How can you tell the $200 billion market for digital advertising is devolving into a two-horse race? The duopolists are retreating to their respective corners to specialize in what they do best.
Those two titans are Alphabet Inc.'s Google and Facebook Inc., which together collect more than two-thirds of all digital ad spending in the U.S., Pivotal Research estimates. And now they are competing a bit less with each other. Facebook on Friday essentially essentially gave up trying to fight with Google's DoubleClick business in the business of selling and placing advertising spots all over the web.
Google generates most of its revenue from selling ads next to its web searches or other company properties such as YouTube. But nearly one-fifth of its revenue, or more than $11 billion in the first nine month of 2016, comes from Google's role as a middleman for online banner and text ads that appear on digital hangouts it doesn't own.
Don't fear for Mark Zuckerberg in this surrender to Google. Facebook was never a serious competitor to DoubleClick, and executives insisted they never had ambitions to focus much beyond selling advertisements to the 1.8 billion visitors inside of Facebook's own walled garden. Facebook continues to sell online ad spots through what it calls its Audience Network, which allows a company such as General Motors to identity potential buyers of the Chevy Bolt using Facebook's data trove and show ads to those people as they surf on Facebook and other websites or apps.
Most of all, the development spotlights the maturation of Google and Facebook in the online ad market. They don't have to worry much about other competition (for now), so as duopolies tend to do they are doubling down on their distinct specialties. This is less of a duopoly, really, than a carving up of the market into two empires.
In Alphabet Land, Google's role is the advertising gateway to the world. Google sells ads on its own digital hangouts and collects tolls for offering its technology to place advertisements to the wider digital world. Facebook wants marketers to stay in Zuck World. Facebook will sell ads inside its properties such as Facebook and Instagram and help marketers follow those Facebook users wherever else they travel.
The two slightly different attack vectors have a single result: more power for the powerful. The analysis by Pivotal Research estimates Google and Facebook's market share of U.S. ad spending rose seven percentage points in just one year to 68 percent in the second quarter. By some estimates, ad-dependent companies besides Facebook and Google are collectively shrinking. Other duopolists must envy Google and Facebook. Even Verizon and AT&T don't command such a large share of the market for wireless phone subscriptions.
This concentration has become a serious concern for many companies that need to market their products, for competitors to Google and Facebook and for almost everyone who runs a website that is trying to support itself with advertising. The concentration of online ad power is why some marketers freaked out when Facebook said it overstated how long people were spending looking at ads on Facebook. And the concentration is a big reason more companies -- news organizations, the music labels and many more -- are trying to reduce or ditch their dependence on advertising now that it’s clear Google and Facebook are gobbling most of the pie.
Facebook has had an awful month grappling with outrage over the proliferation of misinformation inside the carefully tended Zuck World. But the controversies don't change the reality that Facebook and Google continue to consolidate control over the biggest pool of advertising money on the planet.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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