AOL, Millennial Face Uphill Battle to Capture Mobile Ad Dollars - eMarketer

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AOL, Millennial Face Uphill Battle to Capture Mobile Ad Dollars

Facebook and Google command 52% of US net mobile ad revenues

September 8, 2015

With its acquisition of Millennial Media, AOL says it wants to be a bigger player in the mobile ad market. But according to eMarketer's latest US ad spending forecast, catching rivals Google and Facebook could prove challenging. Google commands 32.9% of mobile ad revenue in the US, or nearly $10.02 billion. Facebook captures 19.4%, or nearly $5.9 billion. By contrast, Millennial Media captures 0.3%, or $101.2 million.

Net US Mobile Ad Revenue Share, by Company, 2014-2017 (% of total and billions)

Regardless of the ambitious nature of its goal, the acquisition will help the combined company compete more effectively for mobile display ad dollars.

"To be a serious player in the mobile display ad market, media companies need to offer advertisers scale, robust audience targeting and sophisticated measurement tools," said eMarketer analyst Cathy Boyle. "AOL will gain ground in two of those areas through its purchase of Millennial Media. The acquisition will expand the breadth and depth of the in-app display ad inventory AOL can offer advertisers, which will help those advertisers achieve greater scale. In addition, the publisher will gain the mobile user profile data that Millennial Media has been amassing for years, which will help improve AOL's ability to find and target specific audiences on mobile devices."

Net US Digital Ad Revenues, by Company, 2014-2017 (billions, % change and % of total)

Google remains the undisputed leader in total US digital ad revenues, grabbing two in five digital ad dollars this year, compared to second-place Facebook's 13.2% of the total in eMarketer's latest forecast. Facebook, Twitter and other smaller players will continue to gain share, eating away nearly 5 percentage points from Google's slice of digital ad revenues between this year and 2017, eMarketer projects.

That will leave the search giant with a share of US digital ad revenues more than twice the size of its closest rival, Facebook.

"As it continues to leverage its unique targeting capabilities, we expect Facebook to increase its share of ad budgets from brands, direct response advertisers and small businesses," said eMarketer analyst Martín Utreras.

eMarketer has raised its projections for Facebook's US advertising revenues since February 2015, based on strong Q2 2015 performance reported by the company in both revenues and user engagement. The company also plans, although more slowly, to make money from newer businesses like WhatsApp and Facebook Messenger. eMarketer expects strong growth for Facebook, rising to over $12.14 billion in US digital ad revenues by 2017.

While eMarketer expects Google to remain the leading player in mobile through 2017, Facebook's share is growing at a higher rate, and the gap is expected to narrow slightly over the next several years. Facebook will narrow the gap more dramatically in overall digital spending, growing its market share from 13.2% in 2015 to 16.1% in 2017. In contrast, Google's share of the total digital ad market in the US will shrink from 40.1% to 35.4% during the same period.

Facebook has made significant inroads in mobile advertising and continues to impress advertisers with its high user engagement on mobile devices. As a result, eMarketer has raised Facebook's mobile ad revenues for the entirety of the forecast period, based on the company's impressive Q2 2015 results. Facebook will take in nearly one in every five mobile ad dollars in the US. Mobile will account for 77.0% of Facebook's digital ad revenue this year, growing to 85.0% in 2017.

Ad revenues generated by Instagram and mobile video formats on Facebook will drive this growth. This year, Instagram is expected to earn $570.0 million in ad revenues—more than one-tenth of Facebook's total mobile ad revenues. By 2017, Instagram's ad revenues will grow over four times in size to reach $2.39 billion or 28.0% of the company's total mobile ad revenues.

The one place Facebook dominates its competitors, including Google, is the display ad category.

Net US Digital Ad Revenue Share, by Company, 2014-2017 (% of total media ad spending and billions)

"In the coming quarters, we expect Instagram and video ads monetization to keep increasing Facebook's share of the display ad market," said Utreras.

Facebook is expected to generate $7.66 billion in display ad revenue in 2015, growing nearly 44.9% over last year. Google ranks third in the display ad category, behind Facebook and Yahoo. Its display business—which includes YouTube, Google Display Network and AdSense—is expected to generate $4.11 billion this year, 19.0% higher than in 2014. That will account for 17.6% the company's total ad revenues.

Google, by contrast, derives the majority of its ad revenues from search ads—expected to reach $19.21 billion this year, or 72.4% of net US search ad revenues. With respect to mobile, 36.6% of Google's net US digital ad revenue comes from search, or $8.54 billion.

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