Gavin Baker
+ Your AuthorsArchive @GavinSBaker Managing Partner & CIO, Atreides Management LP. Formerly Fidelity OTC Fund. No investment advice, views my own. Mar. 09, 2021 1 min read

1) Great Bernstein report this morning on digital advertising, which is perennially misunderstood and mismodeled.

TAM should include marketing spend and contemplate “CAC is the new rent.”

Real market size is *much* larger and penetration much lower than simple math suggests.

2) Also strongly believe search should be excluded as it is not advertising, it is just a digital “slotting fee” which is contra-revenue for brands and much larger than commonly believed - often not even included in marketing TAM estimates.

3) All you really need to know is that many DTC eCommerce co’s spend 50 to 70% of revenue on advertising.

Pick your eCommerce penetration across verticals, then look at digital ad spend % for offline revenues at well run brick and mortar companies.

That is the real TAM.

4) No one should think that building a marketplace is positive.

Dominant digital ad players have been slow to build marketplaces because advertising is more profitable as advertisers systematically overestimate their chances of retaining new customers and thus overpay.

5) Advertisers do not make this mistake on marketplaces.

When a dominant digital advertising player builds a marketplace, it is a sign of weakness, not strength.

But it is the best move when you don’t own a platform and are at the mercy of the dominant mobile platforms.

You can follow @GavinSBaker.


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