For businesses looking for success on the Internet, online advertising acts as both the sign on the highway and the front door. It’s what brings the customers in. Although such ads do not always guarantee success, without it, business can’t hope to compete with others who use digital options successfully.
Many advertising platforms offer to beat a digital path to the business door. However, only two count enough to form a duopoly that dominates the Internet: They manage to maintain their positions not out of some deep-seated sense of user loyalty but because they offer unsurpassed strengths:
Google delivers ads based on what a user is interested in at the moment. If the shopper he wants to know about cars for sale, information about those cars appear all over his browser.
Facebook targets its user by uncovering their preferences and desires through mountains of social media data. If the person likes to accessorize their vehicle, ads will show the various accessories, customizations and mods which will appear on their newsfeed.
These players don’t compete much with themselves or other online services, even though all of them go after the same advertising dollars. In some cases, they have bigger rivals to contend with. For instance, as far as video is concerned, Facebook and Google’s YouTube are up against cable and network TV, which in turn have to contend with declining ratings and fewer eyeballs as watchers cut the cable cord to save money. Fortunately, enough money flows from TV to digital advertising that both YouTube and Facebook still have room to grow.
There’s seemingly enough market out there that the two major players don’t have to interfere with each other’s strategies and expansion plans. Until you start considering advertising on third-party apps and sites, which grow more slowly but are no less lucrative. Google’s DoubleClick has long dominated this segment, but Facebook wants to catch up.
The social media site intends to make inroads by supporting header bidding on its Audience Network, which shows ads on third-party apps and sites. This technology lets a publisher run an auction for ad space and get simultaneous bids from multiple ad-buying exchanges, such as Facebook, which can then be accessed by advertisers.
Among the header-bidding technology partners that the Audience Network will support are Amazon, which is well-positioned for e-commerce ads, and AppNexus, an advertising technology firm that has already filed for an IPO. Facebook is currently focusing on mobile devices but is intending to use header bidding for video ads as well.
As with any auction, the bidder offering the highest amount gets the ad space, and so the publisher receives the most revenue for each impression. So one advantage with header bidding is that prices for ad space go higher when compared to the traditional waterfall approach of Google. This older strategy first offers the inventory on a preferred exchange. If the exchange doesn’t attract a high enough bid, the list then goes through a sequence of transactions until an adequate bid is offered.
Facebook says that Audience Network clients who have tested header bidding, including Forbes, the Washington Post, and the Daily Mail, have generated revenue increases ranging from 10 to 30 percent. The secret to this new technology is out. Last November, the AOL unit of Verizon stated that over 100 publisher partners had signed on to its header-bidding solution.
Another plus of header bidding is the greater transparency. Publishers know right away what the exchanges are offering to buy, so none of the bidders can engage in games like manipulating demand due to their place in the bidding queue.
This transparency contrasts with the waterfall process used by Google’s DoubleClick for Publishers (DFP), which is what many online publishers use to sell their advertising space. DFP is integrated with the DoubleClick ad exchange and enables Google to view all of a publisher’s inventory. Through Dynamic Allocation, DoubleClick can still place a final bid on advertising space even after a previous high waterfall bid has already been submitted. This allows the DoubleClick exchange to decide the price while picking the best inventory, which encourages advertising buyers to use it.
Because of this strategy, DoubleClick is unable to provide the higher amounts that naturally happen with a transparent and competitive auction process. According to a discussion in the trade site Ad Exchanger with Sortable, some publishers who have integrated header bidding “see Google’s share of revenue decline from 90% to just 40% to 50%.” That’s because the header bidding partners share in the additional revenue, rather than Google.
To counter the advantages of header bidding, Google announced an effort to allow third-party ad exchanges access to Dynamic Allocation. However, this process is still being tested and does not address the concerns that exchanges have about transparency and the exact cut of the ad dollar that DoubleClick is getting.
When it comes to displaying ads, Facebook has become a problem for Google. Spending for display advertising heads to social media, which has been an area of domination for Facebook, particularly through its newsfeeds and Instagram. In addition, the Audience Network allows publishers to target mobile ads based on data contained in a user’s Facebook profile.
This profile allows sophisticated targeting, even across multiple devices. For example, Facebook can analyze the user’s desktop activity to send a targeted ad to the user’s smartphone. Through the Audience Network, a user browsing Amazon pages on a desktop can receive specific e-commerce ads on the Amazon apps of his or her smartphone. This targeting is much harder to achieve through the use of cookies, which is what most Facebook competitors use in their advertising.
The Audience Network also turns newsfeed-like ads into native ads that seem to merge into the content in which they appear. This action allows for campaigns across different platforms, which leads to greater income.
Facebook revealed that as of late 2015, its Audience Network reached a revenue run rate of $1 billion, which is much higher today.
Don’t count Google out yet since it offers its set of benefits. Many top developers, especially those who focus on Android devices, rely on the company’s AdMob mobile ad network to display native ads.
Because many third-party publishers still prefer video ads, Google allows those brands to run simultaneous campaigns on both the publisher’s site and YouTube.
Google’s Accelerated Mobile Pages is a standard used by many publishers to load mobile pages almost instantly when accessed through Google Search and News. These publishers monetize their content through the DoubleClick ad exchange.
When all things are considered, it looks like Facebook currently has the advantage outside of video advertising. Its push for header bidding, ad pricing transparency, and reliance on its social media data should continue to pay off in the future.
