The Surprising Contenders for Third Place in Online Advertising

It’s almost a cliche at this point to say Google and Facebook dominate online advertising (especially in the US), while players like Snapchat and Twitter are often spoken of as potential third place players. But if you look at the data of which companies are really vying for third place, both in the US and globally, you might be surprised how far down the list Snapchat and Twitter are and who’s ahead of them.

Google and Facebook Dominate

Cliched though it may be, Google and Facebook are indeed, by far, the largest players in the global advertising market, with Google way out in front of even Facebook:

Google’s global ad revenues last year were just shy of $80 billion, while Facebook came in at well under half that at just under $27 billion. The next player was under half that again at around $12 billion. Facebook and Google do dominate and, if you excluded the Chinese players and focused on the US alone, that dominance would be even more dramatic. None of the other US players has more than a quarter of Facebook’s annual global ad revenue.

Chinese Players in the Top Ten

On a global basis, it’s the Chinese players who come in third and fourth, ahead of any US players, with Alibaba performing particularly well in 2016 and Baidu having a challenging year and coming in fourth. Tencent and Sohu are two other Chinese players who broke into the global top ten by my reckoning.

However, these companies each generate revenue almost exclusively in China – they aren’t yet truly global ad businesses, being almost mirror images of Facebook and Google, who generate essentially all their revenue outside of China.

Microsoft and Yahoo are both Ahead of Twitter

Though Twitter is sometimes spoken of as a potential third power in the US ad market, it’s Microsoft and Yahoo, two much older and less flashy businesses, which actually come in third and fourth, with Twitter well behind. By my estimates, Microsoft generated around $6 billion in online search advertising in 2016, while its search partner Yahoo generated around $4.7 billion. Twitter meanwhile, was at roughly half Yahoo’s size globally, with just $2.25 billion in ad revenue in 2016. It’s important to look at growth rates as well because these are the best pointers to future rankings. Here, Microsoft again did well, with 39% year on year growth (though much higher traffic acquisition costs mean its net revenues grew by far less), while Yahoo and Twitter both posted growth rates in the low teens.

Snap is the Baby of the Market – For Now

Snap and Snapchat are still the baby of the market, for now. The first financials reported by the company in February put ad revenue for 2016 at around $390 million, a fraction of any of the other players in the chart above. Interestingly, it’s even less than half of Amazon’s scale, at least for now. However, its growth rate was almost 600% year on year and, although the percentage growth rate will fall significantly going forward, it is still likely to grow rapidly thanks to rising ARPU and, to a lesser extent, user growth. It could easily challenge some of the other smaller players in the next couple of years in terms of overall size but it’s not going to get to third place, even in the US, for years to come.

Amazon Shouldn’t be Ignored

Amazon itself remains something of a dark horse – Alibaba in China is a great example of the advertising revenue potential of an e-commerce business and, although Amazon is being very careful for now, there’s definitely a lot of upside here. As such, I wouldn’t rule out Amazon as a potential challenger for third place in the US over the next few years. Martin Sorrell of WPP, one of the largest ad agencies in the world, has recently started talking a lot about Amazon’s potential and his worries it might even displace some ad agencies by allowing brands to purchase ads directly as they do with Facebook.

How Much Growth is There?

So, for now, Google and Facebook remain well out in front, especially in the non-Chinese parts of the world, even including the major Chinese players. Google’s global revenue is larger than the entire Chinese online advertising market is today and while that gap will likely shrink in the next few years, it’s still going to be very hard to catch for any of those Chinese players unless they’re able to break out of China. Meanwhile, other than Facebook, there’s no one to even come close to challenging for that top spot in the next few years. So, the most interesting questions continue to be about third place. The big challenge is that, though the market continues to grow rapidly, Facebook and Google continue to gobble up much of that growth, especially in the US. Therefore, there simply aren’t that many net new ad dollars up for grabs. That will make life tough for the smaller players unless they can take meaningful share from some of the old guard.