Can Facebook Ever Match Google’s Marketing Muscle?

Facebook (NASDAQ: FB  ) recently demonstrated its renewed focus on SMBs, or small and medium businesses, at the kickoff event for the Facebook Fit tour in New York City. The social media giant talked about how it has been ramping up its advertising services and tools that mainly target SMBs, as well as large corporations.

Facebook as a threat to Google
Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) remains the undisputed leader in online advertising, owning about 32% of the digital advertising market. Google generates more ad revenue than any other company, and finished fiscal 2013 with more than $51 billion in ad revenue, compared to Facebook's $2 billion.

Facebook, however, is increasingly emerging as a growing threat to Google, mainly because of its powerful mobile platform. Facebook has more than 30 million small businesses with active pages. More than 19 million of these businesses manage their activity via mobile.

Attractive new tools
Facebook announced several new ad tools during the event, including Lookalike Audiences. Lookalike Audiences refers to the ability of an SMB to upload customer sets, which Facebook would then use to find a larger audience with similar characteristics.

Meanwhile, Facebook has borrowed a few plays from Google. Its self-service ad tool is, in effect, a knock-off of Google's Adwords. Facebook is, at the end of the day, an ad company, and its business model bears a striking resemblance to Google's. Both companies get the bulk of their revenue from ads.

However, certain products or services cannot easily translate across the two platforms. For instance, Google dominates paid search, while Facebook does not have a product that can compete directly with this. Facebook, on the other hand, dominates social media advertising, while Google has barely managed to scratch the surface with Google+.

Advertising as a Percentage of Revenue

Year

Google

Facebook

2011

96%

83%

2012

95%

84%

2013

91%

91%

Source: Google 10-Ks, Facebook 10-Ks

Google's display network is much bigger than Facebook's, hence its much higher revenue. Facebook's ad revenue, however, has been growing at a much faster clip than Google's. Facebook saw its ad revenue grow 257% from 2010-2013, compared to 79% for Google, over a similar period.

Mobile share
Facebook touted its mobile capabilities during the event, as well as an app called Page Manager, which allows customers to track engagement and launch campaigns from their mobile devices.

When it comes to mobile ad revenue, the story is pretty much the same for the two companies, with Google dominating the mobile advertising market and Facebook playing second fiddle. But, to its credit, Facebook has managed to close that gap considerably since 2012.

Source: eMarketer

Internet advertising grew 13% between 2012-2013, from $104 billion to $117.6 billion. Mobile advertising, however, grew at a much faster clip -- 50% last year. Mobile ad revenue currently accounts for just 11% of total online ad revenue, leaving plenty of room for growth, while desktop advertising accounts for the other 89% of online ad revenue.

Looking at the business models of Google and Facebook, it's quite clear that the two companies are targeting a similar audience with similar products. So, it's only natural to ponder whether Facebook has the potential to ever become as dominant as Google in online advertising.

Facebook has natural limitations
Facebook faces a special dilemma regarding placing ads on its pages. The company must perform a delicate balancing act between delivering value for clients (marketers) without making fans angry by shoving too many ads in their faces. It's ironic that Facebook's bread and butter is online advertising, yet people don't specifically go to Facebook looking for ads. In fact, ads on Facebook are viewed by many people as an antisocial offering on the social platform.

In contrast, Google, has free rein regarding ads. The search giant displays ads to users in direct response to specific words that appear in their search queries. 

Nate Elliott, a Forrester researcher, wrote an open letter to Mark Zuckerberg lambasting Facebook for failing marketers. According to Elliott, Facebook shows each brand post to just 16% of its users, despite spewing billions of ads on a daily basis. To make matters worse, fewer than 15% of those ads leverage Facebook's huge cache of social data in a bid to target the most relevant audiences.

Source: Forrester Research

From an investor's perspective
Facebook is growing its ad revenue, and its top line, much faster than Google, which is what really matters for investors. Although the social platform may not have the potential to become as dominant as Google in online advertising, it, nevertheless, has plenty of room to run, making it a good investment.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Read/Post Comments (0) | Recommend This Article (1)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2991095, ~/Articles/ArticleHandler.aspx, 12/21/2014 11:07:52 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement