How Facebook is beating Google at its own game
As we discussed in class the way Google makes its money is through selling ads to be displayed when people use the search engine. The reason why Google has managed to keep a stranglehold over the ad market is because of the amount of people who use the site. However, the fact is foot traffic in a site is not enough to justify why your site has the best value for ads. The determining factor in the effectiveness of ads online is click through rate, or CTR for short. This entails that businesses will select the site they are going to display their ad on depending on which site can give them the biggest payoff in terms of cost and CTR. Since most sites now charge advertisers in a similar fashion to Google, which is the generalized second price auction, the only way a site can give advertisers a bigger payoff is by developing ads with higher CTR. Until recently the amount of sites that can actually provide higher CTR than Google has been non-existent, however Facebook is changing the game.
According to an article by Mark Sullivan (link below) Facebook’s ad business has increased 40% while Google’s has shrunk 19%. So what is the reason for this decline in Google and rise in Facebook? The answer is simple, Facebook is generating ads with higher CTR than Google, but how is it doing this? The answer to this is also simple, the information Facebook is constantly collecting from all of us is helping innovate their ad technology. They are able to find out which user is going to click on ad based on what attributes other users had who clicked the ad. Essentially the more people who click an ad exposes the ad to similar audiences causing the ad and so on. While Google has Google+ and potentially collect information in that avenue to improve its ad, the bottom line is Google doesn’t have the same amount as Facebook. Until Google can fix that problem Facebook will continue to generate higher CTR and take a larger share of the Ad market.
Why Google is getting schooled by Facebook in display ads, and what it’s doing about it