- Digital advertising is enormous; the $600B market is currently led by Internet giants Google, Facebook, and Yahoo.
- As advertisers look for new ad channels, they turn to promoted content and content recommendation services and manage a delicate trade-off between traditional ads and new advertising services.
- Internet giants are likely to shift focus to other evolving markets, leaving content recommendation service providers to fill in the blanks in the traditional display ads market.
The online advertising market is going through significant changes these days, where rising advertising technology companies, like Taboola and Outbrain, are challenging the traditional display advertising model. According to eMarketer, the online advertising market size worldwide will reach nearly $600B in 2015, where digital advertising will account for 29% and mobile advertising only 11% of the total advertising market, as shown in Chart 1 below. This chart highlights the incredible potential of digital and mobile advertising, which still accounts for miniature portions of the global advertising market.
Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), and Facebook (NASDAQ:FB) are, without a doubt, the leading online advertising platforms, and every advertiser knows that in order to reach a broad and concrete audience on the Web, a successful campaign must include ads on Google search, Yahoo network, Facebook, Instagram, and YouTube, to name a few examples. Selling online advertisements is a highly successful business for the leading online ads players, and it accounts for the vast majority of their revenues as shown in chart 2 below.
New Advertising Services
In many senses, Google, Yahoo, and Facebook lead the advertising market of the past. Most Internet users are saturated with banners, pop-ups, in-video ads, and promoted search phrases, and that is why advertisers are looking for new ways to attract a potential audience. It started with viral content that advertisers shared on YouTube, Facebook, Twitter, etc., and led to the development of content recommendation tools. The social news start-up BuzzFeed took viral content to the next phase, offering advertisers promoted viral content to be published and distributed by its app users and affiliate network. BuzzFeed’s simple revenue model generated substantial revenues for the company, which grew at an impressive rate of 162% year over year.
Content recommendation firms like Taboola and Outbrain took the idea of promoted viral content and improved it. These two New York–based start-ups usually place their suggestions at the bottom of a story on a website, under the titles “you might find this interesting,” “from the web,” or “you might also like,” and they usually offer a mix of marketing content, organic content, and third-party content. The revenue model for the content recommendation is a combination of the traditional cost-per-click and Buzzfeed’s promoted content. The content recommendation service splits click revenues with the partner site on which the content was presented. It allows sites, like CNN, Time, USA Today, and Washington Post, to include an internal content recommendation service for the sites’ original content and generates additional revenues from the promoted content presented side-by-side with the original content.
Leading players in the content recommendation market dominate almost 50% of the market as shown in Chart 3 below, leaving behind digital ads veterans, like Yahoo and AOL, with only 3.2% and 4.3% market share, respectively.
Content Recommendation – Traditional Display Ads Trade-Off
As advertisers look for additional advertising channels, content recommendation seems like the reasonable alternative for display ads and, according to different estimations, this channel is expected to grow from a $700M market size in 2014 to $3.4B in 2018. The incredible potential of digital advertising together with the possible content recommendation attracted traditional digital ads platforms, like Yahoo and Google, to the evolving market of content recommendation. However, advertisers and publishing sites have no incentives to use Yahoo or Google services. By using Outbrain, Taboola, or BuzzFeed, advertisers and publishing platforms can diminish the impossible power traditional online ad platforms have gained and manage the trade-off in every campaign between traditional ad platforms and content recommendation, according to the commercial value they receive from each channel.
Where Is the Content Recommendation Market Headed?
It is to the advertisers' benefit that content recommendation exists alongside the traditional advertising market. However, the current difference in market size between content recommendation and display ads is so significant that advertisers and publishing platforms will probably try to balance the two better. This trend may accelerate the efforts of Google, Facebook, and Yahoo to generate greater revenues from sources other than traditional display advertising. This change in the online advertising market does not mean that the advertising revenues of Google, Facebook, and Yahoo will drop significantly, but they will shift their advertising efforts to other areas like the AR/VR market, in-car entertainment systems market, and the development of instant messaging apps. While the Internet giants will lose market share and revenues in the traditional display ads market, content recommendation service providers will fill the gap. If Google and Yahoo could generate some revenues from their content recommendation services, it would be nice, but it is not their highest priority, nor something they will fight for.
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