6 reasons why Facebook is a real threat to Google’s global ads dominance

27 Jul 2017

Facebook CEO Mark Zuckerberg. Image: Frederic Legrand – COMEO/Shutterstock

When it comes to dominating online advertising, there are only two platforms really going head-to-head. And one of them is catching up fast.

Facebook is crushing it. The company last night (26 July) revealed second-quarter sales of $9.3bn. This is up a whopping 45pc on last year when it reported revenues of $6.4bn.

The performance yielded Facebook, a company founded in a Harvard dorm in 2004, a profit of $3.8bn, up from $2.2bn a year ago.

The earnings came out the same week as Google, which reported revenues of $26bn and a profit of $3.5bn, which would have been higher if not for a pesky EU antitrust fine of $2.4bn that was levelled against it.

On the face of it, Google, a company that is about six years older than Facebook, is miles ahead in terms of revenues and, at this point, an essential part of the plumbing of the internet as we know it.

But, let’s face it, so is Facebook, which can often be thought of as an internet within the internet.

The thing is, when it comes to dominating the online advertising space, Google and Facebook are really the only two players that matter.

Facebook is making vast forays into SME business advertising and has quickly built up an impressive video advertising business – traditional bulwarks owned by Google.

In many ways, Facebook’s latest results show that the company could make more inroads into Google’s heartlands, and here’s why:

1. Facebook now has more than 2bn regular users

Facebook reported that monthly active users were just over 2bn, up 17pc on this time last year. Around 1.3bn people use its platform daily – that’s a significant chunk of the estimated 7.4bn people on the planet.

2. The social network’s video business is crushing it

Facebook is accelerating its push into video and poses a viable threat to the hegemony once enjoyed by YouTube. Revenues from video are understood to be up significantly and, just like YouTube, Facebook is expected to start attacking the traditional TV business with its own content, including scripted shows. CEO Mark Zuckerberg said that video would be a significant driver of Facebook’s business in the next two to three years.

3. Facebook’s mobile advertising business accounts for the majority of its revenues

Here’s where Google should be particularly concerned – mobile. Facebook last night revealed that mobile advertising revenue represented 87pc of overall advertising earnings, up from 84pc last year.

4. With 1.2bn users, Messenger could emerge as a major advertising platform in its own right

That’s right. Messenger has a captive audience of 1.2bn loyal users and the company is gearing up to move faster to find ways to turn the platform into a cash cow. It has to do this in a tasteful and careful way in order to keep people happy, but 1.2bn users is a tempting target. Facebook is currently testing ads within Messenger but, on an earnings call last night, Zuckerberg emphasised that it is still early days.

“So many of the questions here today have been about Messenger, and I want to make sure on these calls that we do an accurate and a full job of conveying what we’re actually thinking about as a business and what we think the outlook is going to be,” Zuckerberg said.

5. WhatsApp has more than 1bn users and Instagram has 700m users

Speaking of WhatsApp, the platform that Facebook acquired three years ago for $16bn is a mobile powerhouse in its own right. It just revealed that it has hit the 1bn daily user milestone, with around 55bn messages sent every day. Google, which has a solid email engine in Gmail, has so far failed to make significant headway of any description with its own social network Google+, despite the elegance of the technology behind it.

Facebook’s other mobile powerhouse is Instagram, which has an estimated 700m daily users. When you think about that for a second, Instagram has more users than Snapchat (166m) and Twitter (328m), and it is only growing in popularity, up from the 400m daily users more than a year ago.

6. Facebook is keeping lean

Facebook revealed that its headcount is around 20,000, vastly lower than Google’s 75,000-strong workforce, but growing fast by 43pc on last year. Facebook’s capital expenditure was $1.4bn in Q2.

At the rate Facebook is catching up, in what is essentially a two-horse race, the social network is visible on the horizon.

“We had a good second quarter and first half of the year,” said Zuckerberg.“Our community is now 2bn people and we’re focusing on bringing the world closer together.”

When it comes to rivalry between Facebook and Google, one will not eliminate the other but there could potentially be less pie to share in terms of advertising dollars. And that should be a cause for concern.

Facebook CEO Mark Zuckerberg. Image: Frederic Legrand – COMEO/Shutterstock

Updated, 10.03am, 27 July 2017: This article was update to clarify Google figures.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years