw in Q3 was Target saw meaningful decrease in gross margin. And what they explained that as being a result of was excess inventory that they had to like dramatically discount to just get it off the shelves. And – 

Taylor Holiday: Yeah.

Eric Seufert: … that checks, right. I mean, that makes sense. They also said they had like $400 million write off in like some kind of like orchestrated criminal robbery ring or something which you know, that’s, that’s really sad. The thing is like, Ross, the clothing retailer beat, footlocker beat, Walmart beat, Gap beat, right. I mean, so it’s not all retail. And so, talk to me a little bit about the inventory overhang, because that’s a striking difference between the Ecom side of the market, and just the Digital Goods side of the market, you know, like promoting apps, promoting software.

Taylor Holiday: That’s right. So, we have this sort of perfect whiplash, right where 2020 and 2021, what you have is, everyone is wrong in their forecasts, but they’re wrong to the upside, right? Like there’s all this excess demand that suddenly is built up when COVID happens. And Ecom is the only game in town. So, everybody has this explosive growth rate in 2020, and 2021. But as they try and satiate that demand with product, they have a problem is that supply chain is clogged. Right? If you go back to the narrative in 2021, we’ve got the pictures of all the containers stuck offshore in Long Beach, things that you can’t even get product, the delays are forever, probably costing through the roof, you know, the inventory costs. And so, it’s like everybody’s attempting to order a ton of inventory, because their lead times went up a bunch. They think they have all this extra demand. And suddenly, both those things get sucked out of the system. So, you have this perfect whiplash where they buy inventory on this longer lead time than normal, which is risky generally. They have anticipated demand that’s on this curve that is different than every other year before it at a greater growth rate. They make these POs. Then, all of a sudden, the demand gets sucked out of the system starting with iOS following into the recession.

So, they overestimated demand and they ordered more inventory than normal, because the lead times were longer. And so, all of a sudden, their balance sheets are stocked full of inventory. And so, what the additional problem for online businesses is, we have a number of businesses that have showed up saying that they received our TVs returned to vendors from major retailers saying, “that PO that I placed, we don’t need it anymore.” We don’t even have – and it’s not necessarily even because your product isn’t selling, it’s that we literally don’t have room in our warehouse for your product. And so, we have a customer right now that’s like their business is like 80% retail. And all of a sudden, their giant retailers cut their orders and say, Now, we don’t need this product and now they have to figure out some way to move this inventory. And so, whether that’s you know, just access products for their own Ecom channel or retailers pulling out, the balance sheets are stuffed right now. And you combine that. That’s a liquidity crisis, right, which is fine. And this will lead us into the debt conversation. If capital is readily available, you can solve for a liquidity crisis. But when you combine that with dried up capital, now all of a sudden, all this inventory financing, or sort of stopgap financing is either way more expensive or fundamentally unavailable. And now the only way to get cash is to liquidate this product at prices much, much lower than you wish you would have been able to.

Eric Seufert: Right. And I think that is a perfect segue into the debt topic. Right. So, you spoke in your Twitter thread yesterday, which I’ll link to about bad debt. Right. And I think this topic has gone completely, I mean, I wouldn’t say underreported, but it’s been unreported. I mean, I’ve never seen anyone talk about this. And there’s actually a very fascinating dynamic within Ecom. A little bit in the app side, too, but much more so in the Ecom, I think. So, walk the audience through the market for debt for Ecom advertisers. What is the history of these credit facilities for Ecom advertisers? How are they used by Ecom and D2C advertisers? And what is the kind of current situation with this debt that they’re all kind of carrying?

