2019 is shaping up to be a pivotal year in digital advertising.
Google and Facebook – who between them have taken some 90% of the growth in the industry over the last three years – are facing serious questions about their intrusive tracking technology and lack of transparency into political advertising from overseas actors. Legislators in both Europe and the USA are finally holding hearings that will continue into the new year, with some already suggesting that both companies are essentially monopolies and should be broken up.
Whatever happens, this focus on the duopoly is likely to weaken their hold on the digital advertising marketplace. This is especially true of Google given their domination of so many elements of the advertising supply chain, effectively acting as a market-maker, a stock exchange, a stock and an investor all at the same time. The conflicts of interest built into their model are so numerous, and the opportunities for rent-seeking are so massive, that they are an obvious target for anyone interested in promoting greater competition.
This negative attention on Google and Facebook is good for performance marketers.
Affiliate marketing’s pitch to advertisers is essentially simple: it is better to pay for your advertising further down the buying funnel because risk is reduced. Pay on a CPA or CPS basis and you no longer need to worry about click-through rates, or ad visibility, or programmatic fraud, or increased competition on search, or whatever.
It’s a good pitch, though of course many advertisers don’t limit themselves to solely running performance-based campaigns. Instead they use affiliates and affiliate networks to extend their reach and provide scale that they can’t find through AdWords or paid social. But what happens as the Google/Facebook channels become less trusted? Or if legislators show that Google is running arbitrage to their own benefit across their various advertising marketplaces? Or if someone finally reveals what’s behind the curtain in Facebook’s metrics and advertising rates?
The answer is that marketers will suddenly find themselves wanting alternatives that they can trust. And when the market incumbents generate well over $100 billion of ad revenue each year between them, even a mild trend away from the duopoly could mean big gains for advertising solution providers with a proven product. That means performance marketing networks
As a new report from Damien Gerardin and Dimitrios Katsifis makes clear, Google especially is vulnerable to future legislation seeking to promote greater competition in online advertising. We will write more about this in future, but the attached figure illustrates what the EU is already looking at: because Google controls both the AdWords marketplace and AdX, they can arbitrage the difference in second-price auctions. On its own this could account for ten of milions of dollars of Google’s ad revenues, while not adding any efficiency to the market at all. This is the kind of rent-seeking (i.e. taking a profit on market activity while not providing any additional value) that anti-monopoly theory is designed to address.
The bottom line is that Facebook and Google are going to be playing defense for the next two or three years. Performance marketers on the other hand have a proven, trusted product that is less vulnerable to fraud than any other part of the digital advertising industry. We should enter 2019 with optimism and a spring in our step.