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Google and Meta are losing their grip on digital ad market

For more than a half-decade, Alphabet Inc. and Meta Platforms Inc. have ruled the digital advertising market—the money machine that funds the modern internet. They’ve collected more than half of all online ad dollars, year after year, to the point that competitors and regulators feared there would be no realistic way to break their hold.

This year the duo will have some of their biggest challenges yet, facing competition that’s fiercer and better-funded than it’s been in a decade. Alphabet and Meta are still trying to recover from a change in Apple Inc.’s privacy policy that crippled the effectiveness of their ads on iPhones. This change has opened a window at a time when major competitors such as, Apple, Netflix, TikTok and Walmart are luring advertisers faster than ever. Meanwhile, a dicey economy has marketers skittish, leaving these formidable rivals fighting for a pile of money that no longer seems guaranteed to grow forever.

“We’re sitting in a world where the dominant market players from a few years ago don’t have the same growth forecast that they did historically,” says CJ Bangah, a PricewaterhouseCoopers principal focused on advertising. “You’re also seeing new providers enter the space and gobble up share very, very quickly.” She says this could “potentially yield a different slate of competitors coming out on top.”

Insider Intelligence estimates that Meta’s and Alphabet’s share of ­digital ad revenue in the US, the ­biggest market, was below 50% last year, the first time that’s happened since at least 2015. Meta posted its first two quarters of revenue decline ever in 2022, and Alphabet’s sales missed analysts’ estimates three quarters in a row, its longest stretch of negative surprises since 2015. It projects them to continue losing ground in 2023.

It’s quite the turn for two businesses that have grown dominant enough to elicit scrutiny from US antitrust enforcers. Both built empires by gathering user data and using it to target and personalize ads, changing the marketing equation online for everything from global brands to tiny businesses. Meta expanded on Facebook by acquiring Instagram and WhatsApp, creating an ad business that fueled the rise of hundreds of direct-to-consumer brands, and Alphabet’s Google search gave marketers a way to put their products in front of people right at the moment they were most inclined to press the “buy” button.

Apple dealt this model a major blow in 2021, when it rolled out App Tracking Transparency. The feature ultimately made online marketing less effective by giving Apple users more control over how they shared data, making it harder for companies to target users and track ads. This has been especially painful for smaller brands—the majority of advertisers—who don’t have the budgets to pay for TV spots and have had few cost-effective ways to reach customers. A new threat to Meta’s ad business recently emerged in Europe, when regulators there said the company illegally required users to agree let the company use their data for personalized ads.

Two newer types of ads that are cheap enough to be viable for smaller brands are expected to be on a tear this year: promotions on e-commerce sites and on streaming TV platforms. GroupM, the advertising and media giant, expects e-commerce ad revenue to increase 10% and streaming ad revenue to bump up 18% in 2023, compared with a tepid uptick of 4.6% in the global advertising market, to $858.6 billion.

E-commerce ads should make up 14% of the entire global ad market, with $121.9 billion in revenue this year, according to GroupM, up from 7% five years ago. That’s because online retailers such as, Target and Walmart are pitching marketers on the possibility of placing ads in front of customers when they’re already shopping while also helping the companies target shoppers with data about past purchases. Brand stores, banner ads and featured placements for search terms are popping up across their sites, accessible to even small brands that might’ve previously looked to social media instead.

E-commerce ads really took off during the pandemic, as marketers chased a spike in shopping on online retailers’ sites. When the marketers saw that the ads worked, they stuck around, says Kate Scott-Dawkins, GroupM’s global director of the business intelligence group. “We’re expecting retail specifically to grow faster than digital as a whole,” she says. “Those companies are adding ad inventory, ad products and ad formats that are helping to continue to contribute to that growth.”

The fastest-growing corner of the market, albeit from a smaller base, is in streaming television, which GroupM projects will bring in $23 billion in 2023. Marketers want to be where the audience is, where people spend their time. When it comes to TV, the buzziest shows that spark the most conversation have been from streaming platforms, not traditional TV, Scott-Dawkins says. If Netflix Inc., Walt Disney Co. and other content providers and smaller channels such as Pluto TV can keep drawing viewers, they’ll have more opportunities to sell ads to show them.

Streaming TV platforms vary in how well they can personalize ads and track viewers. At the least, they can narrow audiences based on viewers’ category favorites and which shows they watch. Streaming TV set-box provider Roku Inc. has taken it a step further, acquiring a division from TV ratings company Nielsen Co. that can help place personalized ads.

Although many ad channels have self-service platforms, there’s still a level of knowledge required to know what’s a good ad for connected TV versus Walmart Inc. More fragmentation among advertising platforms could also open opportunities in the advertising technology market, according to Bloomberg Intelligence’s Mandeep Singh. He says Trade Desk Inc. and smaller ad-tech companies, as well as agencies that can help manage and optimize where brands spend their money, could see a big 2023.

“The walled gardens dominated, and now the walled gardens aren’t working anymore,” Singh says. “You’ll have a lot of advertisers expanding their ad ecosystems. There’s room for middlemen in terms of helping you pick and choose the most relevant platform for you and your ad dollars depending on the product that you’re trying to sell.” Bloomberg

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