Growing faster than some experts expected, Google’s display advertising business is on pace to surpass Facebook’s by next year, according to eMarketer.
In 2013, eMarketer anticipates that Google’s U.S. display revenues will grow 45.3% to $3.68 billion, while Facebook’s will grow 27.6% to $3.29 billion.
David Hallerman, principal analyst at eMarketer, attributes Google’s astonishing success to a thriving mobile display business, YouTube’s expanding role as a venue for premium display inventory, and strong growth from the company’s DoubleClick ad network.
According to Hallerman.
“The strength of Google’s existing relationships with search advertisers has also been a tremendous help for the company’s display business.”
At the same time, eMarketer revised its figures for Facebook downward slightly after the company’s S-1 filling revealed a slower-than-expected growth rate for 2011, particularly in the fourth quarter.
Last year, net U.S. display ad revenues at Google hit $1.71 billion, while Facebook raked in $1.73 billion -- helping the social network beat out Yahoo as the top seller of display advertising online.
This year, domestic display revenue growth at Facebook and Google will be nearly identical -- around 48% year-over-year -- with Facebook expected to earn $2.58 billion in revenue, compared to Google’s $2.54 billion, eMarketer predicts.
In 2011, the overall U.S. display ad market -- including Web video, sponsorships, rich media and banner ads -- grew 25.2% to $12.4 billion in 2011, eMarketer estimates -- and will increase to $15.39 billion in 2012.
Facebook’s share of U.S. display ad market revenues grew to 14% in 2011 -- up from 11.5% in 2010. This year, Facebook’s share is expected to grow to 16.8%. Google’s share of U.S. display ad revenues is expected to reach 16.5% in 2012 -- up from 13.8% in 2011, and 12.1% in 2010, when the company closed its deal to purchase mobile advertising company AdMob.
Sure to worry some marketers, Google and Facebook are pulling away from other contenders in the display advertising business. Representing immense power, Google and Facebook’s combined display ad revenues will account for 33.3% of total display ad spending in 2012, eMarketer predicts -- rising to 38.8% in 2014.
Conversely, Yahoo will see its share of the U.S. display market fall to 9.1% this year -- from 10.8% in 2011. That’s a far cry from 2008, when Yahoo’s share peaked at 18.4%, eMarketer notes. Also, Marketer expects Microsoft's share of display revenues to shrink to 4.4%, this year from 4.5% in 2011, while AOL’s share will fall to 4% in 2012 -- from 4.3% last year.
COMMENTARY: If eMarketer's 2013 revenue forecasts for Facebook are correct, this signals the beginning of noticeable decline in revenue growth that I predicted would occur for two key reasons:
- Facebook's ad-supported revenue model is flawed. The same applies to all other social networks regardless of flavor. The ad-supported revenue model was a "quick-and-dirty" way to monetize Facebook's growing user base. It was borrowed from MySpace and Friendster, and has remained relatively unchanged since that time.
- Facebook reached a critical inflection point towards the end of 2010. Facebook claims it now has 845 million users, but the social giant is quickly reaching maximum market penetration. Forrester Research could not have said it any better, "Facebook is running out of eyeballs." I pointed this out in a great detail in a blog post dated March 20, 2012.
In spite of its humongous lead in ad impressions, social media only represents 15% of total advertising spending. Social networks are having real problems squeezing revenue out of their users. According to whitepaper by Deloitte, there were 1 billion social network users worldwide in 2011. The average revenue per user of social networks reached $4.00 in 2011, up from $3.50 in 2010 and $3.25 in 2009. Social network advertising average revenue per user reached $3.50, up from $3.00 in 2010 and $2.50 in 2009.
Facebook's average revenue per user was $4.10 at the end of 2011. By comparison, Google generated average revenues per user of $21.00.
Facebook believes that the solution to its anemic ad revenue growth is to throw more ads at users, so it is coming out with in-stream ads and more social premium display ads. I am not convinced that advertisers are going to buying it.
The data also shows that Facebook users consider their Facebook page a very private social space and the majority consider ads very invasive and interrupt the enjoyment of the Facebook experience. Advertising represented nearly 89% of Facebook's revenues at the end of 2011. The other 11% are sales of virtual goods from social games, primarily from Zynga. It is obvious that Facebook needs to reduce its reliance on advertising.
In its recent IPO filing, Facebook claimed that 430 million users now access Facebook through a mobile device, but admitted that it has been left behind the competition when it comes to mobile advertising. Facebook plans to enter the mobile ad market very soon, although it did not reveal any specific products or strategies on how it will do this.
In a blog post dated December 5, 2011, I reported that Facebook had acquired Gowalla, a location-based social network check-in service. It’s not clear how Facebook will integrate Gowalla’s technology. Gowalla is similar to Foursquare, but Foursquare has a much larger user base — 15 million vs. Gowalla’s 2-3 million. Facebook shutdown Facebook Places, its check-in service, in 2011, so the question arises: Why acquire such a small LBS check-in service like Gowalla?
In order to justify its humongous post-IPO market valuation of $100 billion, Facebook must be able to squeeze $4.61 per user by the end of 2012, if not sooner. It was thought by many social media analysts, that F-commerce would become a huge revenue generator, but in a blog post dated February 17, 2012, I revealed some very alarming trends that say otherwise.
In March 2011, Google launched Google+, its own social network. Google+ has quickly grown to an estimated 100 million users by the end of January 2012, and some social media experts believe it will grow to 300-400 millon by the end of 2012. Although it may not be quickly evident, and Facebook would never admit it, Google+ presents a huge potential threat. Google+ is already offering branded pages, and plans on selling ads in 2012, so it is moving quickly to monetize its new social network.
Google is rapidly adopting the Apple business model, slowly transitioning towards hardware by acquiring Motorola Mobile to give it a foothold in mobile phones. Google will also introduce an Android-based heads-up-display (HUD) glasses running Android latter in 2012. The Motorola Mobile acquisition gives Google a stronger foothold in mobile advertising, and if you combine Google+ with those AR HUD glasses, this could become the hottest new technology to impact social media in a very long time. So, watchout Facebook.
So what is the solution for Facebook to increase revenues beyond advertising? Facebook should concentrate on increasing added-value to its users through new products that increase the overall user experience. In short, Facebook walks a fine line between increasing ad revenues and pissing off its users, and this could create an avalanche of exits to Google+.
Courtesy of an article dated February 22, 2012 appearing in MediaPost Publications Online Media Daily and an article dated March 30, 2011 appearing in Online Marketing Trends
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