“The real fact of the matter is that nobody reads ads. People read what interests them, and sometimes it’s an ad.”- Howard Luck Gossage
This quote alone describes how internet ads work. It is no more the game of bombarding viewers with all kinds of commercials and almost forcing them to buy something. Displaying relevant ads to people is the fuel of the internet ads engine.
Welcome to our latest issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring Point72 Asset Management losing about 10% in January, Millennium Management on a hiring spree, and hedge fund industry's assets under management swell to nearly Read More
Overall spending on ads is going down due to the dire economic situation; however, advertisement spending in digital media channels is moving in one direction only – up!
The whole advertising market is shifting towards multi-screen developments; a cross marketing approach where there is an army of phones, TVs, tablets, desktop, laptops etc. Internet advertising will acquire 20 percent of advertising market in 2013, plus all the big players (Google Inc (NASDAQ:GOOG), Yahoo! Inc. (NASDAQ:YHOO), Facebook Inc (NASDAQ:FB), Microsoft Corporation (NASDAQ:MSFT)) will be spending more on their ad campaigns. One rising star of internet ads is Microsoft, which is looking to revitalize its own online presence through partnerships.
The first month of 2013 has almost ended and so far Google and Yahoo have emerged as the most dominant players in the internet ads market but they are also feeling the pressure as other Internet Media Giants wage battle over online advertising spending.
It would be very interesting to compare Facebook ads, an emerging competitor that truly owns the social platform category, with Google ads. Facebook has over 900 million monthly users and 500 million daily users that spend more time on Facebook than any other website, making it the most popular app in the U.S.
Before we delve into the heart of internet ads, one thing should be kept in mind; there is no ‘apples to apples’ comparison; Google ads are too huge and too vast to directly compare with Facebook ads. Google without a doubt has the upper hand in this competition in terms of revenues.
Talking about the U.S. advertising market, there is neck and neck competition between the two companies, and it is predicted that Google will surpass Facebook this year.
The cost for acquiring traffic is increasing, especially after users’ taste went mobile. Both Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG) are marching forward to claim maximum territory in the mobile advertising market as early as possible. Due to the magnanimity of Google’s ads, the company has is enormous leverage (you can read my article ‘How Strong is Google’s moat?’ for details about the strength of that leverage).
The trend now is to spend more on advertisement to find useful prospects than to spend less to reach the entire population. These ‘action-based’ ads like Google’s are setting the trend.
Both Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) have tremendous advertising reach, in terms of revenue growth Google has the lead. This makes sense; Facebook was not a search engine and neither a popular website that rents out ads space. Remember what Mark Zuckerberg said about Facebook,
“Facebook was not originally created to be a company. It was built to accomplish a social mission – to make the world more open and connected … Simply put: we don’t build services to make money; we make money to build better services.”
Well, that’s all true and it is also true that Facebook has more useful data than Google if it wants to target real prospects. For instance, Facebook knows what you like, dislike, which restaurant you visit the most, which places you usually hangout, your high school friends, your college buddies, your coworkers, it even knows who your ‘real’ friends are and who just tag you for the sake of being in their friend’s list.
Now imagine, wouldn’t it be easier to sell something to a person if you know almost everything about them? I believe Facebook has an edge over Google where people search anything and everything; even things only for the sake of searching. Google doesn’t track your activity the way Facebook does. If Google plus was as effective as Facebook, things would have been very different.
Facebook’s Graph Search adds more ammunition to its arsenal, now it’s not just the Facebook that knows about someone’s activities, you get to join in the party too. So if you’re deciding where to hang out, you can do a quick search and see where certain friends usually go. Anyone can become a marketer and sell a certain group of people something (Facebook announced that this data will not be available to competing social networks).
Google Inc (NASDAQ:GOOG) on the other hand is using different tactics and printing tons of money. Its cost per click improved very recently that drove its stock up by 5 percent. In its recent earnings Google announced that its paid clicks improved 24 percent in terms of profitability.
Both Google and Facebook are making their online presence more mobile friendly. Google is going one step ahead as it owns the most popular video streaming channel YouTube. According to AdAge, Google has decided to give out paid subscriptions to channels on YouTube. Charges will be something along the lines of $1-$5/month with revenues being split 45-55, plus YouTube might also indulge in charging live events and content libraries.
In terms of advertising performance, Google Inc (NASDAQ:GOOG) has better prospects than Facebook Inc (NASDAQ:FB), plus Facebook doesn’t publicly display its CTR; however, according to Webtrends’ estimate in 2010, Facebook’s CTR was 0.051 percent, which in fact dropped from 0.063 percent in 2009. In comparison the average CTR for Google is 0.4 percent, nearly 10 times more productive than Facebook’s. With the best targeting options Google Display Network can score 36 times higher CTR.
This is just one aspect of analyzing Google Ads and Facebook Ads and there are many ways they can be analyzed; revenue to spend on ads campaigns, user base etc. I don’t see Facebook as a competition for Google ads in terms of revenue race, but there is a big threat that if Facebook partners or merges with some search engine, they can revolutionize the whole internet ads business. The point is if Facebook somehow turns itself into a competitive search engine then Google will need to revamp its own structure.