Trends In Global Advertising Industry: Winners And Losers – Part 2
In the first part of this article, we explored the trends that are shaping the global advertising industry. To summarize the first article, advertisers are increasingly allocating more of their budgets for online ads at the expense of TV and print media. While TV and online ads will continue to dominate the global ads market, print ads will be relegated to last spot and have the smallest share in the industry. In the second part of this article, we explore the competitive landscape of online industry and who wins the battle. We also briefly explore the state of TV broadcasters and TV ads industry.
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Competitive Landscape In The Digital Advertising industry
The competition in the online advertising industry has increased significantly in terms of the number of Internet properties and services competing for ad dollars. Companies currently operate a broad spectrum of services ranging from search engine advertising, which includes behemoth Google, to display ads on desktop and mobile devices. Furthermore, companies such as Baidu and Alibaba compete in regions where the American behemoths have not been able to establish themselves. Online store companies such as eBay, Amazon and Flipkart also form a cog as they derive some of their revenues from store ads that sell products on their website.
Despite this, the online advertising market is concentrated with the 10 leading ad-selling companies accounting for 71% of total online ad revenues in Q4 2014. This came in similar to the level seen in Q4 2013 ((IAB internet advertising revenue report, 2014 full year results, Interactive Advertising Bureau (IAB), April 2015)) While, Google, Microsoft (Bing), Yahoo, and AOL are the most dominant players in the search engine verticals, Facebook, Google, Twitter and Yahoo lead the display ads business. Google leads the U.S. search market with 64% share. [1]
| Aug-15 | Explicit Core Search (%) | Explicit Core Search Queries (MM) |
| Google Sites | 64% | 11256 |
| Microsoft Sites | 20.40% | 3627 |
| Yahoo Sites | 12.70% | 2233 |
| Ask network | 1.80% | 310 |
| AOL | 1.10% | 192 |
In display ads, Facebook rules the roost with over 24% share in the U.S. display ads industry in 2014. [2] According to eMarketer, the projected market share for different display ads seller is as follows:
| In $ Billion | 2013 | 2014 | 2015 | 2016 | 2017 |
| 3.28 | 5.29 | 6.82 | 8.5 | 10.03 | |
| % of Total | 18.60% | 23.80% | 25.20% | 26.20% | 26.90% |
| 2.54 | 3.05 | 3.52 | 3.81 | 4.13 | |
| % of Total | 14.40% | 13.70% | 13% | 11.80% | 11.10% |
| 0.43 | 0.83 | 1.34 | 1.92 | 2.54 | |
| % of Total | 2.40% | 3.70% | 5% | 5.90% | 6.80% |
| Yahoo | 1.27 | 1.23 | 1.24 | 1.27 | 1.29 |
| % of Total | 7.20% | 5.50% | 5% | 3.90% | 3.50% |
| AOL | 0.76 | 0.83 | 0.94 | 1.07 | 1.19 |
| % of Total | 4.30% | 3.70% | 4% | 3.30% | 3.20% |
| Amazon | 0.46 | 0.66 | 0.82 | 0.99 | 1.19 |
| % of Total | 2.60% | 3.00% | 3% | 3.10% | 3.20% |
| Microsoft | 0.68 | 0.49 | 0.46 | 0.44 | 0.44 |
| % of Total | 3.90% | 2.20% | 2% | 1.40% | 1.20% |
| 0.21 | 0.27 | 0.31 | 0.37 | 0.43 | |
| % of Total | 1.20% | 1.20% | 1% | 1.10% | 1.10% |
The biggest challenge facing most of these companies is transitioning from desktop ads to mobile ads. According to eMarketer, mobile advertising market in the U.S. reached $19.15 billion in 2014, with mobile display spending accounting for nearly half of that total. While Forester estimates that mobile ad spending could reach $46 billion by 2019, eMarketer estimates mobile search ads spending will reach $65.87 billion, or 72% of the US digital search advertising market. [3] Here follows a discussion of the different companies with their expected market share in mobile ads in the U.S.
