The sci-fi author Stephen R. Donaldson said that “Everything dies, from the smallest blade of grass to the biggest galaxy.” A few years ago, I might have told you that’s true—about everything except Google and Meta’s ad businesses. My, how times change.
Google and Meta control less than 50% of digital ad spending for the first time since 2014, a trend that’s poised to accelerate over the next few years, according to Axios. Citing predictions from Insider Intelligence, Axios reports Google and Meta are expected to bring in 48.4% of online ad revenue this year—28.8% for Google, 19.6% for Facebook’s parent—a number that’s fallen steadily since the tech giants’ peak in 2017, when they took in 54.7% (Google with 34.7%, Meta with 20.0%).
“Google and Meta face a series of challenges to their advertising businesses, including a more privacy-centric market, economic turbulence, a reset of expectations following the pandemic-induced spending boom, and general uncertainty in the tech and media sectors,” said Paul Verna, a principle analyst at Insider Intelligence.
For a long time, fans of market competition fretted (with good reason) about Google and Meta’s duopoly over digital advertising, the business that fuels the whole internet. The two advertising giants aren’t going away anytime soon, but make no mistake, we are entering a new era in the online world.
“These are more sober days for these companies, but aside from losing some share to the likes of Amazon and TikTok, though we don’t currently see an existential threat to either,” said Verna.
Meta did not respond to a request for comment. Google declined to comment on its financials.
There are a lot of reasons for the change, but my two favorites start with the letter “A.” Perhaps you’ve heard of them: Amazon and Apple. When you hear those names, “ads” probably aren’t the first word that pops into your head—unless you work in marketing.
Amazon and Apple are probably the most significant corporate ad industry disrupters in the last ten years. Thanks to their efforts, digital advertising is undergoing a sea change.
The Apple effect is most interesting. Last year, your iPhone started asking if you wanted to let your apps track you. It probably didn’t seem like much to most people, but it made a young entrepreneur named Mark Zuckerberg very, very upset. That setting, called App Tracking Transparency, cut off the flow of iPhone user data to Facebook and Instagram. That is what you might call a “big deal.” Tracking you across other companies’ apps and websites is a critical part of Meta’s advertising infrastructure. Ultimately, Meta said it lost $10 billion dollars because of that setting alone.
One of the big things App Tracking Transparency did was open the doors for competition. Meta’s ad business was destabilized, and suddenly, third-party data was much harder to get. That made big consumer facing companies with tons of data about their own customers start thinking about launching their own ad businesses. A lot of them did, especially retailers, such as 7-11, Best Buy, Chewy, CVS, DollarTree, Doordash, eBay, Home Depot, Instacart, Kroger, Lowe’s, Macy’s, Target, Walgreens, Walmart, Wayfair, Ulta—not to mention other tech competitors like TikTok. Even Marriott got in the game.
To quote ad industry analyst Eric Seufert, these days, “everything is an ad network.”
But one company was already hard at work on the advertising project even before Apple’s game-changing privacy setting. Amazon’s advertising business is exploding. Today, Amazon ranks in over $30 billion a year from ads, which is actually more money than Amazon makes on Prime and all its other subscription services combined.
“All of these trends amount to seismic shifts for Google and Meta — two companies that, until recently, could be counted on to surpass Wall Street’s lofty expectations, and in some cases their own guidance,” Verna said.
Get used to it. Insider predicts that Amazon will capture 12.7% of US digital advertising dollars by 2024, compared to a predicted 17.9% for Meta.
Seufert writes in his blog Mobile Dev Memo that Google and Meta are likely to maintain the top two spots on the list of digital ad revenue generators for the foreseeable future. But the duopoly era of their unchallenged online dominance has come to a close:
Given the astonishing growth of Amazon, TikTok, and various retail media networks — including those which launched this year, such as Netflix’s — it is reasonable to characterize the digital advertising market in 2022 as being materially more competitive than it was in 2016 or 2017. The Duopoly depiction is tenuous with Google and Meta seeing a combined minority share.
48.4% of the near $250 billion digital ad business isn’t exactly chump change. But in 2023 and beyond, the internet and the tech landscape are going to look a lot different ad dollars flow to other companies.