Taylor Holiday: Yeah, so you know, in a traditional business, right, you’ve got banks that are lending almost exclusively on historical business performance. So, as you have all of this influx of new Ecom businesses over the last seven years, none of them have historical financials to go get traditional bank debt. And so, as there’s this need that arises for capital to fuel growth, because ecommerce is very cash intensive. You have to buy inventory. The payback periods on your cash conversion cycles can be long, it’s cash intensive. You combine that market need with a cost of capital that basically goes to zero, right? Interest rates get incredibly low and what gets built on top. If you’re going like to all the way to the source. So, if like the Fed interest rates are basically zero, bank interest rates are basically zero. What gets built on top of that is what I would call like lending arbitrage, which are these people that say okay, if I can get capital at 1%, if I can lend it to you at 10%. I can make a bunch of money. And what they’re willing to do in those scenarios is they’re willing to push the risk profile way out on who they’re willing to lend money to. So, you had all these people, the Clearcos and Wayflyer’s and Parker, and even Shopify got into it, PayPal got into it.

All these providers started lending on all these algorithmic risk assessments that had to do with your media performance and projected future revenues. And so, this sort of traditional bank assessment on your trailing 12-month EBITDA, was out the window, and they created these new fancy ways of modeling your future revenue based on your ad performance. And what they did and why this hasn’t been a story yet I believe is because the default rates are still low. And here’s why is because the debt is set up that they take the money right out of your, off the top. It comes into Shopify, it goes to the lender, okay. So, they’re really in position one in a debt stack. They are getting the first money out. So, the only way that you’ll default is if you go broke. And the way that the terms are actually set up in many cases, is that you, the rate actually goes up, the faster you pay them back, because it’s not amortized annually.

It’s like we’ll lend you this much money. And whatever you pay, you owe us this fixed rate on the money, and whenever it’s paid back, it’s paid back. And so, what entrepreneurs don’t understand is that the faster you scale your revenue, the faster you’re paying it back, the more expensive the money on an annual basis actually becomes. And then what happened was that there’s all these people who took an initial loan at a fairly conservative rate. And then as their business started to deteriorate, they would go to the next lender and get a slightly worse rate, and then the next lender and get a slightly worse rate. And all the while they would play this game where they run their ads, take the cash, pay the lender, take the cash, pay the lender, take a worst loan and take a worst loan. And now all of a sudden, that game stopped because there’s no next lender. There’s no more money that they can get anymore. And so now businesses are in crisis. And if you go into these smaller ecommerce businesses, the debt stack of all of these providers is like so immensely prevalent. And they’re in a little bit of trouble. All of them.

Eric Seufert: That was a great explanation. Thanks. It’s funny, because I was – so I was on this flight, right? Yesterday, it was a long flight, it’s Helsinki to Texas. So, I was doom scrolling Twitter, with my Netflix window kind of minimized up at the top of my phone. And I was watching that movie Margin Call. I don’t know if you’ve seen that? A great movie, very underrated movie. And there’s this great scene. I don’t remember the actor’s name. But it’s basically the boss of this bank. So basically, it’s about a bank in 2008, that kind of discovers right before everyone else that they’re sitting on, basically, when they would – 

Taylor Holiday: The bad mortgages?

Eric Seufert: Yeah. So, right. So, they securitized the mortgages but when they did that, they had to sit on the books for a while, while they packaged them up and put them in tranches. And so, they realized that, like, you know, their models always assumed, like some certain level of default, right. And basically, they tested those levels or exceeded those levels, like six days out of the last two weeks, or whatever they realized. And the market was deteriorating and they had to get them off the books ASAP because just on that book on the MBS book, if the default rates increased by like some 20%, you know, they were so levered up, that the loss would be more than the market cap of this 107-year-old bank, right. And so anyway, they, you know, they fly everyone in to have this emergency meeting, and the CEO of the bank is saying, you know what, I get paid – I don’t get paid to do anything else. But to understand when the music’s gonna stop. And right now, I don’t hear any music and like talking about like his game of musical chairs. And so, it sounds like we’re in that kind of situation, and which is why because no one is talking about this, but there are these credit facilities that basically rose as a function of zero interest rates, right? We – 

Taylor Holiday: That’s right.

