Will Google Always Dominate Search Advertising?

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A search-related alliance between Microsoft (NASDAQ: MSFT  ) and Yahoo! (NASDAQ: YHOO  ) was established in 2009. The relationship has been a little rocky over the years, to say the least. Last year, Yahoo! CEO Marissa Mayer felt the partnership wasn't producing enough (financially) for her company. There was also a lawsuit to delay the transition to Bing Ads technology in Taiwan and Hong Kong. This year, however, she changed tune, saying that: "We like the Microsoft relationship. It's worked well for us. We're eager to start this new era with Microsoft." 

In last year's lawsuit, Mayer and Co. apparently questioned the level of commitment that would be exerted when Steve Ballmer left. Now that Satya Nadella is Microsoft's CEO, this probably eases the uncertainty, as he ran Bing's engineering team. 

The effects of partnering-up
The benefits of the partnership for Yahoo! are questionable, as Bing has essentially gained market share at the expense of its partner, and not Google (NASDAQ: GOOGL  ) . Yahoo!'s underlying search technology is provided by Bing, which also helps power the joint advertising platform that competes with Google AdSense.

Besides indicating that the Microsoft partnership was still intact, Mayer also reiterated that Yahoo! was "long on search." It seems her company is still attempting to discern itself from Bing and Google, after signing a deal with Yelp to provide better local results.

In February of last year, Yahoo! announced an advertising partnership with Google as well, but for non-exclusive, contextual ads that will appear throughout its properties and certain co-branded sites. Its exclusive deal with Microsoft, which includes algorithmic and paid search plus the contextual advertising network it opened in partnership with Bing and, won't expire until 2019, however.

The Google deal will utilize AdSense for content ads and AdMob for mobile ones. This brings us to Google's continued dominance. 

Any serious competitors?
AdSense is, by far, the gold standard in online advertising, complimenting Google's 67% market share in search. Bing, for comparison, owns around 18% of the search market, with Yahoo! at 10.8% as of December 2013. The Yahoo! Bing Network Contextual Ads program seems to be more of a Frankenstein alternative than a serious competitor to AdSense. This doesn't necessarily mean Google won't ever have any serious competitors, however.

Looking to launch its own ad network, Facebook (NASDAQ: FB  )  is coming for Google's crown. This could be a very legitimate threat, one that would cause direct competition with AdSense in mobile. Facebook, with over 1.2 billion users globally, is specifically targeting the fast-growing mobile ad space, which is projected to be worth almost $42 billion by 2017. Roughly 30% of Facebook users are on mobile.

With such a large user base, and more importantly, a large user base that it knows well, Facebook is one of the few companies that might be able to steal away significant share from Google. Facebook has a big edge -- it knows pretty much everything about its users, from relationship status to "likes" and interests.

This in-depth knowledge will be priceless in assisting the advertising network in targeting the right ads. It will also theoretically generate higher clicks on ads, as well as higher payouts for everyone from the publisher to the network itself. 

The bottom line
Facebook tried to launch its own ad network before, but failed. This time will probably be different. After acquiring Atlas from Microsoft in 2013, Facebook now has stronger technology to help it further monetize its treasure trove of user data. Right now, the company is running small tests, but the implications are huge. The key for Facebook now is finding a way to successfully develop its own ad network. It would provide a new lucrative revenue stream to help the company diversify outside of just its own sites. If it can pull this off, it could also be a big source of growth that will likely come at Google's expense, especially in mobile advertising.

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Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2014, at 8:43 PM, GaryDMN wrote:

    Is Netscape the only browser? It sure seemed like it would be back in 2000. Google's profits come from advertising, everything else is basically PR. Google has seen their cost per click prices drop for 8 straight quarters and they have very serious trust issues. For Facebook, twitter, Yahoo and dozens of other ad competitors to win, Google has to lose ad business. Google is also excluded from the fastest growing market, China and other countries are having real privacy issues with Google. Then there are all the patent infringement lawsuits, that they are not winning, on a regular basis. Google insiders are selling billion of dollars a month in Google stock, every month. The press and analysts continue to pump them up, so I'd expect to see the dump to happen soon, leaving all the investors the press and analysts duped, holding the bag.

  • Report this Comment On February 14, 2014, at 2:18 AM, rb0918 wrote:

    Confused and weak article on the topic. There are too many issues to address sufficiently in a comment section. An underlying problem with the article is confusion around contextual advertising and paid search advertising as different advertising marketplaces for G, Bing, and Y. The article seems to be mostly focusing on the contextual ad space and not paid search; yet has a title implying it is about paid search. It is also confusing to state paid search traffic % numbers and in the next line reference the Y/Bing Contextual Ad Network which has practically nothing to do with ads on paid search traffic. FB is a real threat to the G contextual ad network due to the amount of user data they can leverage to provide latent advertising on mobile. As more and more user time is allocated to mobile related ad scenarios instead of a search box, and FB can better leverage their user data to provide measurably better ROI for advertisers; FB does become a greater threat to the G paid search business.

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I tend to focus more on value than growth, but stocks that tie in both are my favorites. I really like dividends, too. Follow me on Twitter @JosephHarry87 or stop by for more investing ideas.

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