The Facebook/Google Duopoly Continues – But Should We Care?
The Facebook/Google duopoly is gigantic, with no signs of stopping anytime soon, despite calls for regulation from advertisers, consumer advocacy groups, NGOs, and others. Over the past two decades, Google has expanded from a simple search engine to include interests in video, enterprise services, advertising, maps, and more. And while Facebook is only about about half as old as Google, it has successfully built the world’s biggest social networking platform and become one of the most aggressive acquirers of mobile-led companies, snapping up properties like Instagram and WhatsApp.
Of course, there are other successful technology behemoths: Amazon, Apple and Microsoft, to name a few. However, there is one significant difference that distinguishes Google and Facebook from the rest: these two players own the lion’s share of total dollars around online and mobile advertising. And with advertising revenue traditionally viewed as the growth driver for any new media, Facebook and Google have been able to catapult themselves into leading roles in terms of monetizing the time that consumers spend online.
For example, Verto Analytics data shows that U.S. adults (ages 18 and above) spend more than three days each month on Google and Facebook-owned properties per month – in July, that number increased to nearly ninety hours of time spent on Google or Facebook-owned properties per user per month, or 3.7 days’ worth of time.
So how and why have Facebook and Google evolved to control so much of the online advertising industry? I’ve identified 5 key reasons: :
- Volume: Due to size, Google and Facebook can quickly execute campaigns with wide reach – that is to say, campaigns that reach a high ratio of the total audience in a given market. This opens up the ability to create and execute campaigns which have significant impact on a given target audience and deliver significant numbers for marketers and their business goals.
- Adtech Tools: Thanks to their sizeable R&D departments and maturity of their platforms, Facebook and Google have created the standard for best-in-class advertising products and tools, which leave startups and smaller players struggling to provide a comparable product.
- Cross-device Reach: Because so many consumers access Facebook’s and Google’s services across a number of devices, both have been able to develop superior ad delivery abilities.
- Analytics and Targeting: Based on the trove of personal data that these platforms collect (your interests, on- and offline behaviors, demographic data, and social graph information), the duopoly has developed extremely advanced data analysis and self-learning algorithms. These tools support more effective and intelligent ad campaigns, and provide marketers leverage with better feedback channels, metrics, and ROI.
- User Experience: Due to the investment into the apps and web services they have (and their user experience), and simply because of the time people spend across their services, Facebook and Google can embed ads in seamless flow that follows the consumer journeys and user flows.
Naturally, Google’s and Facebook’s power in the industry comes with consequences. Market power can lead to the death of competition, and if these two continue to consolidate (or expand) their hold on the online ad industry, oligopolistic price setting (and its negative impact on ad ROI) could become a reality. The duopoly could also squelch further innovation in the adtech industry, since Facebook and Google are easily within a position to either acquire or simply destroy competitors.
The Facebook/Google juggernaut also threatens to kill innovation at a higher level, by diminishing emerging companies’ business models. For example, advertising has been a dominant business model for most of the popular consumer services (on web and mobile) over the past two decades. But, new companies that find interesting new use cases (consider Snapchat), or target new demographics (such as House Party), and quickly thrive on the basis of user numbers and engagement, may still fail because they cannot quickly build a profitable advertising-supported model. Venture capital and private equity can fund these types companies during their initial growth stages, but if they cannot find a working revenue model via advertising, their long-term viability is at risk.
Who (or What) Can Disrupt the Duopoly?
In all likelihood, Google and Facebook will retain their dominance in the short term – but can they continue to be successful? There are emerging trends which could potentially give other players a chance to win more market share in terms of both online time spent and advertising dollars, or alternatively gain incremental dollars arising from new business models or advertising products:
- Underage and next-generation mobile users: Consumers under the age of 18 have shown less engagement with Facebook’s services, and aren’t the main users of Google’s offerings. If the new generation of internet services can build value, and develop high-retention services and apps for these younger audiences (House Party is recent example), this demographic may represent a huge change in consumer behavior, especially when they join the labor force and mainstream consumer economy.
- New user interfaces: Google certainly got the search experience right, and Facebook has created an ingrained ecosystem around checking friends’ status updates, or sharing experiences via messaging apps. However, as consumers start to adopt new personal assistant apps like Alexa or Siri, or devices, like Amazon Echo, that may shake the existing power Facebook and Google have in controlling user flows and journeys
- Evolution of content: At the end of the day, content is still what drives consumers to engage with online services and apps. And while Youtube and Facebook are doing well, players like Netflix, Amazon, and major TV networks and carriers are all investing and reinventing the principles of content creation and distribution. A rise in major deals or mergers (such as AT&T acquiring Time Warner) could bring a new leader in cross-platform advertising.
- Global markets: The next billion internet users will not come from the U.S. or Europe, but from Asia and Africa, where local giants like Alibaba, Tencent, and Softbank have developed services and platforms that parallel offerings from Google, Amazon and Facebook. American companies have struggled to enter these markets – and despite their dominance in the U.S. and Europe, Facebook and Google are not immune to these challenges.
It’s clear we are currently living in a digital society that is controlled to a significant extent by Google and Facebook. However, the advertising industry is set to undergo major disruptions in market conditions, consumer behavior, and technology over the next decade – advertising in 2027 may barely resemble the duopoly that we see today and new players are certainly up to the task of challenging the status quo.