Meta and Alphabet (the parent company of YouTube, Google and all its subsidiaries) were money machines and the dominant platforms in online advertising for years. Both regularly gobbled up over half of all digital ad dollars spent by businesses, large and small. Any brand that wanted to make a profit spent significant sums on Facebook, Instagram and Google. The rise of Meta and Alphabet seemed unstoppable as they took bigger slices of the sales pie every year. It got to the point where both have increasingly drawn the attention of U.S. politicians and lawmakers looking for violations of antitrust laws. What seemed like political grandstanding has become a reality as the Justice Department and eight states recently sued Google for allegedly abusing a monopoly in online advertising.
That lawsuit might be a bit late to the party, though, as the dominance of Meta and Alphabet has already begun to fade. For the first time since 2015, their online advertising market share has dipped below 50%. Neither no longer has the seemingly unstoppable growth forecasts of the past as both are now facing a host of challenges and competitors. Apple’s App Tracking Transparency feature swiftly eliminated the ability to serve highly-targeted ads to anyone with an iPhone. TikTok has risen beyond being the latest buzzy social media platform to become a serious adversary. Influencers are now critical components of marketing efforts, with more resources and budgets directed toward them. Other giant corporations have quietly built digital advertising empires. And even more are just getting off the ground with their efforts. So is the end of their dominance a permanent trend or just a blip? And what does it mean for the future of the digital advertising landscape? Let’s take a look.
THE STRUGGLE IS REAL
A challenge is deciphering whether big news like this is a reality or just media hype. But digging into the data shows that there are hard numbers to back up that Alphabet and Meta’s stranglehold on advertising revenue is slipping. According to a Bloomberg article, Meta posted its first decline in revenue ever in 2022. And Alphabet missed sales estimates for three quarters in a row during the same year. It was the longest stretch of negative results for Alphabet since 2015. Meta’s stock was famously hammered during 2022, and Alphabet’s also dipped but not as precipitously.
With the multitude of surprises recently, forecasting what will happen in 2023 can be a shot in the dark. But a recent article by Forbes looked at various forecasts for the year, with all projecting a slowdown. The latest Manga Global forecast, heavily cited in the article, anticipates 2023 U.S. total ad spend to only grow by 3.7% compared to the previous year (a whole percentage point lower than its September forecast). Magna’s forecast also notes that social media advertising will only experience 5% growth for the year. Much of that also depends upon the economy, which is increasingly volatile. But it points to the fact that Meta and Alphabet’s grasp on online ad spend is slipping as both have to fight over a smaller slice of a smaller pie.
THE DATA WARS
Much of Meta and Alphabet’s stellar growth came from the ability to gather detailed user data on large sections of the online population through cookies, pixels and other trackers. That third-party data was then used to precisely target and personalize ads making Google, Facebook and Instagram indispensable to the marketing efforts of everything from small companies to global brands. But Apple threw a massive wrench in that model with its App Tracking Transparency feature rolled out with iOS 14.5 in 2021. Instead of automatically letting apps like Facebook and Instagram track users, they had to grant permission. According to an article on Wired, 94% of U.S. users and 85% globally clicked “ask app not to track” when prompted. The result was a massive blow to Meta and Alphabet’s entire business model, and revenue has suffered dramatically.
It wasn’t just a case of Tim Cook not wanting to be friends with The Zuck on Facebook. People have increasingly become alarmed at the amounts of data some apps are gathering and protective of their personal information. That concern has led to laws such as the EU’s General Data Protection Regulation (GDPR) and the California Privacy Rights Act (CPRA). The Colorado Privacy Act, Connecticut Data Privacy Act and Utah Consumer Privacy Act will also become effective this year. All limit the types of and how much personal information can be gathered online, seriously hampering Meta and Alphabet’s ability to use third-party data to target ads.
So what is the solution to the imminent demise of third-party data and the cookies and trackers that collect it? First-party data that you gather directly from your customers is now more critical than ever. E-mail addresses, cell phone numbers, demographic information, purchase history, what products were viewed on your website and other customer data will play a central role in your marketing efforts as the window to run targeted third-party data ads quickly closes. Read our blog post that further explains the different types of data, why first-party data is so important and how to gather it. All of it is vital information as more privacy laws come into effect this year, adding to the impact of Apple’s App Tracking Transparency feature.