Eric Seufert: We get credit, basically, for free. We can get cash for free, not for free, but some, you know, nominal interest rate. We will lend it to you. We get superior rights on your cash flows as a result. And you know, we can kind of model the payback and the default rates for your cohorts, right? So, they were lending against the cohort progression, essentially, right?

Taylor Holiday: That’s right. Exactly.

Eric Seufert: But what’s happened. The models have broken. The payback – 

Taylor Holiday: They are all wrong. They are all wrong.

Eric Seufert: The payback models don’t work anymore. Now, the Ecom advertisers are probably flexible enough to react to that. But the pricing mechanisms at these credit facilities are not, right?

Taylor Holiday: That’s right.

Eric Seufert: And this always seemed like it was going to be disaster going into ATT, because what did you have to do going into ATT as any kind of performance advertiser. You had to rewrite your model, you had to tear it down and start it from zero and look at the – 

Taylor Holiday: Yeah.

Eric Seufert: … progression of cohort monetization with brand new eyes. And these lenders, I don’t think were equipped to do that. Again, this is not – none of these grew out of like big performance marketing organizations. They were finance people that were like, look, we’ve got – 

Taylor Holiday: That’s right.

Eric Seufert: … historical models of payback, and we can get money for free. That’s what these businesses are.

Taylor Holiday: That’s right. And the problem is, they’re all non-recourse. Like these people have, these lenders have no recourse. And so, the other thing that’s happening is, they’re just getting pushed out. Now, some of the bigger ones, the PayPal and Shopify, they actually have a little bit more recourse because they’ll withhold your funds, right. But the Ecom stack of specific lenders, like, they have very little thing that they can do. And so, what’s happening is like, they’re all probably in a lot of trouble. Candidly, like, I don’t see how they possibly get made right on a lot of this stuff. And there’s just, you’re seeing it. I think the, you know, the biggest one was Birchbox, right? This couple of weeks ago, you’re seeing this where it’s like, the narrative is, we’re all trying to get financing. And it’s because the money’s due, and there’s no next money, right?

Eric Seufert: Right.

Taylor Holiday: And so, a little bit of what we’re seeing in the FTX universe for all these things, and people trying to go get someone to refinance these things. It’s not going to happen, and it’s all going to get flushed out. Because there’s just no way that those models to your exact point, they don’t work anymore. You can’t have a cost of capital that high with CAC this high and make any money.

Eric Seufert: Right. How big of a player was FTX in the advertising market? I mean, they were spending a lot of money on that.

Taylor Holiday: Over that, right. Oh, totally, like, enormous, right? They had naming rights to – 

Eric Seufert: Yeah.

Taylor Holiday: You’ve got Miami Heat arena. Right? They have so, so much of that stuff. Yes, all of that propped up so much of this market, right?

Eric Seufert: Well, not just I mean, FTX was a big individual advertiser, but the whole crypto space.

Taylor Holiday: Oh,

Eric Seufert: You know just blowing lots of money. Yeah.

Taylor Holiday: Yeah, all of it. It’s wild.

Eric Seufert: Okay, so the debt stuff is worrying, right? Because I think – 

Taylor Holiday: It is.

Eric Seufert: You know, you’ve got a situation that was already bad. And there’s probably like a short-term reckoning to come with that. To your point, like, you’ve got the debt stack, and you’ve got a bunch of people that are just gonna have their hands out. And, you know, my sense is – 

Taylor Holiday: That’s right.

Eric Seufert: … part of the reason is, you know, a lot of these companies just attempted to dump their inventory was like, we’ve got to pay this debt back.

Taylor Holiday: That’s exactly right.

Eric Seufert: … to get it off of our balance sheet. I -so my sense is like, we’ve got something happening in the short term. I don’t know if that’s Q4 or Q1 or whatever. But that is going to be like the exacerbated result of all of that lending and borrowing against kind of pre-ATT, pre-macro norms, right, that just couldn’t be modeled into the lending algorithm.

