It's well known that digital advertising is a megatrend fueling the growth of companies like Facebook (FB 1.09%) and Alphabet (GOOGL 1.00%) (GOOG 1.00%), the parent company of Google. IAB estimates U.S. ad spend grew nearly 22% last year. eMarketer expects the market to grow another 16% this year, reaching $83 billion.
But investors expecting to reap rewards from the trend by investing in a smaller digital advertising platform besides Facebook or Google may be missing out. An analysis of IAB's annual report by Pivotal Research shows the two advertising giants accounted for 99% of the growth in U.S. digital ad spending. Everybody else combined to just stand still.
Image source: Google.
They can't be stopped
There's really only one reason why Facebook and Google keep growing faster than the rest of the market: People keep spending more time using their sites and apps.
Facebook is a dominant force in display advertising, which accounted for 44% of U.S. digital ad spend last year, a total of $31.7 billion. That's up 29% year over year, as it accounted for a larger piece of the market than 2015. For reference, Facebook's ad revenue grew 61.7% year over year in 2016. That's more than twice as fast as the overall display ad market.
Facebook users spend an average of 50 minutes per day between Facebook, Instagram, and Messenger. And there's 1.9 billion of them. Importantly, those numbers are still growing.
Facebook's last update of 50 minutes per day was about a year ago, but it was up from 40 minutes just nine months prior. Facebook's 1.9 billion monthly active users is up 16.9% from the end of last year.
Likewise, Google is the platform to buy search advertising. Google is benefiting greatly from the growth of smartphones and the increasing size of the data buckets wireless companies offer. There's practically nothing stopping people from taking out their phone to Google something really quickly, no matter where they are, or what they're doing.
As a result, Google is benefiting from a significant increase in searches per user. And as the only game in town -- at least the only one that matters -- Google is seeing a steady increase in search ad revenue.
Google is also benefiting from the ever-growing popularity of YouTube, and its display ad network revenue continues to grow modestly.
Image source: Facebook
Even more dominant on mobile
Both Facebook and Google are even more dominant on mobile devices. As mentioned, Google is benefiting from a growth in mobile searches. In fact, mobile searches may be eating into desktop searches.
IAB estimates desktop search advertising fell 13% last year, but mobile search advertising increased 91%. Google takes about 95% of all searches on mobile, but just about 63% on desktops. As more searches shift to mobile, Google stands to gain even more share of the market.
Facebook, likewise, is the most dominant app on mobile devices. Users are spending more and more time in apps these days, reaching five hours per day in the fourth quarter last year, according to Flurry Analytics. Total time spent in apps was up 69% year over year.
The biggest contributing factor was messaging and social apps, which grew nearly fivefold in 2016. Flurry says Facebook managed to take 19% of those five hours, nearly one hour on its own. Add to that the time spent in Instagram, and it's absolutely dominating the time users spend on mobile.
These trends aren't slowing down. Mobile ads accounted for 51% of ad spend last year compared to just 35% in 2015. As more ad spending shifts to mobile, the strength of Facebook and Google will only continue to benefit, while everyone else collectively struggles to tread water.
