In Google/Facebook Duel, SMBs Are the Real Winners

In light of Facebook’s whopping earnings report last Wednesday, one can likely believe Morgan Stanley analyst Brian Nowak’s recent estimate that Google and Facebook together are taking 85 cents of every new dollar spent on digital advertising in the US.

Here’s what Nowak was quoted as saying in The New York Times. His calculation may be contested, but one thing is for sure — together, this leading pair are pulling about $25 billion per quarter in advertising revenue.

The most intriguing dynamic is not the shadow they cast over everyone else, but the race between the two to take on Madison Avenue. While the search site is making four times more money from ads than the social network, I believe big changes are afoot that put more of the cards in Mark Zuckerberg’s hands.

In February, Google rolled out a dramatic change to remove all ads, except for Google Shopping products, from the right rail of its search results pages on desktops, bringing it in line with its mobile appearance. Along with that, Mountain View is adding even more ad slots to the space above organic results, but only for “highly commercial” queries.

In other words, Google is stoking the pot to create a more lucrative market for ad buys in prime real estate, and more visibility for its own ecommerce listings.

What has happened since has been predictable. To retain visibility, businesses that previously used the right-hand side are now having to bid far higher to compete for inventory against top-of-search advertisers.

This may be no problem for big brands and their ad buyers. But, having spoken with many small business owners across America, I am hearing that they are concerned at being priced out of the vital search ad market. Some I have spoken with have now simply given up on Google.

The reactions are unfortunate: “I could see tens of thousands of small businesses going into financial trouble as a result of this decision,” said one online commenter. But the response is more interesting, and could have bigger shockwaves.

The consequence of Google’s cavalier move is not a macro one, but a micro one. With Google becoming a more and more expensive option, there is an alternative opportunity in-play, and it’s run by Zuck.

As thousands of businesses give up on fighting for what once was 11 ad slots but is now seven, Facebook stands to gain considerably. I believe this moment will be the start of Facebook as a genuine ad challenger.

Facebook is already expanding its ad offerings considerably. And the rewards are showing. Last Q4, its ad revenue grew 57%, versus Google’s 17%.

Not only is the company working closely with big-brand buyers — already boasting far cheaper cost-per-click, it is also becoming far more suited to the needs and wants of smaller, local businesses.

Take for example, car dealers. Facebook has been actively courting this insular industry, hosting an auto specific ad-sales page and publishing a series of how to guides for dealers new to social media advertising. But dealers are ultimately the ones benefiting — car ads have double the click through rate than the average Facebook page, and women in particular are 29 percent more likely to click on Facebook auto ads.

Advertisers I know frequently grumble about Google’s ad-data walled garden. But Facebook allows for more dataset integrations. Want to bring your website audience data to the party? Want to mix it against Facebook’s own, vast roster of localized user data? No problem. Google, by contrast, majors on offering its own, rigid data sets, pulling from private sources.

That’s why Facebook offers advertisers a better way to reach low-funnel shoppers, those currently in-market for a product or service, not just those vaguely searching for the category. Google’s self-interest will drive many businesses to perform a U-turn, heading instead in Facebook’s direction.

But an overtake by Zuckerberg is not a foregone conclusion. Pricing is fluid, and this market is liquid. If Google realizes the error of its ways, it could also become cyclical, enacting measures to make prices more respectable. However if Facebook’s recent earnings report is any indication, the social media giant is fighting to make an impact.

Either way, this competition, overall, will be good news for advertisers. They, naturally, will only ever be driven by the best bang for their buck.

Len Short is co-founder of automotive digital marketing company LotLinx, a cost-effective, efficient platform developed to connect low-funnel, in-market car shoppers with available inventory at local dealerships.