Taylor Holiday: Yeah, and I think the other shoe to drop. So, I think everyone is trying to get to Q4 like that, so many people are trying to get to this moment, because they’re – they realized they are most cash in this moment. And so, it’s a lot of it was survival through this next, you know, few weeks to try and get through it. But the other shoe to drop is on the consumer side. I think that I would be shocked if there isn’t a similar issue happening with all the Buy Now Pay Later mechanisms, right?

Eric Seufert: Sure.

Taylor Holiday: Which is another big part of our eCommerce world, which is another part of like, revenue deterioration is that, if you think about the percentage of your revenue that went to After Pay, and all these things. And all that does is, the whole value proposition to the consumer was like, this is a 0% interest loan to you to buy this product. And now that’s just gonna deteriorate the margin from the brand a little bit on that, but the customer is also then making buying decisions on the idea that that capital is free, right?

Eric Seufert: Yeah.

Taylor Holiday: Now, that assumes a certain earning rate or power going forward for yourself, too. And so, there’s this, that’s another part of this is like, what is really happening on the consumer credit side? And what is the sustainability of that going forward, because if that falls off at all, if the demand really does decline, then now you’re gonna see a total bloodbath, because if it – the only way these ecommerce brands survive is if they can continue to produce demand that allows them to service these things. Then they have some chance to refi and figure it out and spread it out and reduce staff and cut costs and get through it. But if the demand drops, there’s just nothing you can do.

Eric Seufert: Right. I was banging this drum. And something that I’m, I don’t know, like perennially prone to do is to try to make the most nuanced point. And then, you know, die on that hill, which is like, it doesn’t endear me to a lot of people. But – and people ask me why, what’s the point? Why are you trying to draw this distinction between ATT and macro? Who cares? What difference does it make? It’s all packaged together with the COVID overhang, right?

Taylor Holiday: Right, right.

Eric Seufert: And I’ve said repeatedly, it is those three things. I never said it was pure ATT. I always said ATT, there was inflation, right, which is basically purchasing power destruction. That’s what it is. And it was COVID overhang, which, you know, inventory pile up is part of that, right? And so, I always said, it was those three things. And I was trying to sort of like demarcate the pain incurred by each and draw boundaries around each and people ask, why? What’s the point? What difference does it make? It’s all one big amorphous pile of pain. Even if you could prove it out, what good would that do? And my response to that was, because if I’m right and if it is mostly ATT, and the macro stuff is just inflation, and we do enter a recessionary economy, then there’s another shoe to drop, right?

If demand deteriorates, there’s another shoe to drop. And so, it matters. I’m not a macroeconomist. I don’t know when that happens. Maybe it’s Q4, maybe it’s Q1. I think it’s probably happening to a greater extent now than it was in Q3. And maybe Q1 is really like the flashpoint. But nonetheless, it matters because if that happens, there’s another headwind. There’s another sort of frictional component to this mess.

Taylor Holiday: That’s right. If you conflate them, and you lump them all together, then you think they moved back up together. But the ATT thing, what it does and why you’re so right about this is because that calls into question the fundamental underlying business premise of so many of these businesses and as they’re currently structured, independent of the macro environment.

Eric Seufert: Right.

Taylor Holiday: The question is, could you survive in a good time if your performance suddenly deteriorated 30%? And the answer is no for a lot of these businesses. Now, you combine that with additional head – headwinds, and you have no shot. And so, it is really important to sort out each of the individual factors to try and figure out which ones are going to improve in the future.

Eric Seufert: Right.

Taylor Holiday: And right now, there’s very little indication that any of the efficiency that used to exist in the previous world is coming back. And so, the kinds of businesses that are going to win, they’re going to be structured and built very differently.

