Internet Advertising: Is Facebook About to Overtake Google?

Includes: AOL, GOOG
by: Investment U

By Alexander Moschina

Google (Nasdaq: GOOG) recently published a list of the 1,000 most visited sites on the web. And it’s no surprise to see Google and Facebook nab the first two spots.

Google compiled the list as part of an offer to advertisers, with the pitch being that – for a nominal fee – the Google Ad Planner will ensure that a company’s ads appear on the top 1,000 websites with the most traffic.

It’s certainly an attractive prospect – particularly from Google, which owns and operates the world’s largest online ad network. In fact, 96% of the company’s $7.29 billion third quarter revenue came from selling ad space. And according to the IDC research firm, Google will end the year with a dominant 59% share of the mobile advertising market.

It’s a position of strength that Google has enjoyed since 2007. But the online ad game may be about to change…

Facebook’s ad business to crack the billion-dollar mark

Seemingly overnight, Facebook has emerged as an advertising force. Last year, its ad service brought in $800 million. And this year, the site’s ad business could hit $1.4 billion, crushing the $890 million from web veteran AOL (NYSE: AOL). Analysts predict this number will more than double in the coming years.

But could Facebook – once one of Google’s acquisition targets – really overtake Google’s ad revenue? Maybe…

For one thing, Facebook’s ad department is run by Gokul Rajaram, former product manager of Google AdSense. This has led to speculation that Facebook may be developing an ad network similar to Google’s. However, given its current success, the company might not have to modify its current model.

Facebook takes aim, and fires ads right on to your page

In just two years, Facebook’s ad service has gone from bringing in around $180 million annually to nearly 10 times that amount. That’s due to detailed Facebook member profiles, which allow advertisers to target a specific demographic with laser focus – something Google can’t offer.

And according to Radar Research analyst, Marissa Gluck, Facebook is digging even deeper: “There definitely seems to be a push to increase the data in profiles and make them more visual,” she said. So now, that sporting goods store near your home can more easily pick out its sports/athletic clientele on Facebook and advertise right on their pages.

250 million chances to make money... every day

Consider that with more than 500 million users worldwide, Facebook has a greater global reach than even primetime television. For example, 106 million people tuned in to watch the Superbowl back in February. But 50% of those 500 million active Facebook users log in to their account every day.

So while Google currently generates six times Facebook’s annual revenue each quarter, the gap is steadily narrowing. And if Facebook’s current growth rate continues, it could catch Google in just five years.

Of course, a lot can happen in five years. Google’s foray into TV could pay off big time, which would create a whole new ad revenue stream. Or Facebook could go in a completely different direction with its ad network. Whatever happens, it’s clear that Google now has a big rival in web advertising.

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