Rich Get Richer as Google and Facebook Dominate Web Ads
http://www.barrons.com/articles/rich-get-richer-as-google-and-facebook-dominate-web-ads-1443851396
Although numerous for-profit websites sell advertisements, the market is largely dominated by a duopoly of the strongest ad sellers, Google and Facebook. Companies looking to advertise online are more and more bidding for slots on the these two websites, leaving little money for anyone else. Other websites such as Twitter, Yahoo!, and LinkedIn have become distant rivals at best. Just weeks ago, a report by Goldman Sachs predicted a “massive consolidation of both content buyers and ad platforms,” predicting “Facebook and Google are best positioned to consolidate share.” At the current situation, no matter how these two giant companies fare against each other, it seems to be a battle with two victors and a lot of small losers. For anyone looking to start a new for-profit website, the outlook is not so promising.
This phenomenon is an illustration of the network effect discussed in class. While Google and Facebook may in fact be the better “products” offering more/better features to companies looking to advertise on the web, much of this rich-get-richer phenomenon can be attributed to network effects. As a significant portion of web browsers are already using Facebook and Google, new web browsers are more likely to choose these sites and companies would therefore be more willingly to pay to have their ads posted on these sites due to network effects. Consequently, one would predict popular sites like Google and Facebook will get more popular. Also due to the network effects, even if a new for-profit website with better features is launched in the future, it will be hard for it to break in the market since it will have to get people already on Facebook and/or Google to switch to their product to get over the tipping point.