The digital advertising market is now worth some $110 billion per year. Despite the market's ever-growing size, 60% of all digital spend still goes to just two players, Facebook and Google.
Both of these players dominate their respective spaces. Facebook controls 83% of social media ad spend, whereas Google accounts for over 80% of search spend, and 96% of streaming video spend.
What's notable about these platforms' dominance is that they haven't come organically. Facebook is so able to dominate social media spend because of its acquisition of Instagram in 2012, and Google's cross-channel dominance has come about through acquiring the likes of YouTube and DoubleClick.
All of this begs the question: what if these acquisitions didn't take place? What would the advertising world look like if it was more competitive, with more platforms vying for advertisers' budgets?
The whole is greater than the sum of its parts
In trying to answer this question of how advertising would look if it were more competitive, let's start by clarifying one point. If Facebook and Instagram were separate entities, with separate ad platforms, they almost certainly wouldn't receive 83% of all social spend today.
The idea behind the statement above is known aggregation theory, and it describes how platforms which acquire or merge with others (aggregators) come to achieve market dominance.
The argument for aggregation theory is fairly simple. It says that when ad platforms become aggregators they are able to offer broader reach and more efficient ad delivery to advertisers. Aggregator platforms are also more appealing to advertisers because, instead of having to manage and report from multiple platforms, advertisers can focus on just one platform. All these factors make aggregated platforms like Facebook & Google more appealing to advertisers.
If Facebook hadn't acquired Instagram in 2012, and advertisers had a choice between advertising on Facebook, Instagram, or both; many advertisers would choose one of the first two options. Perhaps because they don't have the resource to manage both platforms, or because the size of their target audience on one of the platforms isn't large enough for it to be worth the effort investing time in that platform.
What this means is that, in a world where Facebook & Instagram offered separate ad platforms, the combined spend of both platforms in that world would likely be far smaller than Facebook's spend in the actual world.
By offering a single platform which offers access to inventory on both Facebook & Instagram, Facebook Ads is able to capture greater market share than both Facebook & Instagram would have as independent ad platforms.
If Facebook hadn't acquired Instagram, one likely impact is that social media advertisers would be pulled less strongly to advertise on Facebook Ads. If the platform didn't have the combined reach of Facebook & Instagram, it would make alternative social platforms (Snapchat Ads, TikTok Ads etc.) relatively more appealing. As a result, the combined Facebook & Instagram share of social spend would likely be far below 83% in a world where the two didn't merge.
More people working in digital advertising
One of the impacts of a more competitive ad world which I touched on above is that more resource would be required to manage budgets. If budgets are split out across a greater variety of ad platforms, more people would be required to manage those budgets. Different channels require different specialisms, and so you'd likely see larger, more skill-diverse sets of teams working in advertising.
Whilst it's difficult to support this hypothesis with data, we can notice something interesting if we look at how the number of people in the UK working in ad agencies has changed over the last decade in comparison to growth in ad budgets. Ad agency employee numbers have grown 32% between 2007 - 2018, while digital budgets have grown 313% in the same time-frame.
I'm cautious of these numbers because digital budgets have grown at the expense of other channels in some cases, and ad agency employees may have re-trained into digital roles, but what they seem to suggest is that digital ad spend doesn't closely track the number of people working in the industry.
This is in part because of how easy it is to scale activity in a world of aggregator platforms. When one social platform (Facebook Ads) dominates social spend, if you want to scale your activity you can simply pour more into that platform. There's no need to hire more talent in order to branch out into new channels.
If ad spend was split out across a higher number of channels, then it's likely that team size would more closely track digital budgets. In a more competitive advertising world, we'd see larger digital teams, and more people working in the industry as a whole.
Higher skill differentiation
With the majority of digital budgets being consolidated on just a few platforms, it's easier than ever to run digital advertising campaigns nowadays. This is because:
- Having fewer platforms means that there an advertiser doesn't have to be proficient in as many platforms.
- Larger platforms tend to have more sophisticated delivery algorithms, which take care of a lot of the tasks that the advertiser would otherwise have to handle (targeting, testing, ad rotation et cetera).
- Running on just one or two platforms reduces the need for sophisticated cross-channel reporting. Many advertisers who run on this few platforms don't see the need for attribution beyond that which is provided by the platforms.
The point I want to get across is that it's fairly easy to run digital campaigns nowadays, or certainly a lot easier than it would be if the ad ecosystem were broken up into twice as many platforms.
The fact that it's so easy is good for SMEs that have no dedicated advertising team, or just a very small one. The ease of entry afforded by having huge aggregator platforms like Google Ads and Facebook Ads is key to ensuring that these businesses can promote themselves.
Yet for specialists working in digital advertising, having an uncompetitive ad world could be a bad thing. This is because there's a serious lack of skill differentiation between novices and experts. When platforms try to automate so much nowadays in terms of targeting, testing, ad delivery and so forth, it leaves few areas left by which experts can differentiate themselves from beginners. This can make it harder for experts to communicate the value that they bring, as large platforms continually try to make advertising accessible to all.
A boom in cross-channel ad tech
There are plenty of pieces of cross-channel ad tech out there today, that help advertisers manage activity across a number of different ad platforms. Most of what's available focuses on helping advertisers manage activity more easily, cutting down on the amount of hours taken to optimise multiple channels.
In a world with more platforms, this sort of ad tech would not only become far more popular, but it would likely push the envelope further in terms of what it allows advertisers to do.
I suspect we'd see a much larger focus in ad tech on cross-channel measurement, through more sophisticated out-of-the-box modelling tools. I also think it'd be more common for advertisers to use this sort of tech to manage cross-channel budgets. Though platforms individually are great at helping advertisers to allocate budgets to the best performing campaigns and ad sets, most advertisers don't have any sophisticated way to allocate budgets across channels.
Would more competition be good?
I think that the answer to this depends on who you are.
If you're a large advertiser, particularly one operating in a vertical with few other large advertisers, then I think a more competitive ad landscape would be good for you. This is because you can afford to build bigger teams, onboard more tech, and absorb the impact of having a more fragmented platform network better than your smaller competitors.
Given that advertising is a fundamentally competitive practice (you're always competing with others for user attention), being able to withstand this headwind better than smaller competitors would likely be a good thing for you.
If you're a smaller advertiser, particularly one in a vertical dominated by big players, then a more competitive ad landscape would likely be a bad thing. If you don't have the resource to manage a large number of different platforms, then you're likely benefitting from the relatively consolidated landscape that there exists today.
I can appreciate that there's a certain amount of irony in this conclusion; having more competition when it comes to ad platforms is likely beneficial for incumbent brands, and harms disruptors.