You’d be hard pressed to find another business with the same power within its industry as Google.
Not only does it control the overwhelming majority of advertising revenue in the single most lucrative category in the world – paid search – but a large volume of the world’s publishers, who compete day in, day out with Google in an ultra-competitive advertising market, rely heavily on Google services such as its analytics product, as well as its third-party advertising network.
So on one hand Google is their largest competitor, but at the same time, for many it’s their strongest source of both user insights and revenue contributions. It’s an unusual situation yet one seemingly accepted by most participants.
Basically, the Google ad network is a collection of third-party websites that have agreements with Google to place display and text ads on their websites. Google does not own these properties, it simply sells advertisements on these properties and shares the revenue with the owners. Most websites in the world in some way or another use this service, either as a core source of revenue or as a small contributor. For ad buyers and marketers it is a welcome efficiency tool, a way to make a buy across thousands of websites through one transaction.
The scale of the Google ad network’s contribution to the global display advertising industry is significant. For the 12 months to September 30, it generated $US13.04 billion in ad revenue, which makes it larger than both Facebook and Yahoo!’s global revenues for the same period combined. Simply put, it is a beast and unmatched in terms of size globally.
However, for Google it appears to be becoming a far less important operation in the scheme of its long-term strategy. Despite its size, the network only represented 21.1 per cent of Google’s $US14.89 billion in revenue for the three months ending September 30. Over the past two years, revenue for Google’s owned and operated properties has increased by 40 per cent, at the same time the network revenues have grown only 21 per cent. Revenues for the third quarter of 2013 year-on-year were flat, the first time this has happened. And second quarter revenue year-on-year was up only 7 per cent.
For publishers relying on this Google-supplied revenue these statistics would be alarming. So what has happened? And what does it mean for publishers in 2014?
Well, it seems that Google believes standard display advertising banners and text placements are becoming less important than they historically have been both for advertisers and for Google itself. When Google first launched its network placements back in the early 2000s it served two purposes: First, it gave Google a wider product range and allowed it to play in the display advertising space despite not owning any properties of its own that carried display advertising. And second, it was one of the earlier steps for Google in terms of getting some visibility on how users were interacting with sites outside of Google.com.
If you look back to the third quarter in 2006, 39 per cent of Google’s total revenue came from the display network. For the same period in 2013 it was 21 per cent.
Back in 2010, I travelled to New York for the IAB Mixx conference, where Google launched a large-scale display advertising initiative to the trade. It made seven bold assertions around where it saw the future of display advertising – the stand out being that it believed 50 per cent of all display advertising would include cost-per-view video.
One factor that must be considered when looking at Google’s network revenues is YouTube. It is the largest site by a country mile in the fastest growing category in the world, video. Make no mistake – YouTube is the lead property for Google when it talks about display (or non-text based) advertising.
And it should be. In Australia alone YouTube has over 11.5 million users.
The volume of users and creative formats offered on YouTube are increasingly appealing to large scale advertisers, many of whom would have previously been content with standard display advertising. The emergence of YouTube is forcing many advertisers to make a choice between Google’s own property and properties it represents on behalf of others. Add to this the strength of YouTube within mobile – another key screen for advertisers and an area of high growth.
YouTube will continue to grow strongly in 2014 and video will continue to be the highest growth area within digital. However, it is likely a lot of this growth will not come at the expense of traditional broadcast video or television; it will most likely come from standard banner placements. For all the knockers, the humble banner has been a reliable contributor to the growth of digital advertising over the past two decades, but if advertisers are faced with a stronger digital alternative such as video advertising on YouTube it is likely they will pursue it. This will mean that the two most lucrative formats in digital, search and video, will be controlled more or less by the one company.
For publishers relying on Google’s network for revenue, they might want to consider taking back responsibility for the future growth of their business. It is unlikely that the network will go backwards – it will still be a formidable force within display advertising – however its growth will most likely mirror the rest of the industry, excluding the power players of Google, Facebook and Linkedin.