Additionally, Privacy and Business Model changes have changed the dynamics of the global advertising industry in the recent past
2018 has been a transitional year for traditional online advertisers due to privacy-related concerns, with EU and the U.S. either imposing or planning to impose multi-billion-dollar fines on the likes of Facebook and Google.Other traditional online advertisers have also seen growth cool-off due to a variety of issues including consumption weakness, transitions in business model and geo-political narratives.Besides Google, the companies that have seen an acceleration in growth are Twitter, Facebook and Microsoft. Twitter has benefited from its initiatives towards improving platform health like pruning bots and culling fake news with the aim of improving advertiser ROI.Facebook, despite the Cambridge Analytica scandal, claims to have access to 2.7 billion unique users. While advertisers continue to approach Facebook to benefit from the company’s massive scale, the company has also benefited from WhatsApp's reach as well as from commerce capabilities on Instagram.Microsoft has been steadily growing its advertising income, as the integration of its different platforms now provides the company with additional analytics ammunition, especially in LinkedIn and Bing.
Google's advertising revenue growth will be muted compared to historical trends, but will remain strong
Google ad revenues
% change in Google ad revenues
While Google has been able to sustain revenue growth in excess of 20% over the last couple of years, we believe going forward, growth could slow down due to:
- Product changes: In its recent Q1 earnings call, Google called out weakness in YouTube clicks due to product changes in response to stricter privacy regulations globally.
- Loss of budget: We note that Amazon has witnessed strong growth in its advertising business on the back of its capability to convert search into actual product fulfillment. This has led to many advertisers shifting their budgets away from traditional search advertising to Amazon.