When it comes to digital advertising, Facebook (NASDAQ: FB) and Google (NASDAQ: GOOG) (NASDAQ: GOOGL) -- otherwise known as Alphabet -- are head and shoulders above the rest. Advertising has been, and continues to be, the driving force behind the stellar financial performance of both Facebook and Google. As is par for the course, 90% of Google's $17.7 billion in revenue last quarter was derived from ads. The reliance on digital ads is even greater for Facebook.
Facebook had a record-breaking quarter in the second quarter, breaking the vaunted $4 billion in revenue threshold for the first time. Similar to Google, Facebook can thank its world-beating ability to target ads to the right person at the right time for reeling in more than 2 million marketing partners. In fact, Facebook is so good at enticing advertisers that a full 95% of last quarter's revenue came from selling spots, video and otherwise.
But what if Internet users incorporated ad-blocking technologies to circumvent digital advertising altogether? Turns out, they are and in record numbers -- and the pace of ad-blocking technology adoption is gaining steam.
Statistically sound data is hard to come by when measuring users that employ ad-blocking techniques. However, regardless of the firm conducting ad-blocking research, the results are similar: The number of consumers who have apparently had enough of online ads is growing at a tremendous rate.
According to data from PageFair, in June 2014 there were 144 million Internet users across the globe actively using ad-blocking technology monthly, equal to about 4.9% of the world's online population. What makes that figure even more telling is June 2014's ad-blocking survey results were a nearly 70% increase from the prior year. And the trend continued into 2015.
By June of this year, there were just shy of 200 million ad blockers worldwide, or 6% of all Internet aficionados. The news gets worse for Facebook, Google, and other digital advertisers that derive a significant portion of ad sales from the states. As per eMarketer, U.S. digital ad spend will total nearly $59 billion this year, almost twice that of second-place China's $31 billion. We are also the world leader in utilizing ad-blocking solutions, according to a study conducted by Oxford University.
By February of this year, a whopping 41% of desktop users in the U.S. blocked ads. Interestingly, "only" 11% of mobile phones used the technology, and even fewer tablet users, at just 7%. Combined, it was estimated that between 10% and 15% of all U.S. Internet surfers, regardless of device, skip digital ads. Though not quite at the same levels as the U.S., similar ad-blocking data applies to Europe as well. Not exactly a pretty picture for the digital advertising futures of Facebook and Google.
What to do, what to do
Among the marketing community -- the folks Facebook and Google rely on for the majority of their revenue -- ad blocking isn't overly concerning, yet. But it is on the radar of many advertisers. About 45% of U.S. ad agencies said ad blocking isn't a worry at all, though 46% surveyed were "somewhat" concerned and the remaining 9% considered it a major problem.
It's awfully early in the ad-blocking game for Facebook or Google to alter their respective strategies. Focusing on high-priced video spots, as Google is doing with its fast-growing YouTube property as Facebook rolls them out across its site and now Instagram, should keep both digital ad behemoths growing for the foreseeable future.
But Facebook and Google became industry leaders in part by planning for next year and beyond. Google's far-flung efforts including self-driving cars and nanotechnology are perfect examples of looking well into the future, just as Facebook's Oculus Rift virtual reality plans go well beyond gaming. Both Facebook and Google are also taking steps to get the rest of the world connected using their respective solar-powered drones, which will help to mitigate the growing number of ad blockers in technologically advanced countries like the U.S. and across Europe.
The digital advertising sky is not falling for either Facebook or Google, but recognizing today what could become a concern tomorrow and actively taking steps to mitigate the impact of the ad-blocking trend will separate the haves from the have-nots.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Google (A and C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.