|Google's U.S. Ad Revenue Is Expected to Decline in 2020, eMarketer Says |
Research firm eMarketer says decline would be the first since it started tracking Google’s ad revenue in 2008
By Keach Hagey
Wall Street Journal
June 22, 2020 9:00 am ET
Google’s U.S. advertising revenue will decline this year for the first time since eMarketer began modeling it in 2008, the research firm said, largely because Google’s core search product is so reliant on the pandemic-battered travel industry.
As the world’s largest digital-advertising company, the Alphabet Inc. GOOG 0.02% unit has heretofore been a money-printing machine, expanding its overall advertising revenue at double-digit rates in nearly every year of its two-decade existence, save for the 2008-09 financial crisis, when it only grew 8%. The firm doesn’t break out its U.S. revenue, but eMarketer’s model found that even in that crisis, Google’s U.S. ad revenue grew.
What is different this time is the way the coronavirus pandemic obliterated marketing spending in some of Google search’s biggest advertisers, and the way some of these advertisers have been public about rethinking their plans to return to the platform even after the pandemic passes.
“The biggest single culprit here is the travel industry, which has been both hardest hit by the pandemic generally, and has concentrated spending on Google in the past,” said Nicole Perrin, principal analyst at eMarketer. “We have already heard statements from major travel companies, like Expedia, that normally spend billions of dollars on Google, mostly on search, that they are pulling back spending on Google and search, and that will continue for the rest of this year.”
Travel represented about 11% of search ad revenue in 2019, Needham analyst Laura Martin estimated.
Expedia Group Inc., which owns brands such as Travelocity, Orbitz and Vrbo, has historically been one of Google search’s biggest advertisers, according to data from the advertising-research company Kantar.
Big SpendersLargest ad spenders on Google search in 2019:
AmazonWalmartHome DepotWayfairExpediaBest BuyeBayconsumersadvocate.orgProgressiveBooking.comSource: Kantar
On an earnings call in May, Expedia CEO Peter Kern said the pandemic offered the company an “opportunity of an entire reset” on its traditionally search-heavy advertising spending. Expedia has warned its investors that a risk for the company is the way Google has launched travel products in recent years that compete directly with its largest advertising partners, and then uses its search function to drive users to its own products.
“As we wade back in, we’re able to be more precise, be more constrained, watch and learn and grow into it, and not just dive back in head first and spend back to the levels we were at,” he said.
EMarketer also pointed to Amazon, another big search spender, pulling back its search spending sharply as the pandemic hit as it struggled to fulfill orders.
EMarketer estimates that Google’s gross U.S. advertising revenue will decline 4%, while its net U.S. revenue—accounting for the payments it makes to website owners to acquire traffic—will drop by 5% this year.
Google declined to comment.
That is still less of a drop than for the advertising market overall, which eMarketer estimates will shrink by about 7% this year.
Despite the pandemic, digital advertising continues to steadily take share from traditional media. And the “triopoly” of Google, Facebook and Amazon is sucking up an ever-greater share of digital spending.
EMarketer estimates that digital advertising will increase its share of the overall advertising market by about 5 percentage points this year, to 60% from 55%. But in absolute terms, the pie is shrinking. The firm expects digital to grow by nearly 2%, television ad spending to decline by 15% and print to drop by 25%.
The triopoly’s share will also inch up this year, albeit at a much slower rate than before, from 62% to 62.2%. Most notable, though, is the changing face of this triopoly: Google, long the biggest player, is shrinking, while both Facebook and Amazon are growing.
While the pandemic hurt all advertising players, and eMarketer had to revise its estimates of Facebook’s performance downward like everyone else, it still expects net U.S. revenue at Facebook to grow by 5% this year to $31 billion.
“The factors that have propelled Facebook to be a digital advertising superpower in the first place are the same ones keeping advertisers spending during the pandemic: huge reach, effective targeting at scale and performance ad products that tie spending to results,” the report said.
It also helped that Facebook has less exposure to travel, and more exposure to categories that have thrived under lockdown, such as direct-to-consumer retail and gaming, eMarketer noted.
“They were pretty resilient,” Ms. Perrin said.
In recent days, civil-rights groups including the Anti-Defamation League and NAACP have called on advertisers to pull spending from Facebook for the month of July to protest the platform’s approach to policing hate speech and misinformation. Densu Group Inc.’s digital firm 360i advised clients to support the boycott. On Friday, outdoor-gear maker the North Face said it would join.