Modern technology today is all about some very big numbers. More than a billion Android-based smartphones were sold last year. Facebook has 1.5-billion users. Apple has more than a billion active iPhones and iPads.
Apple made almost as much profit in the most recent quarter as Alphabet– Google’s new name– did in total revenues. Still, Google’s– sorry, Alphabet’s– quarter was so good that investors drove the stock higher while Apple, which announced lower year-over-year projections for the next quarter, took another bath, and that made GOOGL the richest company on planet earth.
Those are big numbers, folks.
What none of those numbers tell you is what’s happening in the ground game, and that’s where this competition between Apple and Samsung and Google and Facebook is getting interesting. The former two are technology companies. They make things. They sell things. Both are diverse, as in, they make many different things, and bring in profits from each one.
The latter two are different. They don’t really make any product of substance, but they push a tremendous number of advertisements out the door, and that’s where both Google, the search engine company, and Facebook, the social network company, actually make their money. And they make billions of dollars in profits on ads. Desktop and notebook ads on traditional PCs. Mobile ads on smartphones and tablets. Both are about big numbers; serious numbers, and many tens of billions of online advertisements.
Investors like companies that are growing, and both Google and Facebook’s advertising businesses are growing, hence the obscene stock price valuations. Samsung advises that 2016 will be a tough year to sell things. Apple says the same, and both have felt the wrath of investors.
What isn’t mentioned often among market analysts and investors is what’s happening at the ground level; on the very devices where both Google and Facebook advertisements run.
That’s right, technology that blocks advertisements. Online ads, whether from traditional PCs or mobile devices, have proliferated to the point of extreme and utter annoyance. Last year, my site, along with thousands of others, conducted a test to see how many readers used ad blockers. The results, one early in the year and one later in the year, were revealing. Between 20-percent and 40-percent of all readers install and use ad blockers, and the number is growing because Apple allows ad blockers on iPhone and iPad, and Samsung does the same on recent Galaxy models. Ad blockers are proliferating and both Samsung and helping are helping them along, somewhat tacitly, but helping.
This trend is clear. Online advertising is undergoing a massive change and as the number of ad blockers in use grows, the impact upon Google will be mighty. Indeed, the trend has already upended the advertising industry and it will only get worse as ad blockers become more commonplace. For example, Google’s revenue per ad has dropped year over year for many years. The amount of revenue per thousand ads delivered has dropped. Click-through rates, which help to generate profits, have dropped as well, and both combine to reduce per-advertisement revenue, which reduces profits. So, how does Google– and Facebook– remain so profitable during such a massive change?
The same way that BlackBerry remained viable, on the surface, amid competition from iPhone and Android phones; revenue and profits hit record levels while the average selling price and profit from each device plummeted. It took a few years but BlackBerry died on the vine. I’m not saying Google or Facebook will go the way of BlackBerry but the handwriting is on the wall. Numbers don’t lie. Both advertising giants are growing so fast that the growth itself hides the problem of lower revenue and lower profits per ad.
Advertising makes the world go round, of course, but online advertising has become a reader nightmare, a visual (and sometimes audio and video) intrusion; an in-your-face sales method that has a growing number of users looking for relief. Apple and other competitors are beginning to lean in the direction of the user and reader and that means easier ways to block or limit ads, easier ways to avoid the tracking mechanisms that come with each ad, and that growing trend poses a danger for Google, Facebook, and others who feed and grow fat upon your personal information.
Ad blockers and the growing disgust with online advertising? They’re Google and Facebook ball busters.