In our world of eye-popping stats, John Herrman recently shared a new one from a Morgan Stanley analyst that shakes the wobbly legs of the digital media industry in this New York Times column: “In the first quarter of 2016, 85 cents of every new dollar spent in online advertising will go to Google or Facebook.” Industry sources quickly tried to discredit this number as way too high even though for years many, including DCN, have noted overall market consolidation with this IAB/PWC report tracking the top ten’s growth from 70% to now 75% of the market.
But 85% to only these two companies?
Well, last week, IAB/PWC also released its quarterly U.S. advertising report, which was quickly followed by a “groundhog day” press release from the IAB, the industry trade group for the advertising sector, announcing the rapid rise of digital ad revenue. The Report notes that first quarter U.S. internet ad revenues hit a record-setting high after the highest growth in four years hitting a “21% rise over the same time period in 2015.” We don’t dispute this number. We just think it’s important to highlight that only two IAB members are benefitting from this increasingly lopsided ecosystem.
Using Facebook and Google’s public earnings, it’s very simple to back into the math. The table below illustrates the estimated U.S. ad revenue growth for Google, Facebook and what I affectionately like to call “Everyone Else.” These calculations show nearly 90% of the growth going to the two companies. If you’re in the “Everyone Else” group, you’re competing for $300 million of the $2.7 billion in Q1 growth.
Stop and let that sink in for a minute.
It seems the only other ways money is being made in the digital advertising ecosystem is through:
- Intermediaries who capture 55% of the supply chain according to IAB research on the “Ad Tech Tax” that marketers are funding;
- Fraud, which according to the ANA, results in more than $7 Billion per year being dislocated; and
- Other shenanigans, which the ANA reported on last week in its groundbreaking Transparency Report.
And whether we like it or not, no discussion of ad revenue is complete without factoring in ad blocking. I want to once again applaud the IAB for bringing together its members last week to discuss user experience issues in light of ad blocking. I was pleased to be able to listen through the entire day and appreciated that most of the agenda was filled with DCN’s premium publisher members. Because DCN’s members depend on trusted and direct relationships with consumers and advertisers, our members are often closest to the value exchange with the consumer and to the impact from the installation of ad blockers across the web.
Senior strategy executive Mark Frost of Strategic Ink, opened the event by sharing the key findings from a recent IAB, 4As and ANA workshop. Most important was the self-awareness about the failures of ad tech, retargeting and unbridled data collection that often doesn’t serve the consumer. As we’ve written many times, the fact that digital advertising consistently ranks as the least trusted form of advertising speaks volumes. And, it is interesting in light of the revelation that Google and Facebook have a near-monopoly on digital advertising, that a recent report from Wells Fargo Securities and Optimal showed that consumers trust Google and Facebook least of all with their data.
This brings me to my final point. Princeton released research last month showing that Google and Facebook together account for all of the top ten third-party data collectors across the web. The impressively-credentialed researchers Arvind Narayanan and Steven Englehardt wrote, “In fact, Google, Facebook, and [their increasingly poor cousin, my words] Twitter are the only third-party entities present on more than 10% of sites.” It’s worth noting that Twitter is the only one of these three companies to publicly honor Do Not Track.
Google alone owns all of the top five third-party domains across the top one million websites. In the words of Harvard Business School Association Professor Ben Edelman, “No other firm engages in even a fraction of this tracking.” Importantly, his comment came in a filing of concern about the FCC opening up the set-top box business. While there are consumer merits to the FCC’s position, there is also significant concern we’ll be lowering the privacy bar so that Google and others can spoil another ecosystem with tracking and copyright issues. And this at a time when all bars need to be raised to protect consumers and the content they often enjoy for “free”— that is, at the cost of their time spent viewing advertising.
All of this information is vital to understanding the dynamics around data ownership and ad blocking — two complex issues which will impact our ability to evolve and improve the web we want as an industry. Facebook, due to its closed platform, and Google, due its dominance in browsers, ad tech, search and advertising, will have a large seat at nearly any industry or regulatory table discussing critical issues. So we urge the industry to keep your eyes wide open. Lax rules around data collection and use and incomplete solutions to ad blocking may very well play into their hands as they angle to swallow up that last 10%.
Notes and References
1 Google 2016 1st Quarter Earnings Report – estimated based on reported total U.S. revenues x 90% (percentage of Google revenues represented by advertising).
2 Facebook 2016 1st Quarter Earnings Report – ad revenue by User Geography, slide 10. Note this number includes Canada as Facebook does not break out separately.