Quarterly results from Alphabet Inc and Facebook Inc provided fresh evidence this week that the digital advertising market is effectively a duopoly, a dynamic with deep implications for two of Silicon Valley's titans.
Alphabet, the owner of Google and YouTube, and Facebook, the world's largest social network, each produced billions in profits during the most recent quarter and enjoyed steep revenue increases, while smaller rivals such as Snap Inc and Twitter Inc struggle to maintain growth and reduce losses.
This year, the Big Two in internet advertising are expected to take half of all revenue worldwide, and more than 60 per cent in the United States, according to research firm eMarketer.
In the US market, no other digital ad platform has market share above 5 per cent. Google suffered a minor blip in earnings due to higher payments to mobile carriers and others for search traffic. But efforts by Verizon and other network operators to compete for mobile ad dollars have had little impact thus far.
Independent advertising technology companies such as Rubicon Project and Rocket Fuel have also found it tough to compete. Advertisers are flocking to Facebook and Google because they reach billions of people and have a wealth of data that can be deployed for targeted marketing.
Their growing dominance, however, raises questions about how they will use their billions in profits to maintain growth when the advertising market as a whole is expanding only modestly.
"Digital advertising will soon be approaching a point of saturation, indicating that there are limits to growth which may not be fully accounted for by the investment community," Brian Wieser, senior analyst at Pivotal Research, said in a client note this week.
The advent of a duopoly is also spurring concerns about monopolistic practices. Google this month set aside $2.7 billion to pay a record European Union antitrust fine for favoring its shopping service in search results, and it faces two additional investigations in Europe.
Facebook declined to comment on Friday. In the past, the company has rejected the idea that it is part of a duopoly, saying that it competes against more than just digital platforms and has less than 5 per cent of the overall advertising market. Alphabet did not reply to requests for comment.
Video is one market that Facebook and Google both view as a crucial new frontier. With huge investments planned, the companies are preparing to do to the television advertising business what they have long since done to traditional print advertising: namely, take much of it for themselves.
