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.

Published by

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.

4 thoughts on “The Surprising Contenders for Third Place in Online Advertising”

  1. At some point, I think it would be a good idea to analyse the purchasing behaviours of advertisers. In most cases I believe, they work on a fixed budget because advertising is usually categorised as an expense instead of a cost of sales. Data has shown that advertising remains a constant percentage of total GDP, which seems to back this view. Interestingly, targeted ads haven’t really changed this dynamic yet.

    Now that Facebook and Google now dominate Internet advertising, the only large segment they can eat into now is TV advertising. After that, I think it’s likely that they’ll have no more space to grow (aka saturation).

    1. “Now that Facebook and Google now dominate Internet advertising, the only large segment they can eat into now is TV advertising.”

      I really heavily doubt that that is going to happen.

      Relevant: the advertising bubble:

      I keep seeing presentation decks and blog posts talking about how the amount of ad dollars being put into print advertising is greater than the value of the readership, compared to internet advertising which is undervalued (this may no longer be the case, last I saw internet ads were in the process of catching up)

      And I shake my head, because the poor tech analysts writing those decks and posts have failed to see what the ad companies have clearly decided: that some kinds of advertising are worth more than others. Not just that some eyeballs are worth more, but some kinds of attention are worth more.

      Internet ads are pretty worthless considering how hard it is to get people to take their attention away from a page’s content to look at the banners and sidebars on a web site. Print ads are worth more because the physical act of turning the page and looking at the next page drops your attention directly onto the ad. TV ads are worth a great deal because viewers are trapped in a linear sequence of events, they have to experience the ad (even if it’s on mute or at 5x speed) before they can experience the next bit of the show.

      That advertising as a whole is a fixed market, with internet advertising already dominated by just two companies, is why google is starting to explore fee-based services like a thin TV bundle and home broadband.

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