Universal access to the internet through smartphones, tablets and computers has driven the success of numerous companies. Most notably, Google (GOOG) and Facebook (FB) have witnessed staggering growth as a result of technological innovation.
Consumers are largely familiar with Google as the dominant search engine platform. However, Google operates in multiple verticals consisting of mobile operating systems, hardware, video technology, and social media. Facebook’s ascension came as a result of widespread use of its social media platform. Connecting families, friends and colleagues through an easily-navigable website was innovative at the time. But in addition to conquering social media, Facebook’s business ventures consist of the acquisitions of Instagram, WhatsApp, and Oculus VR, to name a few.
The continued success of both Google and Facebook can be credited to their entry into new markets. While web-based search and social media brought both company's success, it is the advertising services offered by Google and Facebook that drive continued revenue growth. With massive audiences, Google AdWords and Facebook Ads both operate through pay-per-click advertising channels. Likewise, mobile advertising has an increasing role in the advertising efforts of both companies. Although the difference between the two advertising services may be apparent, quantifying the maximum return on investment is difficult. (For more, see: How Facebook, Twitter, Social Media Make Money From You.)
Google AdWords & AdSense
Generating over 90% of revenue in any given year, advertising fuels Google’s expansion. Google AdWords is an online advertising service that allows companies to leverage new audiences. Companies bid on the placement of an advertisement and keywords that trigger company websites. AdWords primarily focuses on keywords that users type into search. Searches with keywords will trigger advertisements within the web page. Through efficient search engine optimization and Google AdWords, companies can seamlessly attract website traffic.
Operating on a cost-per-click basis, companies are only charged when their ad has been clicked. Similarly, Google AdSense offers ad placement within blogs and websites. Companies that display ads with AdSense generate income from Google’s revenue share program. A publisher receives 68% of revenue from content ads and 51% from search ads. Like AdWords, the ad inventory from AdSense is sold on a cost-per-click basis. (For more, see: How Does Google Make Its Money?)
Like Google, Facebook earns revenue from advertisements sold to companies. In fact, a majority of Facebook’s revenue is generated from website and mobile advertising. In contrast to AdWords, Facebook Ads target user profiles. Advertisers can use information like age, gender, and geographic location to target an audience network. Furthermore, user “Likes” will generate the appearance of ads like keywords on Google AdWords.
Due to the nature of Facebook’s website, the average session tends to last much longer than a typical Google search. As a result, user information collected from Facebook offers a better representation of an individual’s consumer habits. Advertisers use this to target audiences more likely to purchase their company's goods or services.
Over the past 10 years, the expansion of mobile technology has transformed the consumer landscape. From the inception of the smartphone and later the tablet, mobile advertising has become the primary focus for companies and advertisers. Currently, mobile advertising is broken down into a two-company race. Google currently controls 49.3% of mobile ad revenue worldwide with Facebook closing the gap at 17.6%.
Recently, Facebook launched its mobile ad platform Audience Network. Audience Network extends ad campaigns beyond Facebook and onto third party mobile apps. Audience network pushes marketing goals, in particular driving app installments and engagement. As an additional platform, Audience Network allows Facebook to leverage personal data to advertisers without cluttering its own website. Similarly, Google’s acquisition of AdMob in 2010 brings an in-house mobile advertising system that drives in-app purchases and cross promotion to 650,000 apps. (For more, see: How The Internet Web Ad Industry Works.)
Market Share & Financials
On the surface, measuring the success of business verticals can be observed through market share and revenue. Under these criteria, Google remains the dominant leader in web and mobile advertising. In 2013, advertising accounted for $50.5 billion in revenue and roughly 91% of total revenue. Of the $50.5 billion, mobile advertising generated $8.85 billion.
Like Google, a majority of Facebook’s 2013 revenue was generated from advertising. Revenue from advertising accounted for $7 billion of Facebook’s total revenue. As 89% of total revenue, Facebook’s 55% year-over-year growth can be attributed to the expansion of advertising, in particular mobile ads. Due to the volume with which Google operates, it is not surprising Google's market share of U.S. mobile advertising is 37.2% with Facebook controlling just 17.6%. (For more, see: Baidu Versus Google: Who Will Win The Global Search War?)
The Bottom Line
As technological innovation influences how companies operate, advertising will continue to generate a large portion of revenue for companies like Google and Facebook.
Google’s advertising targets audiences based on search keywords. A single search containing a keyword can trigger a number of on screen advertisements. Google offers ad placement within Google and other websites through Google AdWords and AdSense. Conversely, Facebook’s ads target audiences based on user profiles and personal information. Age, gender, demographic and “Likes” dictate which advertisements users see. With this information, marketers curtail advertisements to those most likely to visit their company website. However, Google’s services are not limited to search-based advertisements. Google+ serves as the company's social media platform and another means for advertisers to reach target audiences.
Both Google and Facebook continue to grow and adapt to mobile technology. Mobile advertisements are the most promising form of advertising, with large year over year growth. Google and Facebook’s mobile ad presence focuses on third party and on-board advertisements with measurable results in mobile app installments and engagements. Due to the large web presence and traffic of each website, Google and Facebook are generally believed to be the best platforms for advertisers to reach their target audiences.