Eric Seufert: Oh, man, we could just talk about that all day. Okay, let’s talk about channel mix. So how have you seen the advertising channel mix change, let’s call it in the last year? How that advertiser has been able to successfully onboard new incremental spend with kind of like, under-explored or unexplored channels, and where others have declined? Or what are they trying to do? Are they just trying to salvage the existing channels, what have you seen there?

Taylor Holiday: What I’ll say is that there’s a desperation to try new things that there’s never been before. So, there’s a lot of dollars going into attempting to create diversification because everyone feels like it’s very cognizant now of the single-channel risks that existed in their business. But their ability to actually subsidize it and find another profitable channel, it has not occurred. Maybe in edge cases, for sure, we hear a case study about YouTube or TikTok, or somebody winning on Snapchat. But in aggregate, those channels are not working. And they are not offsetting the demand in Facebook. The one channel where I would say there is increased volume at a level that’s been meaningful is search is shopping, and Pmax. And this is why I think Google was really smart to move in the way that they did with that product. That said, Google always suffers from the reality that it exists post-demand, meaning it is a demand capture tool, not a demand creation tool.

Eric Seufert: Yeah.

Taylor Holiday: So, you can’t just go get more volume of search. That’s not how it works. Its – 

Eric Seufert: Okay.

Taylor Holiday: It’s volume-constrained. And so, it doesn’t actually allow. You can’t just take all your Facebook dollars and put them into Google, even if you wanted to. It’s not even available to you in that way. And so, people are being I would say smarter, and really making sure they’re maximizing every available dollar in Google. And we’ve seen the budgets go up a little bit there. But nothing that would offset any of the decline or impact that they would see in Facebook as their primary channel.

Eric Seufert: That is such an important point. And it’s one that just people don’t grok. It’s like there is some finite amount of searches for whatever keywords.

Taylor Holiday: That’s right. That’s right.

Eric Seufert: That exists today. Right? And it’s probably forecastable through the end of the week. Now, what could you do? You could go invest in a bunch of top-of-the-funnel brand advertising to drive more keyword searches. And then you say, Wait a second. I spent all this money on TV ads, and my Google campaigns got better. Well, no, they did. Well, I mean, it looks like they did. It’s the illusion of getting better, because you drove a lot more people into the top of the funnel to search for your thing. And they would have ended up on your website anyway, unless you precipitated a lot of competition for those keywords. And you couldn’t compete there. It’s basically just like a drag on your top of the funnel and brand recognition. It’s essentially like a tax on brand’s recognition.

Taylor Holiday: And the other important point here is that the problem with any search environment where it’s volume constrained is that eventually all the profits get computed down to zero. So, what happens on your branded terminology is, if you have retailers with excess supply of your product, you know how they’re going to try and move that. They’re going to bid on your branded terms on your SERP. Right. And so, what we’ve seen is actual branded CPCs rise in price over the last nine months, in ways that brands are forced to play defense on their own terms against their own online retailers, who are now more desperate than ever to try and move the inventory. And guess what, if they want to just move your inventory, they have more marginal dollar to do because they’re not spending any money on the top-of-funnel demand creation. So, their cost of acquisition is just purely on your branded terminology, they have actual more margin to play with than you do, who’s also paying for the Facebook ads – 

Eric Seufert: Right.

Taylor Holiday: … that are driving the demand on it. So, you’re in a losing battle there too. And so, we’re seeing more of that where the problem with Google is ultimately, it always just is an environment that gets competed away to the highest bidder who’s willing to push out the value capture further and further and further and usually that’s the bigger players. And so that just eventually that detail gets deteriorated too. So, it’s just never the growth lever. If somebody’s like, I’m gonna build my business and it’s gonna grow next year on the back of search. Like that’s just not a paid environment and unless you get these moments of arbitrage where for two months, Facebook ma – or Facebook or masks had a massive outsized amount of search volume versus competition, it’s a perfectly capitalistic market. All of that eventually gets computed down to zero.

Eric Seufert: But there are a lot of people that do that. Right? They just chase those short-term arbitrage – 

Taylor Holiday: That’s right.

