Once the Wild Wild West of advertising — a place where even the most nascent, upstart platforms could get a foot in the door and start hawking the next best virtual advertising concept — available market share in the online advertising industry has shrunk considerably in the last few years. Today, Google and Facebook are the two 800-pound gorillas that hold most of the cards — and 85 percent of the advertising revenues being funneled into the digital space.
According to Mary Meeker’s annual Internet Trends Report, Facebook’s digital ad revenue grew by 62 percent last year while Google posted 20-percent growth. As a whole, online advertising is accelerating by 22 percent annually, according to Meeker, a partner with Kleiner Perkins Caufield & Byers. She expects digital ad spending to surpass TV ad spending on a global basis in 2017, having already done so in the U.S. last year.
“TV is still king and held 42 percent of ad spend in 2016, but digital media’s share of ad spend continues to grow and may reach 33 percent of all media investment this year,” predicts Timothy D. Malefyt, Ph.D., a corporate anthropologist and market professor at Fordham University. He adds that some large spenders remain skeptical of the medium’s true power.
“I hear that while the world’s biggest advertisers like Procter & Gamble and Unilever are slashing their online spending,” Malefyt says, “L’Oréal is spending more of its budget across Google, Facebook, and Amazon because it’s working for them.”
As they up their digital spend, advertisers are paying closer attention to what Malefyt calls “brand safety” issues. “Marketers see great potential in digital (i.e., direct access to consumers), but are let down by recurring issues of fraud, lack of transparency, and bad ads,” he points out, highlighting recent issues involving YouTube, where ads were distributed on questionable sites (those supporting alt-right issues, or non-family friendly sites), as one example of this.
“Countering this, there are new reliable resources for digital ad spenders,” Malefyt continues, “like the fact that Amazon is now selling to ad buyers directly with its growing advertising business (Amazon Media Group).”
No Slowing the Momentum
Calling the Facebook/Google duopoly “gigantic,” Hannu Verkasalo, CEO at Verto Analytics, says the pair’s momentum shows no signs of stopping anytime soon. During the past two decades, in fact, he says Google has expanded from being a “simple search engine” to include everything from video to enterprise services to advertising to maps … and the list goes on. And while Facebook is only about half of Google’s age, the company has “built the world’s biggest social networking platform and become one of the most aggressive acquirers of mobile-led companies, snapping up properties like Instagram and WhatsApp,” says Verkasalo.
In assessing Google’s and Facebook’s rise to power, Verkasalo says the pair’s ability to quickly execute campaigns with wide reach, advanced adtech tools, cross-device reach (i.e., consumers already use both platforms across multiple devices), and a treasure trove of collected personal data, are just few of the major drivers. Both platforms have also invested heavily in apps and web services that allow them to “embed ads in seamless flow that follows the consumer journeys and user flows,” he says.
“At this point, three out of every 10 minutes spent online in the U.S. goes to either Facebook or Google,” says Verkasalo. “They’re both extremely powerful, and particularly in the mobile space, where more than two-thirds of ad revenues go to one of those platforms. That’s pretty significant.”
The Pros and Cons
At a high level, Verkasalo says the duo’s reach is a positive thing for advertisers that want to be able to target “a single part of a total audience” in the U.S., whose virtual options are limited in that regard. “Both platforms are also strong when it comes to campaign stats, reaching consumers via mobile apps, and targeting consumers on the web,” says Verkasalo. “They both have great cross-device and cross-domain capabilities.”
On the downside, the duopoly’s power has taken much of the spotlight away from smaller players that can’t raise the revenue — or the advertiser support — they need to stay in business on an independent basis. Seeing an opportunity there, both Facebook and Google have acquired smaller, innovative players and folded those companies under their collective umbrellas. “It’s now almost impossible to compete against Google and Facebook,” Verkasalo concludes.
Having so much power concentrated in just two providers is also driving ad prices up. “Due to the size of these two players, and the ongoing high demand for digital advertising, ad prices have gone higher,” says Verkasalo. “As a result, many smaller advertisers can’t even afford or justify the spending. That’s one of the things we’re hearing from marketers right now.”
Protecting the Brand DNA
As chief digital officer for Tumi, Charlie Cole knows that digital platforms like Google, Facebook, and Amazon are giving marketers the biggest bang for their online bucks right now. But he also knows that venerable brands like Tumi have to tread carefully when leveraging those platforms, having spent decades building their brands, developing loyal customer bases, and offering top-of-the-line products that the average person wouldn’t necessarily purchase from an online e-tailer like Amazon.
“We’re very conflicted about [this] because Amazon is very much agnostic as it pertains to brands,” says Cole. “That’s great from a consumer/democratic point of view, but it’s not necessarily great for a brand — and especially a premium brand. We have to protect our brand DNA to the point where we can command respect in the market in the form of prices that are better than that of our competitors. It’s a goal we achieve through quality, customer service, and customer experience.”
