Although it’s clear that most digital ad spend flows through Facebook or Google, it’s unclear how much of that money ends up in the pockets of other players.

Recently, a few researchers have claimed that Google and Facebook are taking all of the upside in the digital ad industry’s growth, while the rest is actually shrinking. But it’s important to note that these researchers use different methodologies, which to one degree or another, favor large public companies and underestimate the long tail. Another issue is that most of these researchers only track where money starts and not where it ends up. Put simply, lots of money going to Google, and to a lesser extent Facebook, ends up in the pockets of publishers.

In this edition of “Internet Mysteries,” we examine whether Google and Facebook really are devouring all the digital ad growth.

Differing measures
The election has proven that data can be flawed. Because good data isn’t always available and there is not a clear-cut universal industry standard for tracking digital ad growth, researchers fill in the holes the best they can. With researchers having to piece together their own methodology, differing statistics come out of the analyses.

Brian Wieser, an analyst at Pivotal Research, calculated that Facebook and Google took 74.6 percent of the digital ad growth in the U.S. in 2015, and about 98 percent of the growth in the first half of 2016. Digital Content Next also found that Google and Facebook were sucking up all the ad growth in the U.S. DCN claims that aside from Google and Facebook, the rest of the industry actually shrank, on average, during the first half of 2016.

Wieser said that Pivotal’s global figures were similar to their U.S. figures. Zenith Media didn’t have statistics to share for 2016, but a Zenith spokesperson said that their numbers show Facebook and Google accounted for 81 percent of worldwide digital ad growth in 2015. Like DCN’s U.S. numbers, Magna Global’s worldwide numbers show Facebook and Google taking all the digital ad growth during the first half of 2016, while the rest of the industry, on average, shrank a few percentage points. Magna also reports that in 2016, Facebook and Google commanded 64 percent of the worldwide digital ad market combined.

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Long-tail problems
One reason these numbers differ is because they rely on different surveys to gauge the size of the digital ad market. Many researchers base their overall ad spend estimates off Interactive Advertising Bureau surveys. Although IAB surveys, undertaken by PricewaterhouseCoopers, are widely recognized within the advertising industry, they, like all surveys, cannot capture every company operating on the internet. (See voter surveys that had Hillary Clinton winning by a wide margin in Ohio.)

As mentioned in its most recent survey, PwC “applies a conservative revenue estimate based on available public sources” for companies that don’t participate. These “conservative” estimates have been a part of their methodology for more than 15 years. While cautious analysis prevents statistics from being inflated, it also skews results toward what’s publicly available. PwC declined an interview request, although a spokesperson confirmed that PwC surveys sellers and not buyers.

“The long tail is indeed very long, and there are still a ton of smaller growth pools that are likely not seen or tracked in context,” said James Douglas, executive director of social media at Mediabrands Society. A researcher added, “It’s easy to capture Facebook and Google; they report their revenue, so they can’t miss those. But the market is probably bigger than IAB reports, which may mitigate the results.”

After all, there are plenty of digital media companies growing significantly. It’s hard to square that growth with the doom and gloom often bandied about.

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Distinguishing between gross and net revenue
Another important caveat is the distinction between gross and net revenue. Research that shows Facebook and Google receive all the digital ad growth is examining gross revenue, which means it’s only tracking how money flowed through the channels.

Tracking gross revenue is relevant, even if it doesn’t tell you where the money winds up. Google and Facebook receiving all the gross revenue growth indicates that publishers are losing direct relationships with buyers, Wieser said. Even if publishers indirectly receive a portion of the spend flowing through Facebook and Google, they lose control over the deal terms as more spend is directed through the platforms, he said.

Another reason some researchers track gross rather than net revenue is because “we can create a more plausible number for gross than for net revenue,” Wieser said. “You have to make a lot of assumptions to get net.”

EMarketer is one firm that forecasts net revenue. Its research predicts that Google and Facebook will account for 57.6 percent of net revenue growth in worldwide digital advertising in 2016.

To obtain net revenue estimates, eMarketer had to balance various revenue sharing schemes across the numerous parts of Facebook and Google. Aside from publicly available numbers, eMarketer also factored in interviews with content creators and agencies to forecast how much of Google’s and Facebook’s revenues would be diverted to other parties, said Martín Utreras, eMarketer senior forecasting analyst.

“If you are looking at an app that is using Google for search to bring in ad revenue, they are getting the money there, so that money doesn’t belong to Google,” Utreras said. “That’s why we look at it from a net basis because we cannot ignore those players.”

Where does the spend go?
An enormous chunk of money sits in between eMarketer’s 58 percent net growth estimate and Pivotal’s 98 percent gross growth estimate.

“It’s not that all insertion orders just go into Facebook or Google,” said Sarah Baehr, evp of digital investment at Horizon Media. “But it seems like they are part of the buy of nearly everything when you connect the dots through the ecosystem.”

But it’s really difficult to calculate not only if the net revenue splits are correct, but also where that money is going. Just on YouTube alone, there are thousands of content-creator partners, Utreras said.

“When you try to get under the hood of any of these numbers, there is a range of quality,” Wieser said. “But if people don’t get under the hood, they just take numbers at face value too often.”

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