Google, Face­book show power of ad du­op­oly as ri­vals stum­ble

Kuwait Times - - BUSINESS - SAN FRAN­CISCO: Video gold An­titrust risk

Quar­terly re­sults from Al­pha­bet Inc and Face­book Inc pro­vided fresh ev­i­dence this week that the dig­i­tal ad­ver­tis­ing mar­ket is ef­fec­tively a du­op­oly, a dy­namic with deep im­pli­ca­tions for two of Sil­i­con Val­ley’s ti­tans. Al­pha­bet, the owner of Google and YouTube, and Face­book, the world’s largest so­cial network, each pro­duced bil­lions in prof­its dur­ing the most re­cent quar­ter and en­joyed steep rev­enue in­creases, while smaller ri­vals such as Snap Inc and Twit­ter Inc strug­gle to main­tain growth and re­duce losses.

This year, the Big Two in in­ter­net ad­ver­tis­ing are ex­pected to take half of all rev­enue world­wide, and more than 60 per­cent in the United States, ac­cord­ing to re­search firm eMar­keter.

In the US mar­ket, no other dig­i­tal ad plat­form has mar­ket share above 5 per­cent. Google suf­fered a mi­nor blip in earn­ings due to higher pay­ments to mo­bile car­ri­ers and oth­ers for search traf­fic. But ef­forts by Ver­i­zon and other network oper­a­tors to com­pete for mo­bile ad dol­lars have had lit­tle im­pact thus far. In­de­pen­dent ad­ver­tis­ing tech­nol­ogy com­pa­nies such as Ru­bi­con Project and Rocket Fuel have also found it tough to com­pete.

Ad­ver­tis­ers are flock­ing to Face­book and Google be­cause they reach bil­lions of peo­ple and have a wealth of data that can be de­ployed for tar­geted mar­ket­ing. Their grow­ing dom­i­nance, how­ever, raises ques­tions about how they will use their bil­lions in prof­its to main­tain growth when the ad­ver­tis­ing mar­ket as a whole is ex­pand­ing only mod­estly.

“Dig­i­tal ad­ver­tis­ing will soon be ap­proach­ing a point of sat­u­ra­tion, in­di­cat­ing that there are lim­its to growth which may not be fully ac­counted for by the in­vest­ment com­mu­nity,” Brian Wieser, se­nior an­a­lyst at Piv­otal Re­search, said in a client note this week. The ad­vent of a du­op­oly is also spurring con­cerns about mo­nop­o­lis­tic prac­tices. Google this month set aside $2.7 bil­lion to pay a record Euro­pean Union an­titrust fine for fa­vor­ing its shop­ping ser­vice in search re­sults, and it faces two ad­di­tional in­ves­ti­ga­tions in Europe.

Face­book de­clined to com­ment on Fri­day. In the past, the com­pany has re­jected the idea that it is part of a du­op­oly, say­ing that it com­petes against more than just dig­i­tal plat­forms and has less than 5 per­cent of the over­all ad­ver­tis­ing mar­ket. Al­pha­bet did not re­ply to re­quests for com­ment.

Video is one mar­ket that Face­book and Google both view as a cru­cial new fron­tier. With huge in­vest­ments planned, the com­pa­nies are pre­par­ing to do to the tele­vi­sion ad­ver­tis­ing busi­ness what they have long since done to tra­di­tional print ad­ver­tis­ing: namely, take much of it for them­selves.

YouTube has been rolling out new se­ries with stars such as Ellen DeGeneres and Kevin Hart, and says that the ser­vice’s over­all 1.5 bil­lion view­ers watch, on av­er­age, 60 min­utes a day on their phones and tablets. Face­book is ex­pected to launch orig­i­nal video se­ries of its own within weeks, af­ter sign­ing deals with com­pa­nies such as Vox Me­dia and Buz­zFeed. Face­book’s In­sta­gram unit is also be­com­ing a big­ger pro­ducer of rev­enue, with video likely to be a big part of the mix.

Al­ready, many ad­ver­tis­ers feel they can­not ig­nore the mas­sive reach of YouTube. Some big ad­ver­tis­ers launched a boy­cott of YouTube this year af­ter their ads ap­peared along­side videos from Is­lamic ex­trem­ists, yet there was no ev­i­dence from Al­pha­bet’s earn­ings re­port on Mon­day that it had any im­pact on rev­enues. “Mar­keters aren’t go­ing to get fired for hir­ing Face­book and Google,” said Harry Kargman, chief ex­ec­u­tive of Kargo, which man­ages dig­i­tal mar­ket­ing for me­dia com­pa­nies in­clud­ing Time Inc.

Other own­ers of dig­i­tal ad in­ven­tory are feel­ing the squeeze. This month, an al­liance of U.S. news or­ga­ni­za­tions started a lob­by­ing cam­paign for an ex­emp­tion from an­titrust law that would al­low them to co­or­di­nate their ne­go­ti­a­tions with Google and Face­book, although such re­quests from other in­dus­tries gen­er­ally have not suc­ceeded.

Con­sumer ad­vo­cates worry about the gi­ants snuff­ing out com­pe­ti­tion. “All of the ma­jor tech­nol­ogy com­pa­nies should be on alert that peo­ple are a bit spooked and un­set­tled about their size and their abil­ity to ex­pand into new mar­kets,” said Gene Kimmelman, pres­i­dent of Pub­lic Knowl­edge, a non­profit that ad­vo­cates for an open in­ter­net. Size is not by it­self an an­titrust con­cern, and nei­ther is the abil­ity to quash com­peti­tors, even through copy­ing as Face­book has done with ri­val app Snapchat. Face­book and Google are not un­der US an­titrust in­ves­ti­ga­tion.

Still, the prospect of a fu­ture probe could still af­fect their busi­ness strate­gies. “As long as they toe the line and stay in the mar­ket po­si­tion they’re in, it’s go­ing to be kind of hard to go af­ter them un­der the ex­ist­ing an­titrust laws,” said Her­bert Hovenkamp, a Uni­ver­sity of Penn­syl­va­nia pro­fes­sor of an­titrust law. But ac­qui­si­tions, he said, would be another mat­ter. “Even a merger be­tween Face­book or Google and a smaller ri­val would prob­a­bly be looked at very closely,” Hovenkamp said. —Reuters

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