Google, Facebook & The Domination of Digital Advertising

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There was no more obvious takeaway from recent second quarter 2017’s earnings reports than that Google and Facebook are giant players in the digital ad space—and are only getting bigger.

Facebook trumpeted $9.3 billion in earnings during last quarter, an increase of 45 percent year over year, and Google’s parent company Alphabet touted $26 billion in earnings across all properties, a 21 percent increase in revenue year over year.

Brian Wieser of Pivotal Research calculated that Google and Facebook account for 99 percent of 2016’s growth in U.S. digital ad revenue. This is up from Wieser’s estimation of a 65 percent of growth in 2015, according to reporting by Fortune Magazine. In addition, he estimates that the two giants captured 77 percent of gross digital ad spending in 2016, a five percent increase year over year.

When you consider that 87 percent of Google’s income and 98 percent of Facebook’s comes from advertising, it paints a sobering picture of the digital ad landscape. The numbers say that if you want to play, you have to pay the gatekeepers: Facebook or Alphabet. Other social media services, including Twitter and the once-favorite child Snap, are fading into nothingness amidst this power struggle.

Twitter’s second quarter was not good at all, with little to no growth in monthly users and a decline of two million American users. Snap’s stock is nosediving, another bad sign of things to come for the company.

How Facebook and Google Came to Dominate

There are several factors that influenced the rise of Facebook and Google as the most powerful marketers on the Internet. A lot of their success is probably due to being at the right place at the right time, since they jumped into the game when Internet advertising was still in its relative infancy.

But it’s not all just about timing, as Google and Facebook have both invested heavily in technologies that other companies are only starting to consider. For example, both helped lead the way to the Big Data Revolution. Facebook’s ability to target ads to a very precise audience is a result of ridiculous amounts of user data and a machine intelligence behind the scenes that can work out optimal placements. Google’s search data plus its AI has made it the first site 81.12 percent of people across the globe turn to when looking to learn, shop or sell every single day. Both of the Silicon Valley firms understood the power data would hold in a digital world.

Their early interest in developing data collection and devising the clever software required to mine it positioned Facebook and Google to emerge as leaders in ad placements long ago. After all, marketers want the best return for their buck and that means getting more of their message out to people who are actually receptive. When you can go one step further and actually match ad views with purchases because the technology is so far ahead of the rest of the market, it’s downright foolish to not rely mainly on those who put their money where their mouths are.

Dealing with Online Advertising Fraud

Unfortunately, there’s a problem that companies like Google are still struggling with, a type of advertising fraud called “spoofing.” This happens when ad buyers are tricked into paying for counterfeit ad spots. Google has been aware of this problem and is looking for solutions after recent testing showed the massive extent of ad fraud online.

Since advertisers are projected to spend about $83 billion on digital marketing in the U.S. this year, even a small percentage of ad fraud would result in a huge amount of wasted money for marketers, potentially souring them from the process entirely. This is why the industry, encouraged by Google, is embracing the idea of an Ads.txt file that holds the potential to protect web publishers from unauthorized companies selling fraudulent spots to unwitting brands.

These efforts won’t do anything but further cement Google’s, and Facebook’s, for that matter, place at the very top of the industry. After all, who wants to waste money on fake ads, even if they’re not on a tight budget?

Alternatives to the Big Two

If you or your brands are looking for places other than Facebook and Google to place ads, there are many small, independent platforms fighting for scraps in the space.

Bigger players, like Verizon, are also trying to get some traction. Verizon Oath claims to house more than 50 media and tech brands that engage over a billion users worldwide. Its bigger names include Yahoo!, AOL and Tumblr, companies everyone has heard of, but haven’t really made many waves in the marketing world for a while. Even so, this rebranding and repackaging could make these “old” names new again.

There’s probably little risk that the twin powers of Facebook and Google will be dethroned any time soon, even with Google’s recent antitrust fine from the EU to the tune of $2.7 billion. An acquisition by either player might be closely examined, but there’s no rule saying that you can’t be really good at doing what you do. Because these two platforms are constantly pushing the envelope of what marketers have formerly believed was possible, it’s likely that we’ll see increased innovation from both as they continue to try to expand.
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