Quarterly earnings for Google, Facebook reflect growing dominance in digital ad market

Google and Facebook reported surging revenue growth in their second quarter earnings reports this week, due in part to their impressive hold on the digital advertising market.

And some analysts say that advertisers are clamoring for an alternative to the two giant Internet platforms who dominate the industry.

Google is expected to command nearly 41 percent of the $83 billion Internet advertising market in the United States this year, according to estimates by the research firm eMarketer. Facebook will claim just under half of that, about 20 percent.

Having two companies hold so much market share leaves advertisers vulnerable to whatever price those two firms want to set, said Justin Kennedy, chief operating officer of the ad tech firm Sonobi.

He also added that relying on Google and Facebook means it's harder to control where your ads appear - something that several advertisers grappled with earlier this year when ads were displayed alongside violent and extremist content on Google's YouTube without their knowledge.

During its second quarter earnings report, Google's parent company, Alphabet, said this week that it earned $23 billion in revenue, up 21 percent from last year, mainly from robust growth from YouTube and mobile searches. But even as the company earned more clicks on its advertisements, up 52 percent from last year, Google took in less money for each click, down 23 percent from 2016.

Facebook, meanwhile, reported more than $9 billion in advertising revenue for the second quarter, up 47 percent from the same time last year. But the company told investors that advertising growth is expected to slow, since the number of ads appearing on the Facebook News Feed can't keep climbing. The social network's emphasis on showcasing videos will also slow ad growth, the company said, because compared with the News Feed, they offer fewer opportunities to display advertisements.

Other experts have suggested that Facebook and Google are nearing a ceiling in their power in the ad market. Brian Wieser, an analyst with Pivotal Research, said in a note to clients this month that there are companies that could challenge Google and Facebook. Wieser pointed to Verizon's new Oath division, which includes AOL and Yahoo media properties, as a potential alternative to the twin powers of Google and Facebook. As both a major Internet provider and a colossal source of Web traffic, Verizon could develop a targeted advertising strategy.

"In general we think there is room for that dominance to fade away," said Martin Utreras, vice president of forecasting at research firm eMarketer. While consumers have shifted to away from desktops and onto their smartphones, leading to strong growth rates, the mobile market won't see another massive migration of customers to sustain that growth, he said. "And when you are looking at ad loads, there is always a limit that you can put in front of people before losing their effectiveness," Utreras added.

Jason Kint, chief executive of Digital Content Next, a trade organization that represents digital companies such as ESPN and The Washington Post, said the earnings reports continue to show that Facebook and Google are poised to capture the majority of the growth in the ad industry. But he said their continued dominance could be harmful to them in the long run.

"They are discovery platforms, and without a healthy news and entertainment ecosystem, ultimately their platforms become less interesting to advertisers," he said. "The discussion in the industry is happening, where you are hearing advertisers are driving the discussion, and they want their ads to run on quality environments, rather than social media platforms."

Alphabet and Facebook didn't immediately respond to a request for comment.