Google and Facebook wereÂ responsible for all the growth in
the US digital advertisingÂ market in the first half of the
year, while the rest of the industry collectively shrunk,
according to some estimates.
If you’re a company that makes its money by selling online ads,
that’s clearly a worrying stat. And the threat of
disintermediation by the Google and Facebook duopoly is a going
concern for advertising agencies too.
Sir Martin Sorrell, CEO of the world’s largest advertising agency
holding company WPP,
has long described Google as a “frenemy”. WPP will spend
at least $5 billion of its clients’ money with Google this
year â€” making it the advertising company’s biggest media
partner â€” Â yet Google is one of its biggest rivals, through
its DoubleClick ad platform and by forming direct relationships
with its clients.
However, a noteÂ from analysts at Credit Suisse claims the
Google and Facebook threat to ad agencies has been “over-stated.”
Credit Suisse spoke to experts across the industry including
marketers, auditors, consultants, agency staff, and other people
familiar of working with Google and Facebook. The conclusion of
that analysis was that agencies’ independenceÂ should
mitigate any threat of being toppled by the two digital
Google and Facebook have built huge ad tech ‘stacks’
The note credits Google with being one of the first companies to
build out an ad tech “stack,” with its acquisition of DoubleClick
in 2007, allowing advertisers to buy ads “programmatically”
online using real-time auction systems. That was followed by the
launch of the DoubleClick ad exchange in 2009; the acquisition of
the AdMob mobile ad exchange in 2010; the acquisition of
demand-side platform (DSP) Invite Media in the same year; and the
acquisition of the AdMeld supply-side platform (SSP).
Facebook, meanwhile, has grown a huge ad business on its own
generating $17 billion in ad revenue last year. It too often
worksÂ direct with advertisers, such as with retailers on its
Dynamic Product Ads format. And outside of Facebook’s own
platforms, the company has built a huge $1 billion+ business in
Facebook Audience Network, which serves Facebook ads on
third-party sites and apps.
Google and Facebook are big, but the entire ad market is huge
Credit Suisse said it received a “consistent” message from
industry experts as to why Google and Facebook are not yet
presenting an existential threat to agencies.
While Google and Facebook represent huge forces in the digital
advertising market, they still represent just 15% of spending on
advertising in total, according to Credit Suisse’s estimates.
Online, Google and Facebook accounts for 50% of digital ad
spending, which Credit Suisse says is down from 60% in 2012.
New platforms are emerging all the time, fragmenting the media
only started selling ads in the back end of 2014 and
Amazon is only just getting started when it comes to turning
its huge treasure trove of consumer shopping data into a major
The network effect of agencies is hard to compete with
Agencies are still an important sourceÂ of revenue for Google
and Facebook. Marketers may have regular meetings with both of
the companies, but media plans are still executed by media
agencies, according to Credit Suisse. And it’s the agencies that
usually help advertisers with Facebook and Google’s self-service
“Clients still rely on the agencies to make sure that spending is
allocated in the best and most efficient manner possible across
all media properties,” the Credit Suisse note says.
The advantage of working with big agency networks is that they
pool all of their client ad spend together in order to get the
best prices and access to new products and data. That’s the
network effect. And even when advertisers sign a direct deal with
Facebook or Google, the money still comes out of the pool the
client has given to the agency, according to Credit Suisse.
And, Credit Suisse points out that a number of those direct deals
haven’t been fruitful because advertisers simply don’t have the
time to make them work effectively: “In many cases, direct deals
with Google and Facebook that involve additional services or
projects have not worked out well due to limited bandwidth on the
The importance of third-party measurement
The ad industry often accuses Facebook and Google of being
“walled gardens” when it comes to their data. Yes, they work with
third-party measurement firms, but there is still no standard
metric that works across Facebook and Google when it comes to
video, for example.
Credit Suisse points out that while Facebook partners with
measurement firms like Moat, Integral Ad Science, and Nielsen,
“the metric Facebook uses to sell advertising comes only from
The Wall Street Journal reported earlier this month that ad
buyers also want more transparency into how third-party data is
collected on Google’s YouTube.
Measurement has become a hot topic in recent months, exacerbated
Facebook’s confessionÂ earlier this month that it had
been exaggerating â€” and in some cases understating â€” several
metrics across video, Instant Articles, and Pages. Facebook is
working to fix the issues and
announced big changes including the launch of a measurement
council, additional third-party verification measures, and
the launch of a blog to highlight bugs and errors as it seeks to
reassure its clients they can be confident in the data it
Such issues highlight the need for advertisers to have trusted,
independent advisers to explainÂ where they should be placing
their budgets, rather than blindly trusting media platforms
alone. It’s no coincidence that WPP has invested in Kantar and
comScore â€” with the growth in online media, measurement is
becoming an increasingly important commodity.
And while it’s true that agencies face emerging competition from
consultants â€” such as IBM, Deloitte, and Accenture, which have
invested heavily in building out digital marketing
capabilities â€” Credit Suisse doesn’t believeÂ Google and
Facebook present an existential threat just yet.
Credit Suisse’s analysts concluded: “We do not think at the
moment that Google and Facebook are seeking to or will be
successful in replacing agencies. However their scale, their
control of data and their place in parts of the value chain such
as ad networks, DSP and SSP mean that investors are still likely
to worry about this and agency multiples could continue to price
in a discount for such a structural threat.”