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Ad spends dip as startups slash marketing budgets

Winter in the startup category is also freezing advertising expenditure (AdEx) and marketing budgets. This is in sharp contrast to 2021, when startups contributed around 11 percent to the overall AdEx of around Rs74,000 crore as per industry estimates.

By  Saumya TewariAug 2, 2022 5:25 PM
Ad spends dip as startups slash marketing budgets
Unlike established brands and industries, startups cannot afford to stop investing in brand building and sales either. (Representational image via Unsplash)

On Monday, esports and skill gaming app Mobile Premier League (MPL) laid off 100 people, which represents about 10 percent of its workforce, and said it is exiting the Indonesia market. MPL joins a slew of Indian startups like Unacademy, Vedantu, Trell, and Meesho among others who have had to lay off employees as they look to cut costs amid an expected funding slowdown in the country.

It seems that the onset of winter in the startup world is also freezing advertising and marketing budgets. This is in sharp contrast to 2021 where startups contributed around 11 percent to the overall AdEx which stood at around Rs 74,000 crore as per industry estimates.

An email sent to Ola and Meesho on their possible ad budget cuts remained unanswered. However, advertising executives say that they are feeling the heat with clients cutting budgets.

“There is a huge slowdown on the advertising spends by startups because of the VC funding drying, these companies don’t have the money to spend. We have already started witnessing the slowdown post Indian Premier League (IPL). Within the startup category, we are witnessing a 30-40 percent reduction in media spends,” a senior media buyer tells Storyboard18 on the condition of anonymity.

Startups were some of the top advertising spenders as they pumped money in the first five months of the year including in the IPL. For instance, IPL’s official broadcaster Star Sports had roped in 14 sponsors out of which eight were startups – Dream11, Byju’s being co-presenting sponsors; CRED, PhonePe, Swiggy Instamart and Meesho as associate sponsors. Disney+Hotstar onboarded 18 sponsors with 12 of them being startups.

“We are hoping that it would be a temporary phenomenon so how adex will be impacted would be dependent on how July to September and World Cup pans out. I would not judge the whole year basis this slowdown but in the short-term it has really gone down because June, July and August are also lean periods. So if it goes down now nobody is bothered but if it sustains then people will get worried,” the executive quoted above adds.

Spending judiciously

There is capital but it is being deployed a lot more judiciously as compared to last year when the capital was flying all over the place, say industry executives. There will be rationalisation and marketing budgets will see some axing.

The amount of budget cuts depends on the stage of the company as well as valuation raised in their last funding round, says Arun Iyer, founder and creative partner, Spring Marketing Capital. “Later stage (Series B) onwards the fund raise is going to be a little tough this year. Twelve to 18 months being a tough environment so everybody is going to be cautious in the way they spend,” he notes.

Apart from working with multiple startups, Iyer’s advertising agency also has a Venture Capitalist (VC) arm which invests in new age companies. He sees this winter as an opportunity as well.

“We are in conversation with our companies where we have invested and having conversation about how to plan the way forward, having conversation on spending money effectively. As far as the investing part, we will be investing in companies this year as well. We will be seeing valuations which are a lot more real which is a good thing,” he notes.

But some are defying the changing tide. Arjun Mohan, CEO - India, upGrad said that they have not cut down on marketing spends at upGrad because they have been strategic in our expense planning to generate maximum ROI.

"In fact, our marketing spends have increased by 130 percent in FY23 because we are focused on creating relatable and personalised edutainment content, to make upGrad a household name, by targeting the right learner base across geographies. Our latest campaigns address the specific needs of our consumers, while piquing their interest with the concept of LifeLongLearning as a means to eradicate skill redundancy. Our plan is to spend an equal amount on both traditional and digital mediums, as we expand our course portfolio and tap into newer audience segments across the country," he adds.

Finding the silver lining

Media industry executives also believe that startups did have a good run so far and it is too early to completely write them off.

“The startups have had a spectacular run and it is only in the last couple of months that things have been relatively slow. These situations are cyclic at best and with India’s strong economic fundamentals and long-term growth outlook, we expect to ride out any temporary blip,” asserts Anupriya Acharya, South Asia CEO, Publicis Groupe.

Unlike established brands and industries, startups cannot afford to stop investing in brand building and sales either.

“They need to be in the consumer’s mind as the preferred choice and all communications are skewed towards ROI, given that growth targets need to be met on an ongoing basis. We expect sectors such as e-commerce, fintech and payment apps and now the gaming apps to continue advertising in a big way,” Acharya concludes.

First Published on May 31, 2022 10:49 PM