Beware the big beasts as Facebook and Google squeeze rivals

Gideon Spanier warns online big beasts are prowling

T IS hard to overstate how much Facebook and Google dominate the online media landscape, but consider this: the two giants of internet advertising increased revenues by a combined $18 billion (£13.7 billion) last year. That’s roughly the same amount that the entire digital ad market grew globally, with the exception of China, where Facebook and Google are not active.

“In other words, the two companies generated growth equal to 100% or more of global digital advertising outside of China last year,” Brian Wieser, an analyst at Wall Street firm Pivotal Research, says.

“Other media owners’ digital growth either came alongside Google’s as part of their ad network activities [through revenue-sharing] or displaced declines from other digital media owners.”

We will find out if growth at Facebook or Google’s parent company, Alphabet, has hit an unexpected bump when they report half-year results tomorrow and Thursday, but there is little sign of a slowdown.

Both are set to grow at a faster rate than in 2015 and should add $23 billion in revenues between them this year, according to Wieser.

Facebook is a third of Google’s size, but is closing the gap as it has reinvented itself for what it calls a “mobile-feed” world of media consumption. Its messaging app, Messenger, hit one billion users last week, its photo-sharing app, Instagram, passed half a billion in June, and it keeps poaching senior staff from the ad industry, notably in the UK.

Other media owners and news publishers look at Facebook and Google’s growing dominance with undisguised alarm.

These “twin hegemonic powers”, as Vice Media founder Shane Smith calls them, threaten to turn the digital ad business into a zero-sum game for everyone else.

If other media owners are to grow in this environment, then some of their rivals must shrink or consolidate. Hence troubled Yahoo’s sale to AOL’s owner, Verizon, this week.

Nearly half of the world’s top 30 media owners saw their ad revenues drop last year in what was a buoyant market, according to Zenith, the media-buying agency, and some of those falls have accelerated this year.

It says a lot about the perceived threat of Facebook that leading publishing figures from different sides of the media spectrum have spoken out in recent weeks as their mood

Gideon Spanier

has soured. Robert Thomson, chief executive of Rupert Murdoch’s News Corporation, the owner of The Sun and The Times, complained that Facebook had changed its algorithm to “reduce, if not remove” news publishers’ stories in favour of other posts. He accused the world’s biggest social media company of being “anti-social” towards other media owners.

Kath Viner, editor of The Guardian, voiced similar concerns in an article about the parlous state of digital journalism in which she attacked Facebook. “Social media companies have become overwhelmingly powerful in determining what we read — and enormously profitable from the monetisation of other people’s work,” she warned.

The Guardian, set to post a record £173 million loss in annual results, could help itself if it reduced its dependence on social media referrals for traffic, tried putting up a paywall to fund some of its best content and reinvested in print. OWEVER, that should not detract from the main point: Facebook and Google may be brilliant, nimble, entrepreneurial businesses but they risk distorting the market for digital advertising, with a knock-on effect on the provision of news and other original content. Google is already under scrutiny from the European Commission, which is conducting multiple investigations into the search giant’s dominance. At some point, Facebook is likely to come to the attention of competition regulators too, perhaps in the not-so-distant future, given pressure from elsewhere in the media industry. The paradox about the growth of the digital economy is we enjoy almost limitless media choice as consumers, yet power lies with a shrinking number of technology giants. We should beware the FacebookGoogle duopoly.