Assessing the digital ad arena as a whole, Cole says there’s “Google and Facebook, and then there’s everything else.” He says one challenge Tumi has faced is trying to control the meta-environment where people are searching. That’s not easy to do in today’s virtual ad space. “It’s not Tumi’s job to dictate search engine strategies or preferences,” says Cole. “Our job is to control the narrative when someone seeks out our products.”
Cole says controlling that narrative is “quite easy” on Facebook, where users can retarget off of the company’s keywords. “But the advertising itself is certainly subservient to the branded placement if someone goes into their search bar and types in ‘Tumi,’” says Cole. That’s less so with Google, where brand protection and the potential for counterfeits are both potential challenges.
“Search engine protection is a really important thing for our brand, so we have to play that ‘game of bidding’ on our branded terms, even though our branded term in Tumi’s case is something that otherwise someone might not search for,” says Cole. “We are about as active as they come on that platform, but we come at it from a ‘We didn’t make the rules, but we have to do what we can to protect our [brand]’ standpoint.”
Asked whether Facebook’s and Google’s ad platforms are meeting Tumi’s expectations at this point, Cole says the results are mixed — particularly when it comes to offline sales. “The tools that are given to us on both Google and Facebook are tertiary at best as it pertains to driving to offline [sales],” he says. “For example, Facebook will [distribute] the occasional case study saying, ‘Someone who clicked on our advertisement is four times more likely to buy in store.’ Well, says who? Tying cookies to offline purchases is a very hard thing to do.”
Like most marketers, Tumi is also trying to figure out whether its digital ad spend is actually worth it — or not. “The question is, how do you justify digital spend and evaluate it beyond digital revenue?” Cole asks. “In reality, most websites have a conversion rate between 1 percent and 3 percent, which means 97 percent to 99 percent of people visiting a website are not going to convert. So you have to come up with a way to evaluate that 97 percent to 99 percent of people beyond just onsite ROI.”
Cole says neither Facebook nor Google do a very good job of this right now, and that there’s certainly room for improvement in the future. “There’s been a lot advertised about the death of brick-and-mortar,” he explains, “but the fact of the matter is because of the passive applications that Facebook has running on someone’s phone, the platform could theoretically drive an online advertisement to when someone then visits a mall in the next 24 hours.”
Seeing online video as the next frontier that’s ripe for conquering, both Facebook and Google are putting more elbow grease into their video initiatives. The former launched its first original series this summer, with 30-minute episodes that include ads, while Google’s YouTube platform is offering publishers more control over their own ad inventory in order to win their business. According to AdAge, the site is offering “major publishers who choose its backend video player the ability to control ad sales both on their sites and on YouTube.”
“With huge investments planned, [both] companies are preparing to do to the television advertising business what they have long since done to traditional print advertising: namely, take much of it for themselves,” Fortune reports in Why Google and Facebook Prove the Digital Ad Market Is a Duopoly. “YouTube has been rolling out new series with stars such as Ellen DeGeneres and Kevin Hart, and says that the service’s overall 1.5 billion viewers watch, on average, 60 minutes a day on their phones and tablets.”
The video land grab isn’t limited to Facebook and Google, even though the two may wind up dominating that space too. According to eMarketer’s latest report on how social platforms are using video to capture audience attention, Facebook, Snapchat, and Twitter are all in the race to “drive increased usage and capture a greater portion of digital video ad revenues with familiar ad formats, such as pre-roll and mid-roll.”
eMarketer forecasts that U.S. digital video ad spending outside of social platforms will reach $13.23 billion this year, up 23.7 percent from 2016. By 2021, spending will reach $22.18 billion. And while Facebook has deep pockets and an enormous audience, eMarketer says its success “is by no means assured. Consumers today don’t go there to watch shows, so Facebook must change [its] behavior by offering great programming and a winning video platform.”
Lower Prices Ahead?
Malefyt says that while Google and Facebook continue to dominate the digital ad space, the cracks in the pavement are beginning to show. For example, some companies are breaking away from those platforms and creating their own channels. Disney is launching a new streaming service and plans to pull its Star Wars and Marvel movies from Netflix when the two companies’ current deal expires in 2019. The platform will host Disney and Pixar movies and a selection of Disney Channel TV programs. Similar to Netflix, Hulu, and Amazon, Disney will also be creating original content exclusively for the platform, according to NBC News.
As the digital advertising environment continues to morph and mature, more shifts and changes could be in store. “More companies are breaking off from the larger video providers,” says Malefyt. “As more of this happens, we’ll likely see more challenges to the dominance of Google and Facebook as the main advertising platforms. That could actually bring prices down and market it a more competitive market all the way around.”