Advertising’s duopoly of Google and Facebook has dominated the industry for years, but are we witnessing a shift in tides that may displace them?
Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB), and to a lesser extent Amazon (NASDAQ:AMZN), have reigned supreme over the digital advertising industry for years now. In 2019, Google took in 31.6% of all digital ad spend, Facebook 22.7%, and Amazon 7.8%, yet recent tides have left investors in Google and Facebook worried, for very different reasons. I’m going to look at why the market share of the two biggest fish in the advertising pond may start to retract.
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Let’s start with Google
A recent report from eMarketer (which needs a subscription to be accessed FYI) has made some bold claims that Google’s ad revenue will see a 5.3% drop in 2020. This would mark the first year this figure hasn’t grown since the research firm started tracking it in 2008. The report predicts Google will take in a paltry $39.58 billion in domestic advertising revenue compared to last year’s $41.8 billion. As businesses worldwide are forced to tighten their belts, marketing budgets will be the first to be slashed, meaning less ad revenue for the big boys.
In comparison to Facebook and Amazon, Google has felt the impact of the coronavirus more, thanks to the devastation it has had on the travel industry. Companies like Booking.com (NASDAQ:BKNG), TripAdvisor (NASDAQ:TRIP) and Expedia (NASDAQ:EXPE) have traditionally spent heavily on Google Search ads in the past, however, the industry has been upended in the past few months, and the recent surge in cases among states that have reopened does not bode well for those which make up some of Google’s best customers. Earlier this year a statement from Expedia’s Chairman Barry Diller showed the extent of the retraction amongst travel companies: “we spend $5 billion a year on advertising. We won’t spend $1 billion on advertising probably this year”.
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What I find most interesting about this situation is that while these companies have been pumping billions of dollars into Google’s advertising platform for years, it is far from a loving relationship. Google has launched travel-booking products that compete directly with the big travel companies, eating into their market share. The constantly changing dynamics of Google Search have also caused major issues. This article from November shows the power that Google has on these travel companies’ bottom lines. Could this retraction in advertising spend be an opportunity for them to reassess their relationship with Google?
Google stock fell more than 5% Friday.
What about Facebook?
While Google has been put on the back-foot thanks to the global pandemic, the hot mess Facebook has found itself in is much more self-afflicted. It was an absolute rollercoaster of a week that saw the stock reach an all-time high on Tuesday before falling more than 8% on the news that its customers are boycotting the social media company over its approach to divisive content and hate speech. Companies that have pulled spending include Starbucks (NYSE:SBUX), Coca-Cola (NYSE:KO), Unilever (NYSE:UL), and Proctor & Gamble (NYSE:PG).
Analysts at Bank of America (NYSE:BAC) outlined the potential of a short-term snowball effect when Verizon (NYSE:VZ) joined the boycott, citing the impact and influence big companies may have on their respective industries. The movement is gaining traction under the moniker #StopHateForProfit and has forced Facebook executives to rethink their content moderation strategy. It will put massive pressure on Mark Zuckerburg in particular to alter his current polarizing stance on free speech on the platform. On Friday he outlined intentions to limit hate speech in ads, without referencing the boycott directly.
Unless the movement picks up some serious headwinds, it may not have a significant impact on Facebook’s bottom line thanks to the pool of almost 8 million advertisers on the platform. However, if a satisfactory response is not delivered by Zuckerberg and a responsibility taken for the free distribution of vitriol and hate which is now so commonplace across the platform, irreparable damage could be done to the perception of Facebook in the eyes of both the public and the advertisers who use it.
What is interesting about this situation is that, while Coca-Cola has stated they’re suspending all social media ad spend for a month, most of the other companies involved are solely boycotting Facebook, or both Facebook and Twitter (NYSE:TWTR). This means that there is a massive opportunity here for other, less divisive social media companies like Pinterest (NYSE:PINS) and Snapchat (NYSE:SNAP) as advertisers will look to redirect their spending.
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