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Both Alphabet and Facebook continue to face headwinds

Jun 19, 2019, 11:19 am

Alphabet’s Google platform continues to generate significant advertising dollars from market news.  According to the News Media Alliance, Google made $4.7 billion in 2018 from advertising from news content. It appears that approximately 30% of Google search results are news content. Google’s revenue from its distribution of news content is nearly the same as all the advertising revenue brought in by the United States news industry from digital advertising last year. After tumbling in May, Facebook and Google shares are rebounding.

Trump and the Democrats on the Same Side

With Google having this power, there are several Democrats that are campaigning for President of the United States that believe this power should be curtailed. In speech after speech, Democratic leaders are discussing how they would dismantle this power and break up Google’s monopoly. Surprisingly, Trump is on the same side as the Democrats. His reasoning is similar but different. He also wants to curtail the power of Google and Facebook to disseminate news. His reasoning, that he believes all the executives at these companies are Democrats.

The Power of Google

The revenue report serves to underscore the news media’s increasing reliance on big tech for distribution. Companies like Google, Facebook and Apple are disproportionately profiting from the distribution arrangements. Big tech’s dominance of the news media, effectively controlling both the pricing and distribution of news production provide robust control over the news that is distributed. Unfortunately, that growing dependence on the large tech companies for distribution does not translate to greater revenue for publishers.

Facebook’s Leadership is on the Ropes

The scandal that embroiled Facebook over the Russian collusion into the US 2016 elections continues to squeeze the social media giant. According to Facebook’s most recent SEC filing, almost 68% of outside investors voted to remove Zuckerberg as Chairman. That’s an overwhelming statement that had little effect since Zuckerberg has majority control of voting shares in the company through its dual-class share system.

The problem with Facebook and its ability to distribute comes from its revenue stream. Nearly all of the revenue that the company makes comes from ads, which means its primary obligation is to advertisers. Advertisers care about two things.

First, they care about access to a huge audience of people to see their ads, and second, that they can show you relevant ads that you’ll click on. This is a target marketing approach that Facebook is now trying to deemphasize. In 2018 Facebook’s revenue was $55.8 billion and it made $22 billion in profit. While the company is scrambling to replace advertisement as its main revenue driver, it has yet to find its panacea.

Later this fall Facebook will be introducing a new version of its Portal, the social media company’s video-calling smart speaker that launched in November 2018. This is similar to the Amazon Echo or Alexa, as well as Google Home.

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