Eric Seufert: … opportunities on Ecom. Lots of successful you know like solopreneur-type people.

Taylor Holiday: Yep. Sophisticated people, they’re good at it. Yep. Exactly.

Eric Seufert: And that’s, that’s like, if you go on YouTube, and you search for like, how to do Facebook ads or whatever, you see all the – some guy – 

Taylor Holiday: The drop shippers and yeah.

Eric Seufert: Yeah, exactly. And he’s like, oh look, you know, I, I do these keyword searches and I find something that there’s not a lot of demand for and I just blow it out and order a – 

Taylor Holiday: For two weeks and that is going on. Yeah, exactly.

Eric Seufert: Like he’s got scales and like post office equipment in the background, and yeah, that’s super fascinating. So, I mean, I want to kind of, let me just read back to you what you just said, because I think it’s a fascinating dynamic. So, you’ve got a brand that invests heavily in brand equity, and you’ve got basically a reseller of that brand, that can capture that last click, and that can be totally CAC-to-LTV efficient for them, because they’re not carrying the weight of actually building the brand equity, right? It’s almost like – 

Taylor Holiday: Exactly right.

Eric Seufert: You know, Google allows that reseller or whatever, to weaponize the brand equity, use it against the brand and then the brand is not really incentivized to invest there because well, why should they? They’re not really capitalizing on that because the last-click attribution methodology just eats up all the opportunity on the search side.

Taylor Holiday: And this is what retailers started doing is, they started getting really smart by going, Oh, you want us to take your product. Well, we don’t really want inventory risk. So, we’ll put you on online only with a dropship model. And we’ll see how that goes. And then what they’re doing is, they’re telling you, we have 2 million unique visits to And the reality is, yeah, to Nordstrom’s homepage, not to my PDP. I get zero traffic to the PDP on, and all you’re going to do is, you’re gonna insert yourself onto my search engine results page on my branded terms, and siphon the margin off of the demand that I create. Like that’s a bad relationship. But retailers got smart about this. And because they have cachet, and it sounds cool to entrepreneurs to be in Nordstrom’s they take that deal, and then they just deteriorate their own demand and put a hole in their own funnel basically.

Eric Seufert: Oh man. Okay, talk to me about TikTok. How important is TikTok to D2C and how has that changed over the last 12 months?

Taylor Holiday: I mean, I think what people are fascinated by with TikTok is, it’s a magic organic impression machine, where there is no other place that you could put a video up and suddenly get 5 million views overnight unexpectedly on a piece of content. And so TikTok has done a marvelous job of building engagement and virality into organic content creation, and they have some of the best content creators in the world and the platform’s intoxicating. The problem is, none of that is the same as driving a direct response advertising platform that produces marginally accretive acquisition. And that’s not the same thing. And they just, it doesn’t do that. Because what people still underestimate about Facebook is that Facebook has had a pixel, sitting on every website on the internet for 10 years tracking every purchase that happens. And so, you just can’t make up that level of specificity about consumer behavior and targeting. And their ad product is just so far advanced, and just the ad environment, the ad products and how native they are. Like it’s not there yet. Now, does that mean it won’t get there? I don’t know. I’m not gonna say that. But I just know that for now, every dollar spent outside of Facebook into another platform, it’s still an opportunity cost for a brand.

Eric Seufert: Right. What do you think about this idea that TikTok is not a DR Platform? I think there’s a misconception there as well. I mean, they’ve got a pixel, they’ve got a CAPI, they’ve got a Conversions API. I’ve been working on this piece, where I just tried to estimate the – basically the idea was only to estimate or provide some kind of like rough estimate of the breakdown across brand and DR for you know, the sort of largest ad platforms. The problem there is, you can’t really say brand versus DR. So, it’s really like DR versus non-DR which is like very nonspecific and broad. Anyway, so in this estimate, right? I have TikTok at like 50-50. My sense is that that’s roughly right. Maybe it’s a little even higher on the DR side, but like, I believe there’s like generally this misconception in the advertising space, that TikTok is all brand and that’s just like, demonstrably not true.

