Several big digital advertising companies reported their third-quarter results over the last week or two. Those reports reveal a few key trends: Google and Facebook are gaining share, mobile advertising is growing but still tiny and search-dominated, and slow progress in digital brand advertising means that television isn’t going away.
Google. Google’s ad revenue grew 16 percent to $10.9 billion. For once, its ad network sales grew faster (21 percent) than sales on its own sites (15 percent), although its own sites still make up two thirds of the total. That likely means that Google’s display ad network sales grew faster than search. While paid clicks were up 33 percent, the average cost per click was down 15 percent, which most observers blame on mobile search pricing. Google dropped broad hints, rather than clear guidance, about its overall mobile business, including Motorola, but it appears to be on the way to $2 billion/year in mobile search and advertising.
Facebook. Facebook’s ad sales grew faster than Google’s, showing a 36 percent improvement year over year to $1.09 billion. Facebook has a relatively small search business based on some revenue sharing with Microsoft, so it will probably maintain its number one spot in U.S. online display advertising this year. Some forecasters had been predicting that Google would take the lead, based on its ad network growth. Facebook revealed that it had over $150 million in mobile ad sales for the quarter. That figure is still only 14 percent of Facebook’s total, and much smaller than Google’s, but it relieved investors and might very well give Facebook second place in mobile ad revenue.
Yahoo. Yahoo’s display ad business was flat at $452 million. While search was up 11 percent to $414 million, that was due to guaranteed revenue from Yahoo’s search partner, Microsoft, rather than to organic growth.
Microsoft. Ad revenue from Bing, MSN, and Microsoft’s ad network business was up 15 percent to $655 million. Microsoft said search was up, but display ads down across the board.
The other big U.S. online advertising player, Aol, will report its earnings next week. Aol had over $335 million in ad revenue in the second quarter, with its ad network business growing twice as fast as sales on its own properties, and search (via Google) slightly down.
Earlier this month, the Interactive Advertising Bureau released its 2012 first-half report, showing overall U.S. growth at 14 percent. That’s healthy compared to most traditional media categories, but slowing versus last year. According to the IAB, search still dominated, but mobile and digital video were each worth over $1 billion in first-half sales.
Search and free online classifieds decimated the newspaper business, but I would not expect online video and display advertising to gut the television industry anytime soon. TV is still best at delivering emotional messages to big audiences. The TV industry is likely to add targeting techniques learned online to multi-channel campaign selling sooner than online delivers mass-reach video. And much of the recent action in online advertising is in ad networks and real-time bidding. Those technologies better suit direct marketing, though they offer some efficiency in brand ad-buying.
Mobile advertising still feels like search right now, although Facebook is mixing some social flavoring with its direct-marketing mobile ads. Brand advertisers are still figuring out what to do with social media, whether it’s mobile or web-based. To-date, ads on social media have proven only modestly effective for direct marketing, and proponents believe branding is the true promise for the medium. Quite a bit of brand advertising spending depends on buyers measuring the efficiency of their buying, based on assumptions proven years ago on television. Testing for branding effectiveness achieved via TV and print is costly.
Social media could not only provide a vehicle for harnessing an audience’s social connections, but also a relatively cheaper way to test results by measuring interest and incorporating CRM data. Ad sellers who can put together programs for delivering and measuring that combination will make lots of money in years to come.