Net winners and net losers in the advertising digital space INDUSTRY INSIGHT
The shift of advertising budgets from traditional media to digital media is leaving behind an obvious trail of net winners and net losers. Leading digital media owners like Google, Facebook, Yahoo, Twitter, LinkedIn, etc are reaping huge financial rewards due to this budget shift, while most traditional media owners are witnessing year on year decrease in their advertising revenues.
The shift started two decades ago in developed markets albeit at a slow pace. It picked up speed and magnitude with the proliferation of the internet and smart phone devices. Today in developed markets between 40 per cent and 50 per cent of advertising budgets are being invested in digital media and between 10 per cent and 20 per cent in developing markets. When one translates these percentages into real money the absolute figure will reach $200 billion by the end of 2016 or one third of total global ad spend.
Traditional media owners are transforming their business model creating their own digital platforms. Their efforts are bearing results allowing them to regain part of the lost revenue. Print media were the biggest market share losers. Television, Radio and outdoor lost some ground but managed to preserve a big portion of their market share. In the digital media universe Google and Facebook managed to gain the lion’s share of the market. Many analysts refer to them as a duopoly as the two companies now get 50 cents of every online advertising dollar.
Both companies continue to be very well positioned over the foreseeable future to maintain and increase their market share. Facebook is benefiting enormously from the shift to mobile, while Google has done equally well with YouTube and continues to dominate search. Facebook’s 2016 third quarter results showed that its ad business is accelerating instead of slowing. The company generated $6.8 billion in advertising
Traditional media owners are transforming their business model by creating their own digital platforms revenue in the third quarter, up 59 per cent year-over-year, $5.8 billion of which or 84 per cent of its ad business came from mobile. Google, which had struggled for some time to get its mobile offerings right, showed strong third quarter growth in 2016 generating $22.45 billion in revenue, up 23 per cent year-over-year when factoring in constant currency. By comparison, Yahoo and Twitter, the two companies which compete most closely with Facebook and Google, saw third-quarter revenue figures of just $857 million and $616 million respectively.
The $550 billion market capitalisation of Alphabet (Google’s parent company), and the $346 billion market value of Facebook summarise the entire story dwarfing the market value of the long established traditional media companies. The writer is vice-president operations for Mena at BPN. Views expressed are his own and do not reflect the newspaper’s policy.