Google grabs the adverts

Figures show Kiwi companies spend $1b a year on digital adverts, and giant company snaps up the lion’s share

For the first time, New Zealand companies last year spent more than $1 billion on online advertising.

The latest figures from the Interactive Advertising Bureau (IAB) show that year-on-year growth of 15 per cent pushed the overall figure for the year to $1.06b.

To put that into context, the total annual figure spent on all types of advertising fluctuated between $2.1b and $2.6b from 2012 to 2017, according to Advertising Standards Authority figures. Today, digital advertising has become the big dog in the kennel.

Of that $1b figure for 2018, $659.5 million was spent on search-based advertising. That was up 22 per cent on the figure for 2017.

Digital media expert Kris Hadley, a founding partner at independent media agency Together, says that at least 90 per cent of that $1b can be attributed directly to Google.

He says some advertisers might spend a small percentage of their budgets on alternative services such as Bing, but this only applies to a tiny niche.

So, at a conservative estimate of 90 per cent, it’s fair to say that around $594m goes to Google through its search offering.

In case you missed it, that’s the New Zealand-only figure.

While Google is no stranger to criticism over its size and power, Hadley points out that the company does add value to the local market.

“I have to say they are trying to evolve their approach to this market,” Hadley says.

“Google has significantly ramped up their local presence over the last few years. We’ve seen a large increase in local staff, training initiatives and also efforts to work closer with local partners, meaning the market is extracting increasing value from Google as a whole.”

What about Facebook?

Although the figures provide a glimpse of the revenue Google derives from New Zealand, the picture isn’t quite as clear for Facebook.

The IAB’s revenue figure of $41.96m for the social category (with the lion’s share going to Facebook and Instagram) comes with a big asterisk, in that it only accounts for the money spent through media agencies.

IAB chief executive Gill Stewart explains that this doesn’t include the direct bookings made to Facebook through businesses and independent social media agencies.

“We are reviewing our methodology to better measure social media revenue, which is intended to be incorporated within the next IABNZ Digital Advertising Revenue report in the first quarter of 2019,” Stewart said.

Facebook has a huge local clientele of small to medium-sized businesses, which bypass agencies and buy directly through its userfriendly interface. An industry source, who spoke to the Herald under the condition of anonymity, suggested that hundreds of millions of dollars in spending are not being captured at the moment.

Media agency veteran Richard Thompson, who now runs a consulting business, says the growing dominance of Google and Facebook is worrying on a global level.

He says the duopoly puts a big question mark over the sustainability of local media, given how quickly these entities have grown into the behemoths they are today.

He says there’s a real danger of businesses going to Google and Facebook because they are the biggest and most convenient players.

“They shouldn’t be the default option. They should be the selected option. And this should be based on how effective they are for the business.”

Thompson urges businesses to really consider what they need out of their advertising before simply pouring more money into Google and Facebook.

The T-word

Google and Facebook have both faced scrutiny due the small amount of tax they pay in local markets.

In May last year, Google, which is owned by Alphabet, reported a loss of $1m in the local market for the financial year ended December 2017, on revenue of only $13.8m.

This included a local tax bill of only $392,917 for the year — comparable to the $361,542 paid by Facebook in its 2017 financial report.

The reason Google’s revenue has been so low is that the company has been sending its earnings to Ireland or Singapore, recording only service and support fees in the local market.

A Google spokeswoman told the Herald it had changed its model, booking revenue onshore since November last year.

She added that Google, which employs fewer than 40 staff in New Zealand, paid significant tax on a global level.

“We always pay all of the taxes due and comply with the tax laws in every country we operate in around the world,” the spokeswoman said.

“Google pays the vast majority of its corporate income tax in the United States, and we have paid a global effective tax rate of 23 per cent over the last 10 years.”

That may be true. But the money paid to the US will do little to placate the concerns of those worried about the exodus of revenue from New Zealand’s local media.

We always pay all of the taxes due and comply with the tax laws in every country we operate in around the world.

Google spokeswoman