Saturday 3 December 2016

Digital ad spend continues to benefit global players

Should we be worried that companies such as Facebook and Google are hoovering up so much advertising cash in Ireland?

John McGee

Published 06/11/2016 | 02:30

Should we be worried that companies such as Facebook and Google are hoovering up so much advertising cash in Ireland?
Should we be worried that companies such as Facebook and Google are hoovering up so much advertising cash in Ireland?

If Facebook was a country, it would be the biggest in the world. With 1.79bn monthly active users worldwide, it would be bigger than China, which has an estimated population of 1.4bn, and bigger than India which has a population of around 1.25bn.

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If Facebook was a sovereign wealth fund, it would be one of the biggest in the world with shareholders' funds at the end of September this year standing at a hefty $54bn. And if it was flogged off tomorrow, it would probably command multiples of this.

But Facebook, of course, is not a country and neither is it a sovereign wealth fund. Nor, as it claims, is it a media company even though it announced during the week that it clocked up revenues of $7.01bn in the third quarter of this year, of which $6.81bn was in the form of advertising.

So, despite these claims that it's not a media company (even though it operates in the social media space), the very fact that it is competing with other media such as print, TV, radio and other online media for advertising spend, does make one wonder whether this is a mere ruse or is it having a genuine identity crisis? Or both?

On the one hand it is hard not to doff the cap to such an impressive financial performance. What media company in the world wouldn't kill to have year-to-date revenues of $18.82bn?

Indeed, the same is true of Google, which recently announced that its advertising revenues in the third quarter of 2016 amounted to a staggering $19.8bn.

Combined, they stride the global media landscape like a Colossus, sweeping aside all in their way with impunity and, let's face it, a degree of arrogance.

Of course, it's easy to embrace their noble, warm and fuzzy utterings about opening up the internet to everyone and digitally connecting people around the world.

And hats off to them, they have developed ingenious and lucrative business models that lots of companies have since tried to emulate.

On the other hand, however, it's hard not to reflect on the significance and impact that these numbers have on the wider media industry that constantly oils the Facebook machine with content on a minute-by-minute basis and, in doing so, contributes towards setting the agenda for a lot of the national debate in the countries where it has a presence.

And what about the brands and agencies that fuel these behemoths with their advertising spend? Are they oblivious to what the landscape that lies ahead might look like?

Let us not forget that what is happening here is the biggest and most rapid concentration of power and control in the global media space in terms of who publishes what and to whom since the dawn of civilisation.

And with that, the money that follows the eyeballs is flowing into the coffers of mainly two companies.

But hey, that's business and, again, one has to commend these extraordinary successful businesses.

But for all the Facebook users around the world, little do they know that every time they share a post or click on a link, they are contributing to its financial success.

In the company's most recent batch of results, for example, it notes that the average revenue per user (ARPU) in Europe was $4.72 during its third quarter while in the USA and Canada it was a heftier $15.65. Meanwhile its users in the Asia-Pacific region would appear to have a bit of catching up to with the rest of the world as the company could only eke out an Average Revenue Per User of $1.83 in the third quarter.

So what, people might ask? Well, as Facebook hurtles towards the magic 2bn users - which will probably be achieved by mid-2018 - the imminent threat of a global duopoly emerging in digital advertising is very real.

In fact, some would say that it's already here and there's plenty of evidence to back this up.

When IAB Ireland and PwC published their half-yearly digital advertising spend report two weeks ago, for example, it was clear how social media (mainly Facebook) was hoovering up the advertising cash in Ireland.

Out of a total spend of €216m on digital advertising in the first half of the year, social media accounted for around €50.8m of this, a whopping 130pc increase on the €22m that was reported during the same period in 2015.

It was also more than the entire €49m that was spent during the whole of 2015.

And by all accounts the forecast trajectory for the second half of 2016 looks set to continue in the same direction.

Looking at these figures another way, advertising spend on social media and paid-for search in Ireland with the likes of Google and MSN (but mainly Google) amounted to nearly €160m or 74pc of the total €216m that was spent on digital advertising in the first six months of the year.

In other words, a raft of other Irish and international publishers, large and small, were dependent on the remaining €56m.

For an industry that is betting the house on digital while at the same time facing into an uncertain future, this is extremely worrying.

Sunday Indo Business

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