In the following years, digital advertising will surpass television as the largest advertising market of the entire ad industry (Desjardins, 2016). Considering the current size of the digital advertising market, with revenues expected to reach $83 billion in 2017 in the U.S., you can imagine publishers are rushing to get their stake in this highly valuable market. However, the prospects do not seem that promising after all … The duopoly of Google and Facebook is dominating the market. Especially companies such as The New York Times and News Corp., who failed to adapt to the new digital environment in time have no chance against these giants with their huge scale platforms.
In order to give you an idea about the power Google and Facebook have, let’s look at the industry insights for 2017. Currently, the duopoly has a market share of 85% in the US digital advertising market (Slefo, 2017). In addition, the market has grown an impressive 20% last year. This growth is almost fully accounted for by Google and Facebook, with 54% and 45% respectively (sums up to 99%), leaving only 1% for the rest of the players in the market (Ingram, 2017). The strength of these companies originates from the platforms they have created, full of user generated content (Desjardins, 2016). On the flipside, advertisers having a hard time as they are highly reliant on the huge reach of these giants facilitated by their platform strategy and the amount of data which is generated from it. Especially in terms of targeting marketing, advertisers are highly dependent. Companies such as Google and Facebook now control what audiences see and who gets paid for their attention, and even what format and type of journalism flourishes (Owen, 2017).
However, resistance from politicians and competition on the dominance of these companies increases. Especially taking into consideration the powerful influence they have over societies. Furthermore, journalism find itself in a huge crisis as they increasingly have to rely on digital ad sales, which has proved as an insufficient means of income. In order to prevent the publishers from running, thereby decreasing value on the user side, and in respond to increased critics from society Google has announced it will give more insights in search results to publishing organizations that offer some free content (Finimize, 2017). It will also make it more easy for users to subscribe to certain content, allowing publishers to generate more subscription based revenue instead of solely rely on ad sales. To facilitate this switch, Google will end its “First Click Free” policy in favor of a “Flexible Sampling Model”, where publisher will decide how many, and if any, free articles they want to provide to potential subscribers based on their own business strategies (Gingras, 2017).
Google closed it’s announcement with the following statement: “We are just getting started and want to get as much input from publishers—large, small, national, local, international—to make sure we build solutions together that work for everyone.” This suggest Google is sincere about boosting revenues also on the side on the publishers. However, it turned out, Facebook is about to launch its own subscription program. Therefore, the question remains, how sincere is Google about solving the worldwide crisis of journalism, or is it just defending its part of the pie?
Desjardins, J. (2016). Google and Facebook dominate digital advertising. Business Inside. [online] Available at: http://www.businessinsider.com/google-and-facebook-dominate-digital-advertising-2016-12?international=true&r=US&IR=T
Finimize (2017). Google’s gift to journalism. Finimize. [online] Available at: https://www.finimize.com/wp/news/googles-gift-journalism/
Gingras, R. (2017). Driving thee future of digital subscriptions. VP News Google. [online] Available at: https://www.blog.google/topics/journalism-news/driving-future-digital-subscriptions/
Ingram, M. (2017). The vast majority of spending on digital advertising goes to just two companies. Fortune. [online] Available at: http://fortune.com/2017/01/04/google-facebook-ad-industry/
Owen, T. (2017). Platforms become publishers. CJR. [online] Available at: https://www.cjr.org/tow_center_reports/platform-press-how-silicon-valley-reengineered-journalism.php
Slefo, G. (2017). Strength in numbers: publishers team up in fight against Google and Facebook. AdAge. [online] Available at: http://adage.com/article/digital/publishers-form-factions-fight-google-facebbok/309458/
Hi Beau,
Interesting article you wrote! It is incredible how large this industry is without much of us knowing about it. If you put the advertising income you described in a country, it generates more money than half of the countries in the world, truly remarkable. Besides the online digital platforms as you described, I think there might a different platform for them coming up: the Digital Out of Home (DOOH) advertising industry. This comprises the type of digital billboards you see when you walk outside, such as the one in front of the Central Station of Rotterdam and the ones at various metro stations all over Rotterdam. More and more of these DOOH placements start to operate as a platform, where advertisements can be shown based on certain characteristics derived from for instance the smartphones of the people passing by and based on interactions with the screen measured by eye-tracking technologies. Although this industry is considerably smaller than the platforms you described, it is expected to grow to a nearly 4.5 billion dollar industry by 2019. Since news is often showed at these platforms as well, it could clearly be the case that in the future this could generate interesting possibilities for publishers. I am very curious what the future of this will entail!
References:
List of Countries by Projected GDP 2017. (2017). Statisticstimes.com. Retrieved 12 October 2017, from http://statisticstimes.com/economy/countries-by-projected-gdp.php
Wehner, M. (2017). Digital Out of Home: Reinventing Signs From Billboards to Jukeboxes. Adage. Retrieved 12 October 2017, from http://adage.com/article/agency-viewpoint/digital-home-a-invention-advertising-s-origins/308906/
Dear Beau,
Thanks for writing such an interesting article. Both the size and the dynamics of the digital advertising industry are remarkable, and it’s crazy to think that it’s dominated by just two companies! I did a little bit more digging after reading your post, and found an article published on Wired’s website titled Verizon’s Long-shot Bet to Disrupt Google and Facebook. The article acknowledges that Google and Facebook are the dominant forces in the industry (at this point, it’s fairly impossible to argue otherwise), but it points out that American telecommunications company Verizon is actively attempting to bring a change to the competitive landscape of the industry (Finley, 2017). Its acquisition of Yahoo a few months ago is the first aggressive action taken to achieve this goal. Oath, Verizon’s subsidiary running AOL and Yahoo, recently posted revenue of approximately $2 billion. Of course, this is nowhere near Google’s $22.7 billion or Facebook’s $9.2 billion of revenue, but the competition definitely seems to be worth considering for the ‘Big Two’ (Finley, 2017). Oath claims to be using strong data-backed strategies to target ads, and is aiming to set itself apart through transparency and accountability in advertising. Beau and other readers, do you think there is a possibility for disruption in the industry, or will the Big Two continue to dominate in coming years? I recommend you read the article; it has many interesting insights into competition within the industry.
Reference
Finley, K. (2017). Verizon’s Long-Sshot Bet to Disrupt Google and Facebook. [online] WIRED. Available at: https://www.wired.com/story/verizons-longshot-bet-to-disrupt-google-and-facebook/ [Accessed 22 Oct. 2017].