Internet Advertising: Facebook and Google Dominance

BOTTOM LINE Trade group the IAB released its 2Q15 and 1H15 estimates of digital ad spending in the United States today While our own estimates on spending trends suggest a slower rate of acceleration than the IAB39s figures indicate directionally we think they are correct Using their figures and our own we can continue to highlight the degree to which Google and Facebook dominate the industry presentlyThe IAB numbers provide a comprehensive view on the advertising revenue base of digital media owners from surveys of IAB members Not all members participate in the surveys which lead to these numbers which leads to the inclusion of estimates As presented the figures indicate that total media owner revenue from digital advertising was up by 225 in 2Q15 representing a significant acceleration from the first quarter at which time growth was 155 The former figure was much more in line with recent historical growth trendsAcceleration in the second quarter vs the first is directionally consistent with what our own estimates indicated based upon our analysis of reported or estimated USbased digital advertising revenues from fifteen different digital media owners However our composite indicates that growth was slower than what the IAB figures state Median acceleration in year over year growth for the group of companies we have been tracking was more like 100bps sequentially while aggregated acceleration heavily skewed by the inclusion of Google in the composite was up by around 500bps sequentially by the 700bps acceleration that the IAB data shows Accelerated spending on digital advertising contrasts with deceleration in median growth in spending on sales and marketing from those among the 200 largest marketers who provided public data on such figures during the second quarter It also contrasts with substantially lower rates of growth in spending on marketing both this year so far vs last year and in the second quarter vs the first quarter of 2015 by 13 large quotweb endemicquot companies we track Digital advertising is only a part of the spending total for the former group although a much more significant figure for the latter one Sales and marketing spending trends will not directly match ad spending trends so we recognize some room for interpretation in the figures we have estimated On balance we are inclined to believe that actual industry growth was probably not quite as strong as the IAB figures show although we agree with the direction their data pointed toBoth the IAB data and our own estimates provide a basis for indicating that the bulk of the industry39s growth and the bulk of its volumes continue to flow through Facebook and Google Putting search aside where Google by itself dominates we estimate Google39s GDN Google Display Network generated around 22bn in gross revenue in the quarter and that half of it originated in the United States We further estimate that YouTube generated around 1bn in revenue during the quarter Paired with Facebook39s 18bn the two companies captured 4bn in gross revenue from display related nonsearchbased advertising or nearly 60 of the industry39s total Adding search raises the two companies39 market share of digital spending by even more although backing out the TAC that Google pays to its network from GDN still means the two companies likely have around 60 of the industry39s share As growth from Google and Facebook continue to outpace both our estimates of industry growth and those of the IAB we believe that the two companies continue to expand their market share and influence within the industryRISKS Three core risks for all web publishers companies relate to 1 high degree of rivalry given an absence of barriers preventing new competition from emerging 2 overly high and increasing capital needs to remain competitive and 3 government regulations and consumer pushback related to management of consumer data and respect for privacyFULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE IAB 102115pdfThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom MyersBizNet Inc management or associated bloggers amp160

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Internet Advertising: Facebook and Google Dominance

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Brian Wieser

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Internet Advertising: Facebook and Google Dominance

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