Data is becoming more and more important in advertising today

👥 alchemy google and Facebook's advertising battle

Data is becoming increasingly important in the advertising industry, with Tech giants such as Google, Facebook and BAT in China entering an algorithm-driven era.

In terms of revenue, Google and Facebook are both veritable advertising companies - alphabet accounts for 89% of its revenue from Google ads, and Facebook's revenue comes almost entirely from ads, up to 96.9%. They are currently ranked second and fourth among the top 10 companies by market capitalisation worldwide.

They set the rules of the game for search and social advertising, both of which have large users, are data-rich, and can be marketed with precision and paid for based on ad performance, both of which account for more than half of the market in the mobile advertising market, which is widely considered to have more potential, according to eMarketer, a research firm.

The article in this issue of Private Wood Partners Alchemy is mainly excerpted from the October 17 issue of Institutional Investor magazine, which looks not so much at the advertising strategy of google and Facebook as in terms of the capital market's awareness of the matter.

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By the end of next year, digital advertising should be spending more than television advertising revenue. The investment manager at the T.R. Price Fund judged that Google and Facebook did not need to go directly because the advertising market was so large. Google's strength is that users have decided to buy items, hoping to get the lowest price through search. UBS analysts say advertisers are increasingly looking for Facebook because they can reach the largest number of people and target them directly. Alphabet, Google's parent company by market capitalisation, is 1.5 times Facebook's and revenue is four times that of the latter, but Facebook's earnings in the first half of 2016 were three times faster than Google's, attracting twice as much attention as Google's. To that end, Google rules that executives should not be interviewed at the same time as Facebook, which does not matter.

Both are popular on Wall Street, with none giving a sell or lose market rating. Both delivered better-than-ever results last year, with gross margins of 62.4 per cent for Google and 84 per cent for Facebook. The growth has been helped by two trends: the switch from desktop computers to mobile phones, and the large number of video apps in advertising. Just four years ago, Facebook received almost all of its advertising revenue from desktop computers, and today 84% of its revenue comes from smartphones, with Google accounting for about half. In terms of video, Google's purchase of YouTube a decade ago is the biggest credit, and fund managers believe the market is underestimating Youtube's potential. Zuckerberg thinks VR will replace smartphones as the main channel for Internet connectivity and advertising platforms in the future.

Both companies have been hugely successful in their t20s over the years, and now the founders' practice of emerging as a new class of shareholders to get rid of Wall Street performance pressures has been called into question for not paying enough attention to corporate governance. After Google's rapid growth in 2001, it heeded investor advice to invite Eric Schmidt, an experienced software executive, as CEO. Facebook's key move was to poach Sheryl Sandberg, who is in charge of Google's online advertising business, in 2008 and attract talented people from Google, who became the hottest company for a while. Sheryl has a strong reputation among seller analysts, and is thought to have made Facebook's strategic postings more acceptable, and she can answer questions vividly, giving the impression that she cares about all kinds of customers.

But when Google launched Google Plus in 2011, which was seen as a big challenge for Facebook and must have given it a sell rating, It was Zuckerberg who thought expanding his user base was the most important thing, including $1 billion for Instagram in 2012 and $21.8 billion for WhatsApp in 2014. Zuckerberg's latest ambition is to increase the number of customers from 1.7 billion to $5 billion in a decade, and to increase the number of advertisers 20-fold.

Compared to Facebook's high acceptance, Google's performance will always emphasize cost-control, which may have something to do with its mostly futurical projects. Splitting Alphabet is also a compromise with Wall Street, showing that it still focuses on real things like advertising revenue. Driverless, smart homes, life sciences research, etc. are classified as Other Bets and have been experiencing executive outings in recent months. Elsely, Google appears to be lagging behind, starting cloud computing earlier tomorrow, but now far behind Amazon and Microsoft, and even more so, the head of Google Plus, who left the company in 2014 and has not released a specific number of users, but the industry speculates that its share of the social network is in the low single digits.

Fortunately, Youtube has been a great success for Google, with youtube seven times the viewing time, and UBS forecast in April that Youtube contributed 12.6% of its advertising revenue in 2015, twice as much as two years ago. While meeting users' needs for historical and reality video, it also poses a threat to Spotify, Apple Music, Netflix, and Amazon Prime in music and film.

Google is becoming increasingly popular with advertisers (not least because of low prices), and toyota, for example, launched a new car in 2010 that wants to change the image of suburban users only, with viral ads spreading on YouTube, and so far has maintained a 50 per cent year-on-year sales growth rate. But both Google and Facebook are now under pressure to report data to advertisers through third parties, and Facebook admitted in September that the data given to customers was exaggerated. However, the ability of both in user data breadth and depth mining is indisputable.

In a classic case, Wendy's found Facebook two years ago to promote a barbecue sandwich that customers thought would target people between the ages of 25 and 34 who live in the South and West, where they are considered their favorite barbecues. But Facebook's advice is that the best potential market should be in Vermont, where consumers often complain about the lack of good barbecues, while 25-34-year-old barbecue lovers have the highest approval of 1980s movie stars.

"Advertisers today want the platform to be able to take their hands step by step in the new advertising world." Such advertising methods not only bring unlimited possibilities to small and medium-sized merchants who start from their own hands, but also give traditional large enterprises a taste of the benefits. Target has teamed up with Facebook to develop the Cartwheel program, which allows users to get a discount if they don't place an order for an item they're browsing on the road, and the next time they browse the news on Facebook, the ad pops up and if their friend buys the item at the same time. In January, Target said digital sales were more than half that, a double increase from 2014.

In addition to its competitors, Google and Facebook's biggest challenge now comes from regulators and politicians. Still, the two giants are working to get more people connected and users to spend more time online, including infrastructure projects that are typically invested by operators rather than Internet companies, such as submarine cables, and the advertising experience that VR brings.

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