Alphabet Inc (NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB) have long enjoyed an extremely dominant position atop the online advertising world, but more companies than ever are hoping that a legitimate third contender emerges.
The Wall Street Journal points out that a lot is riding on those hopes:
Google and Facebook together collect nearly half of global spending. Last year, the U.S. online ad market expanded by nearly $12 billion and the two firms accounted for over 77% of that spending growth, according to eMarketer.
Advertisers are hoping for the emergence of a legitimate third player to provide competition that can give them more leverage and help keep prices in check. For ad agencies, the matter is existential: Google and Facebook have the resources to deploy entire teams to work with marketers directly, cutting out the middleman.
As the two giants get even bigger, the tougher it becomes for a third party to rise to the occasion. And when a company does look like it has a shot to challenge Google and Facebook, they’re often acquired (see Facebook buying WhatsApp and Instagram).
The most likely firms to see major ad growth in coming years are Amazon, Snapchat, AT&T, and Verizon. Amazon has just begun to scratch the surface of ads on its platform, and Snap is still only a few months removed from its recent IPO. Meanwhile, AT&T and Verizon have enormous mobile customer bases, and can perhaps offer innovative ways for advertisers to connect with consumers.
Still, it will likely take several years for a true #3 to emerge — if it ever happens at all. That just means several more years of incredible profits and pricing power for Facebook and Google.
Alphabet Inc shares rose $8.89 (+0.93%) in premarket trading Monday. Year-to-date, GOOGL has gained 20.97%, versus a 9.02% rise in the benchmark S&P 500 index during the same period.
Try StockNews.com Premium Today!
Get access to our daily newsletters, Best Stocks List, POWR Ratings, and much more!
Free for 14 days -- no credit card required!