Alphabet, Google’s parent company, and Facebook are the two key global entities driving the digital advertising industry. Alphabet reported $79.38 billion in advertising revenues in 2016, while Facebook had $26.88 billion to its name. The best part is, despite earning in the tens of billions, Google’s and Facebook’s ad revenues have both continued to grow at strong double-digit rates.
According to a recent report published by emarketer, Facebook’s display ad revenue is expected to grow by 32.1% in 2017, while Google’s overall ad revenue is expected to grow by 14.8%. Facebook’s total revenue grew by 57% in 2016, and their overall growth rate may have to come down to reasonable levels considering the size they have already achieved.
Google’s ad revenues grew by 17.7% last year, and near-15% growth seems to be a reasonable estimate because a bulk of Google’s user base expansion will happen in developing markets, where smartphone penetration is comparatively lower.
The good news for both these companies is that they have effectively transitioned their web-based ad revenues to the mobile space without having to go through a slowdown.
Smartphone growth over the past several years occurred almost in tandem with the decline in PC sales around the world. Since mobile ad rates are comparatively lower than web ads, there were concerns that the shifting consumption pattern – from desktop to mobile – may affect their revenues. But, so far, Google and Facebook have not only embraced the shift to smaller devices, but have also seen their revenues exhibit enviable growth.
In Q4 2016, mobile advertising revenues accounted for nearly 84% of Facebook’s total advertising revenues, an increase of 4% compared to the prior period.
Both Google and Facebook have strong value propositions for advertisers. Google is firmly in control of the search advertising market, and the sheer dominance of Android in the mobile operating system market will make sure that traffic keeps flowing towards Google’s search engine. The odds of a new competitor coming in and disrupting Google’s equilibrium in the search+mobile operating system world is extremely low.
Facebook, on the other hand, is the only global social media company in the world with billions of users on multiple platforms. The main platform is approaching two billion monthly active users, Instagram has crossed 600 million users and WhatsApp has gone way past 1.2 billion.
Though there will be plenty of overlaps because of users using all three platforms, as long as users keep spending time on any of their applications, Facebook will be able to show ads to them. With the competition struggling to even get close to Facebook, advertisers will continue to pour money into the Facebook Audience Network platform.
As people spend more and more time online, ad spend is going to keep moving from traditional advertising mediums to digital advertising. Facebook and Google are at the forefront of this shift. As dominant players in the segment, most of the digital ad dollars will, naturally, flow into their coffers, making sure that their revenue growth numbers keep ticking for several years to come.
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