Meta and Alphabet lose dominance of the US digital advertising market

Meta and Alphabet have lost the dominance of the digital advertising market they had for years, while the duopoly is hit by fast-growing competition from rivals Amazon, TikTok, Microsoft and Apple.

The share of US advertising revenue held by Meta, Facebook’s parent, and Alphabet, which owns Google, is expected to fall 2.5 percentage points to 48.4% this year, the first time the two groups will not own a majority market share since 2014, according to research group Insider Intelligence.

This will mark the duopoly’s fifth straight annual decline, whose market share has fallen from a peak of 54.7% in 2017 and is set to fall to 43.9% by 2024. Worldwide, Meta and Alphabet’s share has fallen 1 percentage point to 49.5% this year.

Jerry Dischler, Google’s head of advertising, told the Financial Times that the strong rivalry of new entrants reflects an “extremely dynamic advertising market”.

Regulators in the US and Europe have increased antitrust scrutiny, such as suing Google for allegedly promoting its products to the detriment of rivals. In December, Meta, which owns Facebook, received a complaint from EU regulators over concerns that the social network’s classified-ad service is unfair to rivals.

Tech groups are fighting harder than ever for a share of the $300 billion digital advertising market, even as companies around the world are slashing their ad budgets in response to rising interest rates and high inflation.

Amazon and Apple expanded their advertising teams. In July, Netflix announced that it would partner with Microsoft to create an ad-supported layer of its streaming service.

Meta’s chief executive, Mark Zuckerberg, blamed recent revenue declines on privacy changes at Apple, which made it harder to track users and target advertising, as well as the growing popularity of viral video app TikTok, owned by parent company Chinese ByteDance.

“Four years ago, you wouldn’t talk about [TikTok ou Amazon] in advertising,” said Dischler. “So it’s really telling that more and more people are recognizing that advertising is a great, scalable business model.”

Amazon’s foray into the world of digital advertising played a major role in attacking Meta and Google’s dominance. After years of dabbling in the market, it ramped up efforts in 2015, and has since seen advertising revenue skyrocket from less than $1 billion to around $38 billion this year.

“Before I joined, I didn’t even know what Amazon Ads was,” says one Amazon executive, saying he now runs “a huge team — and I didn’t know it existed before the recruiter called me.”

Paul Prior, chief operating officer of digital advertising company Undertone, said retail giants led by Amazon have realized that their extensive customer data could be the foundation for a huge advertising business with higher margins than selling products online. .

But Amazon took it a step further, expanding its website ad business beyond its own shopping site. “Across the broader digital universe, they use this dataset to empower brands and advertisers to buy better, spend more efficiently and drive a return on ad spend,” said Prior.

Apple has also emerged as a new threat. Its advertising revenues have grown from less than $2.2 billion in 2018 to more than $7 billion this year. While it’s only 1.2% of the global market, that’s already more than Snapchat and Pinterest combined, and some estimates suggest that Apple could hit $30 billion in ad revenue by 2026.

In September, the Financial Times revealed that the iPhone maker plans to nearly double the workforce in its fast-growing digital advertising business. Its job postings describe ambitions to “redefine advertising” for a “privacy-centric” world.

Zuckerberg has repeatedly attacked Apple’s “conflict of interest”, criticizing it for charging “monopoly rents” and stifling innovation. Apple’s privacy rules have made it difficult for Meta to tailor ads to users, contributing to about two-thirds of its shares falling over the last 15 months.

Google doesn’t seem to have taken as much of a hit from Apple’s privacy changes, as it can tailor ads directly to users typing in search terms — providing valuable “user intent” data that Meta struggles to get.

But Apple already has its own Google Maps rival, a search function on the iPhone, and is building a nascent ad business — which analysts say could threaten Google in the future.

“Apple has a really strong brand that consumers trust, and they have the devices used by the cream of the crop,” said Josh Koenig, director of strategy for website operations platform Pantheon. “If they figure out how to turn this into a really valuable network for advertisers, they could charge a high price.”

Insider Intelligence predicted that Google and Meta’s US advertising growth in 2023 will be just 3% and 5%, respectively, while at least eight of their rivals are expected to see double-digit gains.

She estimates that Amazon’s ad business will increase 19%, Apple 26%, Spotify 30%, TikTok 36% and Walmart 42%. However, the market shares of many of these groups are currently small.

Dischler said Google is working hard to expand its ad business into both e-commerce — where it partners with retailers — and privacy-first advertising, where he argues Google can play a bigger role than Apple.

“I don’t see this as a zero-sum game,” Dischler said. “If Uber has an ad network — billboards on cars that previously didn’t have billboards, and they’re offering advertising opportunities when you buy groceries or food at restaurants — then they’re adding to the pie.”

Translated by Luiz Roberto M. Gonçalves