In this article from the website Investopedia, tech writer Rakesh Sharma takes a look at Facebook and Google’s dominance in the digital space and reveals why it’s only going to get worse. You can read Sharma’s article in full here.
As the digital advertising industry grows, so do Alphabet Inc. subsidiary Google (GOOG) and Facebook Inc. (FB).
Estimates about the exact market share of both companies differ but the consensus is that the two behemoths dominate the industry. For example, according to one estimate, they are responsible for 57.6 per cent of total market share or about $US0.60 of every dollar spent on digital advertising.
Jason Kint from Digital Content Next puts that figure even higher estimating that Google and Facebook accounted for 90 per cent of all advertising growth during the third quarter last year.
This is especially striking, when you consider that digital advertising is on the upswing and surpassed television advertising last year, according to some estimates. According to figures from the Interactive Advertising Bureau (IAB), $US17.6 billion was spent on this form of advertising during the third quarter of last year, a 20 per cent increase from year-ago figures.
So, what are the implications of Google and Facebook’s dominance of the market?
For starters, this means good things for investors in both companies. As the market for digital advertising grows, it is almost certain that Google and Facebook will be the ma For starters, this means good things for investors in both companies. As the market for digital advertising grows, it is almost certain that Google and Facebook will be the main beneficiaries by virtue of their sheer scale and reach.
Well-known investor Fred Wilson stated as much in his 2017 forecast, when he wrote that “investors and entrepreneurs will concede that Google and Facebook have won and everyone else has lost.”
This also means that the ecosystem for digital advertising services will coalesce around the two companies. While Google dominates search advertising, Facebook has found its metier in social. Twitter Inc. (TWTR), which competes for ad dollars with the two services, is trying to reinvent itself as a video streaming service but has found the going tough, so far.
However, their dominance comes with trade-offs for both companies. For example, Google’s Cost Per Click has trended downward in recent quarters and Facebook’s Average Revenue Per User has declined. This leaves space for innovative companies to emerge as competitors. Snap Inc. has emerged as a serious contender to Facebook for social advertising. The company’s Snapchat service, which boasts 130 million Daily Active Users (DAU), is more popular with teens as compared to the Menlo Park-based company’s social network. The startup has pioneered innovative forms of advertising and is expected to post revenues of $US1 billion this year. Research firm eMarketer has forecast “explosive growth” for the service.
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