THE BEAST FROM THE EAST
The rise of ByteDance’s TikTok has been absolutely meteoric. What started as a place for mostly goofy lip-syncing and dance videos quickly became an absolute monster as the app surpassed Facebook, Instagram, Snapchat and YouTube in downloads in 2018. TikTok became the world’s fourth most downloaded non-gaming app the following year. Boredom from lockdowns and people looking for entertainment during the pandemic led to a 45% increase in users from July 2020 to July 2022, according to a The Guardian article. In 2022, TikTok became the most downloaded app in the world and surpassed YouTube in content watched monthly per user.
The rise of TikTok’s advertising revenue has also been equally as rapid. In 2019, it was a mere $0.34 billion, and two years later, it had increased over elevenfold to $3.88 billion. For 2022, TikTok was projected to make $12 billion, but it later trimmed $2 billion off that estimate due to the global slowdown. Even with the reduction, a 2,841% increase in revenue in only three years is absolutely jaw-dropping. As TikTok becomes part of many media plans for advertisers, ad dollars are being redirected from Instagram and Facebook. And Facebook faces the increased challenge of younger users fleeing the platform for the happier lands of TikTok.
Does it make sense to follow what other marketers have done and redirect your marketing budget to TikTok? While the growth and popularity of TikTok are definitely appealing, it is essential to remember the social platform’s younger demographic. According to a Pew Research report, 48% of the U.S. population under 30 now uses TikTok, with 67% of users between the ages of 13 and 18 on TikTok daily. Use of TikTok quickly drops off over 30 years of age, rapidly declining as users transition from Gen Z to millennials to boomers. TikTok might not be worth most of your ad spend if your products don’t appeal to its younger crowd.
THE REVENGE OF APPLE
Most think of the big two regarding online advertising, but other giant corporations besides Meta and Alphabet operate in the space. Apple has significantly expanded its advertising revenue from $2.2 billion in 2018 to $7 billion in 2022, according to an Ars Technica article. And it is looking to rapidly push that figure into double-digits through its variety of offerings (App Store, News, Apple TV, etc.) in the Apple ecosystem. The investment bank Evercore ISI estimates that Apple will have a $30 billion advertising business by 2026. And according to a Financial Times report, Apple plans to roughly double the size of its ad platform team.
The move makes sense for Apple as smartphone innovation has slowed down, dragging sales down. As the difference between iPhone models becomes less, so does the need to upgrade to the latest variant. Turning to advertising gives Apple another revenue stream. But Apple is also trying to position its digital advertising as a solution to a “problem” it helped create. In an ironic twist, Apple can serve more targeted ads to its customers because its App Tracking Transparency feature doesn’t prevent it from gathering first-party data. Apple won’t track users as they venture outside of its ecosystem, but will definitely be paying attention to anything they do on its many platforms.
Apple’s advertising efforts are still in their early stages and not fully developed. How users of a mostly ad-free and privacy-centric platform will react to these ads as they become more prolific is also a bit of an unknown. But Apple has a knack for figuring things out, so it is worth paying attention to what the Silicon Valley giant has planned for the future of digital advertising.
THE OTHER GIANT
One of the most successful “other” big brands has been Amazon, which has seen its advertising revenue skyrocket from under $1 billion in 2015 to $38 billion in 2022. It is now the third-largest digital advertising company behind Alphabet and Meta. The online retail giant realized it was sitting on a mountain of first-party data that it could use to target ads effectively. With almost everyone and every brand on the planet on Amazon, there is no shortage of ads to serve and sell.
Much of Amazon’s growth has come from expanding beyond traditional sponsored brands and displaying ads on its site. Amazon now offers a dizzying array of ad types, technologies and solutions for brands to reach consumers through a host of affiliated websites and platforms that it owns or partners with. And it now gladly works with brands regardless if they are Amazon retailers, with options for advertising budgets of almost every size.
Amazon’s options can overwhelm anyone running a brand or a marketing team. But Amazon does an excellent job of explaining them with its “The Basics of Success: Understanding Amazon Ads” guide. It is well-written and easy to understand, even if you are not a marketing or advertising expert. And even if you aren’t planning to advertise on Amazon, it is still worth reading as it explains many of the terms and strategies involved with digital advertising.