First of all, it’s based on the tools that they offer. Of course, it’s Dr. They have the DR tools. But second, I’ve seen companies running DR spend there, and I imagine those aren’t the only ones, right? There’s probably more if you know if they’re seeing that many, if I see that many. So, like will you just talk to me about that? I mean, that’s a misconception.

Taylor Holiday: Yeah, well, I think the question is, is it a misconception or a narrative that with driven with by – with intent. I think the ad platform wants to be whatever works for that advertiser. And so, I think the danger for any of these platforms is to sort of put on the DR identity is that, if it doesn’t work, they’re held to a really high standard and the dollar is moved quickly.

Eric Seufert: Right.

Taylor Holiday: And so I think for TikTok, the question is, and even if you interact with their sales teams, the language and the narrative. And I remember a year and a half ago, this was Snapchat. Snapchat came in hard after direct response dollars. Then, all of a sudden, about six months later, that sales pitch completely stopped and it was all brand awareness. This is your brand awareness platform. And so, the question is, I think everyone knows that DR dollars are prevalent, and they scale because if they work, people spend more money. And so, if you can crack it, it’s a really powerful driver. Whereas a brand awareness budget tends to be a more fixed allocation of capital. It’s like – 

Eric Seufert: Right.

Taylor Holiday: Here’s my budget for the month, I spend this much. So, I think there’s a, there’s a sort of prize to be won if you can capture the DR dollars. And so, everyone has an interest in it. But what I’ll say is that our industry is trying to make TikTok a DR platform. And TikTok is selling it to us as if it has the potential to be that, but they’re also sort of like, Yeah, but you got to try and you got to think about it differently. And da da da. And it’s like, there’s a lot of caveats around whether or not it can actually accomplish the objective.

Eric Seufert: Yeah, I thin it’s one of the frustrating aspects of watching the Twitter saga unfold from the sidelines. This idea of having a phone call, hat-in-hand with advertisers — that’s so foreign to me as a DR advertiser.

Taylor Holiday: Right. Right.

Eric Seufert: If your platform works, I’ll pay you. I don’t have any qualms. I mean, that’s not to say, look, I’m not gonna go run ads on Parler, right? There’s – 

Taylor Holiday: General brand safety concerns, yeah.

Eric Seufert: There are extremes here, extreme ends of the spectrum. But if the platform works, there’s no phone call. It works or it doesn’t. And that’s what dictates my ad spend.

Taylor Holiday: That’s right. That’s right.

Eric Seufert: And I think what a lot of people don’t understand is, and I’ve seen this firsthand, is that brand budget gets set at the Q3 the year before. And that old joke, you know, the “50-50 I don’t know which half” joke. I think when people hear that joke, and they think, well, those marketers are stupid. Well, no, but that’s the point. I wouldn’t want to be a brand marketer. And I’d feel odd about allocating money that way. But the thing is, yeah, if I know that 50% works, and it meets my standards, and if I would cut the brand spend to zero, my sales would go down to a greater degree than the brand spend would save me money on the expense side, then I should keep spending it. I don’t know which channels work the best. But my model doesn’t take that into account, anyway.

It says dollars in, dollars out. And so, I’m allowed to – I have the agency within my role as VP of Brand Marketing to allocate those dollars however I want. And you know, within that billion dollars of brand budget for the year, if I ratchet up Channel A by 10 million, because they took me to the Superbowl, or they took me to the VIP box at a Taylor Swift concert, they’re gonna get that extra 10 million, you know, on top of the 200 that’s already allocated to them. And that’s not going to make a real substantive difference in the overall performance. Now, you could say, why would you ever want to operate that way? Doesn’t that make you anxious not knowing the direct attribution and the direct contribution of every single dollar that you deploy? And I personally would say, yes, it does. But I’m a performance marketer. And that’s my sort of – 

Taylor Holiday: Well, that’s right.

