The State of Online Advertising

As I’ve covered earnings season the last few weeks, I’ve made a few references to the online advertising business. I thought I’d spend my time today looking at some of the key metrics relating to US-based online advertising in the set of companies I track closely. These are the seven largest businesses in this space which report their ad-related revenues with reasonable consistency. LinkedIn, Amazon, Yelp, Pandora and others follow a little way behind.

Google continues to dominate this space

The most obvious thing you see when you start looking at these numbers is the extent to which Google still dominates the space:

Online ad revenue with Google

Google’s revenue run rate from advertising alone is around $60 billion a year and it dwarfs everyone else in the market, with Facebook coming a distant second. If we remove Google from the picture, we start to get a clearer idea of how the others shape up:

Online ad revenues without Google

Facebook is increasingly pulling away from the next set of companies, with a run rate of around $12 billion per year, while the others are all at around $4 billion or less annually. Microsoft is third and growing at a decent clip, while Yahoo is close behind with more stagnant revenues. AOL, Twitter and IAC round out the top seven. For all the attention it gets, people might be surprised to see Twitter is still smaller than AOL in ad revenue terms, and quite a way behind Yahoo and Microsoft, though it’ll catch AOL in 2015 and likely Microsoft and Yahoo in 2016 or so.

Search is a much faster growing business than display

For those companies who separate search and display advertising, the former is a much faster growing business than the latter. Google doesn’t explicitly separate these two in this way, but we can use Google’s “Sites” revenue line as a rough proxy for search and its “Network” line as a rough proxy for display. That gives us this picture, alongside the other companies which do report a direct split:

Year on year growth of display and search

As you can see, search advertising revenue at these companies is growing quite a bit faster than display, which is in negative territory for three of the four companies. Only Google has positive year on year growth, but even its growth is slower than in its search and related businesses. The main reason for the slower growth in display is prices are falling rapidly. Google has had negative year on year price changes for seven out of the last eight quarters in its Network business, while Yahoo has had year on year declines, sometimes over 20%, in its display ad prices for the past eight quarters. Meanwhile, prices for search advertising continue to go up, reflecting its superior effectiveness in reaching a relevant audience that eventually clicks on an ad.

Mobile advertising a major driver of growth but hard to identify at Google

The last thing I wanted to look at was mobile advertising revenue, but it’s sadly very hard to identify and separate from general ad trends at most companies, including Google, which is the largest mobile ad firm. Only Facebook and Twitter give us the numbers to be able to tease out a revenue figure and their growth is impressive:

Mobile ad revenues

In both cases, this mobile ad revenue growth is the major driver of overall growth, which is equally rapid. But in both cases, non-mobile ad revenue is relatively stagnant. As I said, we don’t have an equivalent figure for Google, but eMarketer estimates its 2014 mobile ad revenues at a little over twice Facebook’s, which is growing much faster. Google is rapidly losing share in this market, primarily to Facebook and Twitter, though of course the market itself is growing rapidly, so Google’s revenues are still growing. But this just highlights the challenges Google faces in replicating its desktop dominance in the mobile market. It faces much more, and much stronger, competition here. Search in particular seems likely to capture far less of the total opportunity than on the desktop. Meanwhile, Google is relatively poorly placed to capture revenue from the sort of native, in-feed advertising which is behind so much of Facebook and Twitter’s growth in mobile.

Amazon and Apple are also players

Two other notable companies which have at least some stake in this space are Amazon and Apple, neither of which breaks out revenue from advertising officially. eMarketer estimates Amazon is already in the top 10 by online advertising revenues, while Apple is much smaller, but has a meaningful share in mobile advertising through iAd. Amazon seems very keen to grow its ad revenues, while Apple’s relationship with advertising is more nuanced, since it’s keen to differentiate against Google on privacy. Both are worth watching, though.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

5 thoughts on “The State of Online Advertising”

  1. I think that the notion that Google is loosing to Facebook in mobile advertising is premature. Google advertising platform is an ecosystem of product that include Search, YouTube, Gmail, Maps, Chrome, Android and even Google now across multiple screen, and they have a lock on the biggest and most lucrative advertising clients similar to Apple in the hardware business.

    they don’t advertise a particular product, they advertise users who use their product no matter the screen they on

    the way to look at Google advertising performance should not be based on a product versus another, but rather their whole ecosystem,

    advertiser doesn’t pay Google to place ads on a particular product per se, they pay Google to reach a target audience, which may be from search in a form of direct answers, YouTube for branding or even Google Map for Location at a worldwide scale.

    i failed to see how Facebook could challenge Google anytime soon, given their scale and reach

    1. The most recent eMarketer numbers I could find were these, but they show you the picture: http://cdn.ientry.com/sites/webpronews/pictures/emarketer_1403194.png.

      Facebook is gaining share very rapidly in mobile advertising globally, and it’s precisely because they have ad formats that are well-suited to mobile. Google has the audience, but it doesn’t have the formats or products which are as well-suited to a mobile audience. It’s already happening, and will continue to happen unless Google can figure out a mobile product that’s as effective at reaching the right audience on mobile as search was on the desktop.

      1. that was my whole point

        you’re compared mobile advertising to desktop when it should be the entire platform from mobile, TV, desktop and even watch because Google advertise it’s user across multiple screen using different format, some are more effective than others as search ads are more effective than location one but it’s still it’s the same platform, the same campaign for the same advertising client

        while Facebook may be booming in the low income level advertising on mobile, but that is peanuts compared to Google’s advertising platform and it’s scale,

        these two companies are not playing the same game, Google is building a dominant platform across multiple screen, Facebook is new and are just trying to cash in as mush as it can while building is own platform

        1. The point is, mobile is the piece that’s growing. TV is stable today and will likely shrink over time as viewership shrinks, desktop is growing much more slowly than mobile. If you’re not strong in mobile, you’re simply not going to grow that well going forward. Facebook is strong on the dominant and fastest-growing screen: mobile.

          1. the same one using a desktop computer are likely to own a mobile phone a TV, a tablet or maybe even a smartWatch in the future. is the same user from different screen hence it need to be a system of destination that can reach users from desktop to mobile, to tablet, TV or even smartWatch using the same advertising campaign as an extension of the same platform which the Cloud enable hence the Google’s Multi screens strategy.

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