Facebook And Google Are Leading The Shift
We expect Facebook to emerge at the top as the secular shift towards mobile advertising continues. The social network has well over 1 billion monthly active users and the engagement levels continue to rise. In the U.S., Facebook accounts for more than one out of every five minutes spent on smart phones. This, along with the company’s improving ad targeting and measuring capabilities, makes it among the favorite platforms for marketers. We forecast advertising revenues on the core Facebook platform to surge from over $12.46 billion in 2015 to $59.56 billion in 2021, growing at a compound annual rate of over 25%. We believe this will be driven by both increased ad inventory on the mobile platform, coupled with strong growth in ad pricing resulting from rising demand from 2 million advertisers.
Instagram will further enhance Facebook’s share in the mobile advertising market in the coming years. Recently, the platform was opened to marketers for self-serve advertising in more than 30 international markets, with a global roll-out expected soon. The platform has been a hit among brand advertisers, owing to its creative features and high click-through rates. We believe the advertising revenues from this platform will reach surpass $2 billion by 2017, which will bring the share of mobile ad revenues in overall ad business of Facebook to over 90%.
Google continues to lead the search ad industry. Additionally, with the increase in internet penetration, we believe that Google will continue to gain on traditional advertisers and will be one of the winners in the transitioning ad industry. However, it faces competition from Facebook in the video vertical. Google is trying to undercut Facebook’s dominance (especially increasing popularity of videos on Facebook) by increasing the reach of YouTube, which is one of the most dominant online video content providers on the Internet. Google is focusing on the channelization of YouTube that will boost the unique user count as viewership for YouTube rises. The number of unique visitors is vital for Google’s ad revenues as more people visiting the website generally translates into more pages viewed across Google’s websites. Google is trying to explore different avenues such as increasing Internet reach to untapped regions in the world. Google’s market share in PC and mobile search markets is over 60% and 85% respectively. Google’s strong share in digital advertising, and in particular the mobile search market, bodes well for the company, as this segment is expected to witness high growth. This is expected to translate into high cash flow growth for Google in the future.
Yahoo And Microsoft Are Trying To Catch Up
Considering numerous content providers, fragmentation in the online ad industry is rampant. Yahoo and Microsoft are distant third in this race, while new players operating in niche industries such as Yelp, Twitter and LinkedIn are also trying to get a share of advertising pie.
Yahoo has been struggling to post meaningful growth over the past few years. In order to shore up its revenues, Yahoo is focusing on rolling out more content and ad formats for its mobile platform, developing more videos and investing in its programmatic platform. But all this has been to no avail as profitability still eludes it. According to our view, most of the upside to Yahoo’s valuation will be from the overall improvement in Internet penetration that should boost the number of users using Yahoo’s websites. We also think Yahoo is well positioned to capture a bigger chunk of programmatic spending in the future by leveraging its programmatic platform for mobile, video, and static display ads. Furthermore, Yahoo’s investment in Alibaba and Yahoo! Japan will continue to contribute a significantly to its stock value.
Microsoft has taken a different approach to strengthen its position in the online ads industry. In June, it announced that it was handing over reins of its display ads business to AOL. [4] Transfer of the display ads business to AOL signifies the struggle Microsoft has had with online display ads business. We believe that Microsoft exited the unprofitable display business to focus on its growing search engine Bing. eMarketer projected that Microsoft’s share would have declined further had the company not exited the display ads business. eMarketer predicted that Microsoft’s share in the U.S. would have declined to 1.7% this year, down from a 2.2% share in 2014 and a 3.9% share in 2013. [5] Considering that most of the digital display ads budgets were increasingly ear marked toward the leading social network, it made sense for Microsoft to offload its display ads division. On the other side of the online ad spectrum is Microsoft’s Bing search engine, which has done fairly well over the past few years. Bing’s market share in the U.S. has improved from 15% in January 2014 to over 20.4% in August this year. ((comScore Releases August 2015 U.S. Desktop Search Engine Rankings, September 16 2015, www.comscore.com)) Microsoft has also been able to make a dent to Google’s dominance by inking deal with Yahoo, which also is the default search engine for Mozilla Firefox. According to eMarketer, Microsoft’s revenue share in the search ads industry is projected to improve from $2.91 billion in 2014 to $3.45 billion in 2015. [6] Microsoft is committed to its search ads business and has signed an exclusive 10-year deal with AOL that will see Microsoft’s Bing replace Google as the search engine providing 100% of the organic search results and search ads when people search on AOL’s sites. The deal will come into effect from Jan. 1, 2016. and target Google’s search dominance.