Eric Seufert: … natural sensibility. But there are people that can deal with, or don’t care about, that ambiguity. And the fact of the matter is, if they cut the brand spend to zero and you know, companies do this exercise, and there is science behind all this. It’s just that when you’re operating in a brand environment, there’s no way to trace and attribute the dollars from the moment of ad spend to the eventual conversion that might take place a year later by some guy in North Dakota because he saw a commercial six months before. And so, the thing is, yeah, maybe only 50% works. But if you cut the whole thing, you’d be losing more money than you’re saving.

Taylor Holiday: That’s right.

Eric Seufert: But that’s the crux of those conversations, like Elon, if you don’t treat us well, we can take that money and allocate it elsewhere. And we can cut a lot of it away, because we know we just have to reach people. And we can reach people with a lot of different mechanisms. And you’re not going to take me to the Super Bowl, you’re not going to take me to the box at the Taylor Swift concert, you’re going to insult me on Twitter. Well, then we’re gonna cut our spend and we’re gonna push it into linear TV, or CTV, or Netflix’s new ads offering and it doesn’t matter how that works on a dollar-to-dollar basis. We just know if we cut it off in totality, we’d be losing more money than we’re saving. And that’s what you see play out.

Taylor Holiday: That’s right.

Eric Seufert: And I think Elon didn’t really appreciate that going into it. Maybe he doesn’t care. Maybe he’s got a bigger vision, I don’t know. But on the DR side, that wouldn’t happen. There’s no call that needs to happen to beg people or to flatter them. It’s like hey, the platform works, I better maximize it. I better exploit it to the max possible extent.

Taylor Holiday: That’s right. And I think there’s such a journey that I would say every marketer goes on in their career wrestling with the exact things that you just described, which is that, we all want there to be a perfect solution to attribution. And so, we all go down that rabbit hole. I know I did early in my career deep trying to find out a way to answer every question about every dollar. And then you begin to accept the reality that that’s not how it works. And you learn to live in that ambiguity. Then you begin this path that you wished every marketing dollar was allocated against. And the part of the organization got the money based on their ability to prove the return and that there was nothing political and nothing relational. And there wasn’t any general and that, that’s not true. And you learn to understand that. And you begin to think through each of these pieces differently, and that there is art and science here. And that there is an ability to drive an understanding of who your business is.

My kids, the other day, I was sitting at dinner with my three little kids, twin boys that are eight, daughter that’s five. They live on YouTube. And if I ask them, I say what’s your favorite ads, you know what brand they can tell me more than any other in the world? It’s State Farm. They know State Farm. It’s a freaking insurance company, but they can tell me exactly who they are, what they sell, because they advertise the crap out of top of funnel branded commercials with no call to action for an 8-year-old. But they’re in their head.

Eric Seufert: Right.

Taylor Holiday: And they know that the job of their business is to be at some point when every human has to make a decision about insurance. How deep is that worm that they’ve embedded in your brain? And that shit matters. It really does.

Eric Seufert: Taylor, I wish we had another hour. This is a fascinating conversation. I’d love to have you back on the podcast. Please let people know where they can find you, how they can get in touch with you, how they can employ your agency to deploy their ad dollars.

Taylor Holiday: Yeah, well, first, I would love for you to join Eric and I on the frontlines of the Twitter battle fighting the whole internet. So, I’m at Taylor Holiday on Twitter. And then if you want to talk to us about business is the best place to do it. So, hope to see you on the frontlines.

Eric Seufert: Alright, Taylor, thank you so much. Appreciate your time. Appreciate your flexibility. Appreciate your insights, and I wish you a pleasant Monday evening.

Taylor Holiday: It’s alright, buddy. Take care.

Eric Seufert: Take care.