Google, Facebook combined for 50% of mobile ad revenues in 2014

Facebook's quick rise in mobile ad revenue has left the impression that it is crushing Google. Not quite; Google still holds the lead.

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Now that the 2014 public company earnings announcement season has begun to wind down, let's take a look at mobile advertising, especially Google and Facebook's results and forecasts. Mobile advertising is a hot market, growing at better than 50% year-over-year, according to eMarketer. This holiday season, B2C enterprises took notice of conversions of consumers' Google mobile searches for retail items to confirming ads with the nearest in-stock locations, winning sales and store traffic for retailers like REI and Macy's.

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Facebook's breathtaking execution of its mobile-first campaign got noticed too, scoring revenues of over $7 billion in 2014, an impressive rise from $0 in 2011. All the press coverage of this growth left the impression that Facebook is crushing Google.

Not quite. Google has captured the largest part of the mobile advertising business by building on its legacy web advertising. Together, both companies dominate the industry, with 50% of the entire industry's mobile ad revenues.

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Mobile ads on Google and Facebook couldn't be more different – apples and oranges, at least for now. The two companies don't really compete. When selling its ads, Facebook leads with advertising in its legacy newsfeed, claiming high accuracy because of the intimate knowledge it gains through its users' data. Google leads with mobile search. Indeed, these are two very different approaches.

Google advertisers understand the mobile user's intent – the winners of Google's mobile Adwords auctions get to convert the search when the user clicks. Mobile ads that capture user intent through search terms are very similar to the web ads Google introduced in 2000. Lacking search, Facebook can't give its advertisers a hint about a user's intent, but its advertisers can choose to whom ads will be shown based on all the self-reported user information contributed in profiles, newsfeed engagement, and users' relationships with others.  

However, both ad types do compete for the best return on investment (ROI). An ROI based on advertising cost and rate of conversion for each campaign delineates the best ad type on a case-by-case basis to sell a product or evoke a desired conversion, such as click to register for a newsletter.

That's an over-simplification, especially considering that both companies have variations on these ad types, such as deep linking that lets a user click directly through to a specific point in a mobile app. A Facebook user could click through a newsfeed ad directly into the Kayak mobile app to purchase an advertised flight special. Similarly, a Google search for restaurants could let the user click through an ad and book a reservation using the Open Table app.

The companies don't release specifics about where they do compete. Facebook releases more financial information about mobile advertising than Google, but neither breaks out their mobile ad networks that compete. Mobile app developers can sign on with either company to be paid when third-party ads are displayed within their mobile apps. Google and Facebook essentially compete for the inventory of virtual billboard space within apps that they in turn sell to advertisers. Google and Facebook advertisers also differ in how they target users. Advertisers on Google's mobile ad network use demographic and interest data associated with anonymous identifiers, the Advertising ID for Android and IDFA for iOS. Facebook uses its audience network. Both abstract an advertiser's concept of an audience persona and scale it to apply to a matching large segment of the mobile audience.

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Where Google has a big advantage is with analytics of advertising results. Google Analytics has a 50% market share in legacy web traffic measurement. Its position in mobile advertising measurement is even stronger. It has virtually a monopoly on Android devices and holds second place to recent Yahoo acquisition Flurry on Apple iOS, according to VentureBeat.  

The mobile explosion has accommodated Google and Facebook's ambitious revenue growth plans. Every new door that a Facebook advertising sales person opens, a Google sales person has already walked through. Facebook couldn't have scaled its advertising business by directly competing with Google with something slightly better. User-contributed profile data and user interactions in newsfeed posts give Facebook advertisers a more intimate and predictable sense of how to reach them with ads that produce measurable results. Without a dominant mobile search engine, Facebook won't compete with Google, and without a dominant mobile social network, Google won't compete directly with Facebook, except for campaign budget money and in-app advertising space.

Copyright © 2015 IDG Communications, Inc.

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