Call it hype, call it wishful thinking or call it a pipe dream, but there was actually quite a big meme on techno blogs and among internet industry observers that at some point, social media websites like Twitter and Facebook will replace Google in terms of advertising dominance. The thinking was that social networks due to the huge amount of page views they generate will draw advertisers away from search-based ads. It looks like that is not happening. Even though the number of Facebook users has exceeded the number of Google users, the tipping point for advertising has yet to come.
Looking beyond the hype, this makes perfect sense. People who were predicting an advertiser shift to social media missed the point that the global advertising pie is not a zero sum game. It is not just one pie that is being split up. It is split up in such a way that if one participant gets a larger piece, other competitors get a smaller piece. It just does not work that way. The truth is the pie is segmented not just on its face into how many parts it could be cut, but also in its depth. It is really not just one giant pie, but several pies stacked on top of each other. When analyzed this way, the zero sum game analysis frankly fails. When analyzed from a qualitative perspective, the ad views coming from a social network site has a different value from ad views coming up after a search query.
While search queries are very targeted and focused on a particular topic that the searcher is looking for, social ads are incidental factors that just target some broad demographic features of the person viewing the page, but it is not as targeted situationally as a search ad. Think of it this way. When you are doing a search for shoes, for example, you are obviously looking for a type of shoe. Your chances of looking to buy that particular shoe are higher than if you were just talking to your friends at a website and an ad for a shoe shows on the right side bar. Considering Facebook’s static design, many people develop banner blindness. That is one factor that depresses the value of social ads. Another is just the plain fact that you go to Facebook particularly to network with people. You are not really looking there to look for a particular topic category. That is the supreme advantage of Google’s search ads have. That sense of specificity and proximity to a buying impulse or a buying decision is hard to beat.
While there are more Facebook users, there are other numbers to consider. The total number of Google ads that got clicked increased 100% faster than their increase in revenue. This translates to a 42% surge year over year. What does this surge represent? This shows that people are not shifting away from search advertising. The search volume is there. The interest is there. This is the type of information that advertisers need in determining which platform they are going to invest in. While Google’s click volume went up, the cost per click fell down. The value per click at Google dropped 16% over last year’s figures. This can be worrisome for some Google observers and investors because it shows that the trend towards cheaper and cheaper clicks is accelerating. In the previous quarter, it was only 12% decrease. Be that as it may, it may have been offset by the large number of volume of clicks. Moreover, this decrease in click value is probably not because of the competition posts by Facebook.
Some observers are saying that per click cost decline trend is due to the fact that more and more people are accessing the internet through mobile devices. This is the fastest growing segment of hardware devices that people use to access the internet. This site of the market is growing much faster than the ads shown via the desktop PCs. You have to factor in the fact that mobile ads cost a fraction of ads served over desktop devices. This is what explains the quirky phenomenon of more Google ad clicks but less ad value. Considering the offset involved, Google is still coming out ahead.
Where does this all leave Facebook? Facebook has the page views. That is indisputable. The problem is that an increasingly large part of its user base is using mobile devices and Facebook’s ad performance on mobile devices is almost nonexistent currently. It is just that the sponsored news stories are untested. If Facebook is able to pull it off and that it is able to monetize its mobile presence, it is still not out of hot water. Why? Mobile ads are cheaper. Sure it can monetize its mobile presence as more and more of its users move to a mobile only access, but this might translate to a lower bottom line overall. It still needs to solve this major puzzle and come up with ads that engage its users enough to translate to high-value clicks.
The game is far from over for Facebook. In fact, it is operating with a lot of advantages. It has a massive traffic advantage and a very viral platform. The question is whether it will accelerate its efforts in monetizing its massive page views or squander it. There is no ad competition between search and social as we have mentioned above. They are two totally different niches within the same pie. Still, Facebook has to take care of its business for it to help grow the size of the global advertising pie. It is not a zero sum game as many Google or Facebook detractors say. Both can still grow and both can still have a major piece of a fast-growing pie. They have their work cut out for them because both companies face major challenges when it comes to advertising revenues.