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Lessons from the digital advertising duopoly.

Byline: Rochester Business Journal Staff

If you have used digital advertising to promote a product or service lately, chances are you handed money over to either Google, Facebook or both. These two companies, Google (owned by parent company Alphabet) and Facebook, have been dominating the digital marketing universe for a few years now.<br />Last year U.S. advertisers spent $35 billion with Google and $17.4 billion with Facebook according to eMarketer. That represented 59 percent of all U.S. digital ad spending. And just like Triple Crown winner Justify, they aren't slowing down in 2018. This year those totals are forecasted to be $39.9 billion and $21 billion for Google and Facebook, respectively.<br />It's quite remarkable what these two companies have been able to achieve. There are millions of websites and countless thousands of companies looking to get a piece of the action. There are many different types of internet-connected devices displaying various types of advertising formats. And yet, just two companies are dominating the medium.<br />A major reason for both company's growth and dominance is their ability to adapt to and monetize the small screen. As daily internet use moved from laptops and desktops to smartphones, tablets and ereaders, both companies developed a strategy for successfully monetizing these devices. On average, adults in the United States spend over three hours on their mobile devices each day. This has tripled in just five short years. Advertisers have taken notice. They are eager to reach consumers when they're using smartphones; Google and Facebook make it pretty easy.<br />For Google, their most lucrative advertising product is AdWords. This is the system that places ads on their search engine result pages. The design of their ads has evolved quite a bit over the past couple of years. Search for a product or service and you'll notice that ads are taking up a lot of the real estate on the results page. On smartphones, it's becoming harder and harder to distinguish the advertisements from the natural listings. The result has been an increase in clicks and hence an increase in revenue. In Q2 of 2017, Google announced that paid clicks increased 52 percent year over year, the highest increase in seven years. Their mobile-first strategy has really paid off.<br />At one point, Facebook struggled trying to monetize mobile users. When they decided to introduce ads right in the users' newsfeed, this changed and their revenue skyrocketed. A report in AdWeek last year cited that in May of 2012, when Facebook had its initial public offering, it was making no ad money from mobile users. Fast forward five years, mobile devices accounted for 89 percent of Facebook's ad revenue in the fourth quarter of 2017. Problem solved.<br />Another important factor in Google's and Facebook's digital ad revenue dominance are their mobile apps. Both companies have multiple apps that dominate our smartphones. Google owns the Chrome browser, YouTube, Google Maps and Google Search. Facebook owns the Facebook app, Instagram and FB Messenger. All of these apps are in the top tier in regard to average time spent. There are literally millions of apps available for mobile devices, and yet these two companies have found ways to totally dominate this competitive marketplace.<br />What will the future look like for the digital marketing landscape? It's surprising, at least to me, that just two companies are dominating this industry. Fifteen years ago, it was very different. There were thousands of publishers, web portals, adtech companies and ad networks all taking their fair share of the money invested in online advertising.<br />In another 15 years I expect it to be very different than it is now. Not that there won't be a small number of companies commanding the majority of digital advertising dollars. Consolidation, at least to some degree, is the natural order for any market. The change will likely be the types of companies that dominate the landscape.<br />Facebook and Google have two things going for them: they connect audiences with the content they're looking for and they have valuable information about their users that advertisers want to exploit. Neither company, however, is developing the content that is being consumed by the very people advertisers want to reach. The publishers of contentthe newspapers, television stations and entertainment companiesare either barely surviving from the scraps left over or have shifted away from advertising and towards a subscription model.<br />This model cannot last forever. Content creators need to be compensated for their work. There will be a shift from the technology and social media giants back to the publishers. Either that, or Amazon will just take over the world, which is probably just as likely to happen.<br />Karl Heberger is chief strategy officer at Mason Digital, a full-service digital marketing firm. He can be reached at karl@masondigital.com.

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Publication:Rochester Business Journal
Date:Jul 5, 2018
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