Digital ad hogs leave room at the trough

Snapchat app is seen on a smartphone in this illustration taken, July 13, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

NEW YORK, Jan 11 (Reuters Breakingviews) - Alphabet’s (GOOGL.O) Google and Meta Platforms’ (FB.O) Facebook are the big hogs at the digital advertising trough. But smaller online players needn’t starve as the pie is expanding rapidly. That’s an opportunity for the likes of Snap (SNAP.N), TikTok and even Microsoft (MSFT.O).

Spending on digital advertising in the United States is expected to exceed $200 billion this year, up 21% compared to 2021, according to forecasts from GroupM. The share of advertising spent online also continues to rise. This year it will account for 64% of the total ad market, GroupM reckons, up from only 18% a decade ago.

Some of that digital growth has siphoned off money previously spent on newspaper ads or television commercials. Yet online advertising has also created new categories, like app developers hawking mobile games. Digital startups are fueling the boom as they use fundraising cash to acquire customers or fend off competitors. Last year was the busiest for initial public offerings since 2000, according to Renaissance Capital.

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Google, along with Meta’s Facebook and Instagram units, will continue to swallow most of the fodder. The United States brings in about 43% of the revenue for Mark Zuckerberg’s social networks, nearly all of which comes from advertising. Assume that ratio holds steady, and Meta will pocket almost $59 billion from U.S. digital advertising this year, according to Breakingviews calculations based on Refinitiv forecasts.

Meanwhile, Google’s properties including its search engine and YouTube account for about 84% of the company’s global advertising revenue. If 47% of that is from the United States, in line with the company-wide total, Google will generate some $94 billion in revenue from U.S. advertising in 2022. Together, the pair will account for three-fourths of the total market, similar to recent years.

That still leaves roughly $50 billion for other players to carve up though. The United States accounts for 64% of Snap’s revenue, which analysts forecast will grow by almost 40% to over $5 billion this year. Microsoft also has plenty to gain. The Seattle-based giant, which earns half its revenue in the United States, collected nearly $19 billion globally from advertising on LinkedIn, its search engine Bing and other sources in the 12 months to June. TikTok, owned by China’s ByteDance, is another likely beneficiary. It’s going to get more crowded around the digital trough.

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- Digital advertising in the United States will grow 21% in 2022 compared to the previous year to reach $202.7 billion, according to forecasts by GroupM. The media buying group owned by advertising firm WPP expects digital advertising to account for 64% of the overall ad market this year, up from 60% in 2021.

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Editing by Peter Thal Larsen, Amanda Gomez and Sharon Lam

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