Even though the digital ad spends is falling, and the market is shrinking, post-pandemic – Facebook and Google duopoly will rule the global economy
Demand for digital advertising is shrinking even after its explosive growth for past years due to the pandemic-fuelled economic downturn. The digital ad spends fallen the lowest ever – complicating the situation for Google and Facebook, who were initially content about the shrinking revenues.
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With unemployment soaring, advertisers are slashing their promotional spending — in some cases, reducing it to zero. Facebook and Google, who together account for about 70% of the US market for digital ads, have confirmed no pay cuts or layoffs.
Google has confirmed that the company will curtail its hiring for the rest of 2020, considering deep cuts in the marketing budget. Facebook has also confirmed last month that its business was getting squeezed by the advertising downturn, although it did not provide any specific details. In countries who are hit the hardest by the pandemic, the messaging traffic was up by 50% while voice and video calling had almost doubled, the company confirmed.
There is huge uncertainty on how badly the tech giants might get hit due to the COVID-19 crisis. The analysts polled by FactSet have indicated a 13% increase in Alphabet’s revenue and a 16% increase in Facebook revenue by February. But these predictions indicate data of the very initial phases; the real test will be in the current April-June quarter. Experts are projecting a roughly flat revenue for both companies in the current quarter. With the travel industry getting frozen by the pandemic, Facebook and Google are likely to see huge sales loss unless the threat of COVID-19 subsides.
But, all these downfalls will be superficial and temporary for both the giants, and they are expected to revert with maximum power after the COVID-19 crisis subsides.
The good news for these two giants is that the digital ad spending can ramp back up as quickly as it is declining since no upfront planning is required in this case, unlike the traditional media. Small and medium scale companies might boost digital campaigns at the very first sign of recovery to promote their brands, post-pandemic.
The Interactive Advertising Bureau confirmed that the digital industry has posted double-digit annual growth for about a decade continuously and was on its track to hit about USD125 billion in 2019. Magna Research predicts that for 2020, the digital-ad sales growth will slow down by 4%, but revenues will not shrink despite the current tough times. Only the super-powerful companies can survive this and emerge out to be victorious while others will die out. And, the market will be ruled by Facebook and Google as the world goes back to normal.
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Experts believe that the current downturn could empower the tech duopoly and strengthen their position once the global economy starts recovering. Both Facebook and Google have enormous cash reserves —USD55 billion for Facebook, and USD120 billion for Alphabet — they can use these funds to acquire the potentially attractive services that fail to survive the recession on their own. And such acquisition would be a comparatively cheaper deal.
Nicole Perrin, eMarketer analysts, confirmed that both the companies are in a comfortable possible, and the biggest sign of that is their buy-low strategy. The best example of this is that Facebook acquired Indian Telecom giant Jio at USD5.7 billion this month. This is indeed the beginning as more such ventures will follow as the duopoly rises to un-matchable power.