INFLUENCERS HAVE THEIR KNIVES OUT TOO
Undoubtedly, influencers also take a chunk of revenue from Meta and Alphabet. Some brands have tired of trying to figure out constant algorithm changes, the latest social media trends and navigating through increasingly stringent data privacy laws in a post-cookie world. All of it can be difficult to accomplish without a fully-staffed and highly-skilled social media team. Partnering with the right influencer can be a serious boon for brands large and small, and it is sometimes easier than trying to master social media. Some brands have begun shifting their marketing budgets away from Meta and Alphabet to influencers.
The exact amount of monetary “damage” being done to Meta and Alphabet by influencers is hard to quantify. But a HypeAuditor study sourced in our “Why Instagram Still Matters in 2023” blog post projects that the influencer market will grow to $22.2 billion by 2025 with a compound annual growth rate of 12.6%. All those dollars have to come from somewhere, as most brands don’t have the resources to add significant spending to their marketing budgets. As influencer marketing continues to rise in prominence and effectiveness, marketing dollars will continue to shift toward it.
Are you interested in influencer marketing but don’t know where to start? Do you want to know how much working with influencers costs and how to find one? Or how to measure success with influencers? We highly suggest you read our blog post, “The Answers to the Top Questions About Influencer Marketing.” We answer all those questions and more, and it is a great first step to tapping into the power of working with influencers.
DEATH BY A THOUSAND CUTS?
Even more factors have stacked up against the once-dominant duo of Meta and Alphabet. Russia banned both Instagram and Facebook after it invaded Ukraine. Both were hugely popular in Russia, and the move cost Meta $4.7 million daily, forcing it to write off $1.7 billion in sales. Google’s operations in Russia were forced to declare bankruptcy after Russian authorities seized its bank account. While Google and YouTube continue to operate in Russia, it is in a diminished capacity that doesn’t generate revenue.
On a more global scale, economic storm clouds continue to gather, with many reassessing their budgets for 2023. Consumer spending is also starting to come back to reality after a confluence of massive stimulus and bored customers fueled an explosion in sales. And there is general fatigue for Meta’s social media offerings as engagement for Instagram and Facebook continues to decline. Even YouTube’s ad revenue fell in 2022, sliding 2% year over year in the third quarter. Meta’s only response seems to be a capital-intensive bet on the metaverse (learn more from our “The Metaverse: Future of Flop?” blog post here) and continuing to copy the features of other social platforms.
Even if the economy has a soft landing and the world becomes a more stable place, the absolute dominance of Meta and Alphabet is more than likely over. They face a “death by a thousand cuts” scenario as multiple competitors have arisen across various platforms, taking ad revenue away from both. And these new contenders are not just the latest shiny options cashing in on flash-in-the-pan marketing trends. Many are aggressively growing and offer new, innovative and targeted ways to reach customers. Some even outperform Meta and Alphabet’s offerings with better engagement, market penetration and ROI.
WHAT DOES IT ALL MEAN?
It is important to remember that even though the era of Meta and Alphabet’s absolute dominance in digital advertising might be over, they are far from dead. Looking at the above graphic, it is easy to see the size and scale of both. According to Meta’s fourth quarter and 2022 earnings report, it hauled in $116.61 billion in 2022, dwarfing the revenue of both TikTok and Amazon. Even Meta’s fourth-quarter revenue of $32.17 billion is higher than TikTok’s total yearly revenue and almost comparable to Amazon’s. Alphabet has yet to announce its 2022 total revenue, but it had a record-breaking 2021 with an annual income of $257 billion. It might not reach that number in 2022, but Alphabet is still a giant.
However, the dip of both giants below a 50% market share shows that the digital advertising landscaping is fracturing and becoming more complex. More options than ever are coming online and competing for ad budgets with varying results. Data privacy regulations are increasing in frequency and impact complicating things further. And turning to the established platforms of Meta and Alphabet for all your digital advertising needs might not produce the best results as in years past.
Increasingly, it is taking specialized knowledge and tactics to create high ROI campaigns that effectively use the best platforms. If that is beyond the capabilities of you or your team, we are here to help. At Kahn Media, we have highly-skilled digital marketing specialists who are experts at navigating the complexities of the ever-shifting landscape and creating effective campaigns. And, as a fully integrated marketing agency, we can lend further support with social media management, influencer marketing, event management, content creation and public relations. Contact us to see what our digital marketing specialists and the rest of our team can do for your brand.