Twitter Has Potential To Be A Winner
Twitter’s ability to gain share in the digital advertising market will hinge largely on its ability to grow monthly active user base (logged in users) in the coming years, in our view. In the event the engagement level or user base continues to slow on the platform, the company could face problems with respect to supply of ad impressions, considering certain ad formats such as application downloads require higher inventory. But if the user base accelerates due to Project Lightning or other product initiatives, the company’s share in the digital ad market could grow in the coming years. Twitter is trying to boost its direct response ad business by improving the targetability, creativity and measuring ability of ads on its platform. Mainly, the company is taking efforts to bring third-party attribution for direct response ad measurement, with its recent collaboration with DoubleClick (a subsidiary of Google). Success with these efforts, along with increased engagement on the platform, will strengthen Twitter’s share in the digital advertising market.
TV Industry Is Certainly Losing
Media companies, such as CBS, Viacom and 21st Century Fox are heavily dependent on television ratings, which help determine the advertising income for them. Television ratings have been on a decline for most of the networks, primarily due to the growth in alternative video platforms. There is a shift of audience from traditional to digital platforms, such as Netflix and Hulu, resulting in fewer viewers for traditional television. This in turn, has resulted in lower advertising income for media companies. Having said that, ad pricing has been growing for most of the networks as is evident from upfront ad sales for 2015-16 television season.
Advertising forms a big chunk of revenues for media companies. For instance, it contributes more than 50% to CBS’ overall revenues. This compares with around 40% for Disney, 30% for Fox and 50% for Viacom’s media networks. Given the recent decline in ratings, advertising has taken a hit for most of these companies. Adding to the woes is a shift in ad spending from television to mobile, social and digital platforms. While the primary advantage of advertising on television is its massive reach, online and social media platforms help marketers reach their precise target audiences more cost efficiently. Lowering the return on investment, which is better for marketers, this shift has further weighed on the advertising income for media companies. While television still forms the biggest chunk of ad spending (40% currently), this is expected to decline to 38% by 2019, primarily due to growth in ad spending on other platforms.
On the brighter side, the magnitude of fall in advertising income is much lower than ratings decline. For instance, Viacom’s media networks have seen ratings fall over 20% for the past two quarters, while the decline in advertising is only in high-single-digits. This suggests that not all cable programming is Nielsen dependent and many marketers still prefer television as a medium to reach wide audience.
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Notes:- comScore Releases August 2015 U.S. Desktop Search Engine Rankings, September 16 2015, www.comscore.com [↩]
- Facebook and Twitter Will Take 33% Share of US Digital Display Market by 2017, March 26 2015, www.emaketer.com [↩]
- Mobile Will Account for 72% of US Digital Ad Spend by 2019, March 24 2015, www.emarketer.com [↩]
- Microsoft expands partnerships with AOL and AppNexus, Bing to power search for AOL properties, 29th June 2015 [↩]
- Facebook and Twitter Will Take 33% Share of US Digital Display Market by 2017, March 26 2015, www.eMarketer.com [↩]
- Google Will Take 55% of Search Ad Dollars Globally in 2015, March 31 2015, www.emarketer.com [↩]