WARC’s latest Global Ad Trends found that the internet ad market is in decline beyond the Google and Facebook duopoly. While there is little sign that the pair’s growth will record a significant slowdown in the coming years, several potential headwinds may shape future fortunes, says WARC Data editor James McDonald.

Comparison of company filings with advertising expenditure data from 96 markets included in WARC’s Adspend Database show that, of the $590.4bn spent on advertising worldwide last year, $144.6bn (24.5%) went to the Google and Facebook duopoly – almost one in four dollars. The duopoly’s share is up from 20.3% in 2017 and is more than double the 10.8% recorded in 2014. We predict a further increase to 28.6% ($176.4bn) this year.

This growth is having a consequential impact on other media owners, particularly those in print publishing. But looking only at the internet advertising market, the duopoly took over half (56.4%) of ad money in 2018, and we expect this to rise to 61.4% this year on current trends. This would mean that the pool of ad money available to other online media owners would decline for the first time.

One of the main reasons for the duopoly’s success is their creation, and subsequent ownership, of the digital formats perceived to be most effective by adland’s decision makers: paid search and social. Several surveys in the past year – including WARC’s own Marketer’s Toolkit – have shown search and social to be highly regarded by advertisers in terms of meeting campaign objectives.

Google dominates the search engine market, handling almost all mobile searches worldwide and nine in ten on desktops. Meanwhile, ad buyers can target Facebook’s 1.48 billion daily users by leveraging a rich cache of personal data. Beyond major brands, the accessibility of the duopoly’s ad buying tools has attracted a long tail of small- and micro-advertisers, creating a competitive advantage which has been core to revenue growth.

While the duopoly’s control is indisputable today, WARC has identified three key developments which may shape their future in advertising:

Google and Facebook are battling for video dominance

The value of the online video market across WARC’s 12 key markets was $30.2bn in 2018, equivalent to a fifth (21.5%) of linear TV across these markets, and spend is growing rapidly. Much of this money is paid to social media sites, including Facebook and YouTube. In the UK, for example, an estimated 86% of online video adspend – £1.9bn – went to social platforms last year.

Facebook launched its Watch AVOD platform worldwide last August. Watch was positioned as a safe brand environment which drives ‘meaningful engagements’, following a series of high-profile cases of negative adjacency on YouTube. But YouTube is still the dominant player in the market, and Facebook’s attempt to change this has made little headway to date.

Both Google and Facebook hope to unlock brand budgets while also controlling the trade of targeted performance advertising. Regulation appears to be the principle threat to the duopoly’s continued growth.

Google is battling Amazon on two fronts

Google handles 63,000 search queries per second – or two trillion in an average year – but its dominance of the paid search market may soon come under threat from Amazon. The e-commerce giant is developing its own search business, looking to pair advertisers with consumers close to the point of purchase.

We expect Amazon to make $13.9bn from advertising this year. While this is just 13% of Google’s forecast $107.4bn take this year, Amazon’s ad business is growing fast. A full 69% of marketers in a recent WARC survey stated that they intend to up their ad investment on the platform this year.

Amazon, which has a rich database of consumer purchasing habits, has also stolen a march on Google in the emerging area of voice search. Its Echo smart devices, which launched in 2014, are used by 63% of American smart speaker owners, well ahead of Google’s Home devices. Launched two years later, on 26%. Further, the number of available Alexa apps (branded ‘Skills’) is 13 times greater than Google’s assistant, at 56,750.

Younger Americans are leaving Facebook’s core platform for Instagram

Instagram is now the main driver of daily user growth for Facebook; estimates by Edison suggesting that as many as 15 million US users have left Facebook’s core platform since 2017, with most leavers aged between 12-34.

Instagram’s rise in popularity hasn’t gone unnoticed by marketers, with Instagram recording a net budget increase (the number of practitioners intending to increase budgets minus the number intending to decrease) of 67% in WARC’s latest Marketer’s Toolkit, ahead of Amazon on 63%, YouTube on 60%, and Facebook on just 13%.

Facebook is responding by pivoting to an encrypted messaging service to regain consumer trust, and to also build a secure environment for online payments. The company spent $1.1bn on advertising worldwide last year in the wake of the Cambridge Analytica scandal.

You can read a free sample of this month’s Global Ad Trends by following this link.