Google or Facebook: Which One Is the Future of Advertising? | What Changed Advertising ④

"Facebook believes the most important thing for making an ad work is user identity. That's the key to performance … They know who you are, and they know a great deal about you. Google believes identity is secondary to intent. What matters is what you want right now, because the products and services being advertised exist to satisfy a wish or a need."

The advertising business has always run one way: the client states the need, the agency makes the creative and buys the media, and together they reach as many target consumers as effectively as they can. That model is now under enormous strain.

People in the business have never been this confused, or this unsure of themselves, about consumer insight — the foundation and the core of the whole industry.

A more mobile life changed all of it. When consumers hop between screens and hand out their time and attention as they please, the marketer's creed — where the consumer is, the ad money follows — no longer has a bull's-eye to aim at.

That the age of television advertising is finished is close to industry consensus. But inside the dizzying complexity of digital marketing, what actually works best has no clear answer, at least not yet.

The search began at least three years ago. Judging by what is happening now, and by our interviews, the anxiety has not gone away — and every role in the chain has changed fundamentally.

Brands that always left marketing content to the agencies are building in-house teams and making it themselves. Agencies may have entered their most research-minded era yet: data labs, a taste for incubation, data-integration platforms of their own. Media companies that used to sell nothing but time and space have been pushed into creative work, because advertisers now want ads that "fit the outlet's own tone and style." And Facebook, the face of social media, has suddenly ended up sitting straight across the table from Google…

That is why we are running this series: four articles on how the change happened to each role in the advertising chain, and how each of them is rebuilding the rules. This is the last one.

You probably know the feeling. For days after you search for "cast-iron pot" in a search engine or an online store, ads for cast-iron pots follow you across the web — and the one that keeps turning up is very likely the exact model you have already ordered and paid for. Like a car ad on a social platform, on the other hand, and what shows up in your feed afterwards may well be ads for resorts rather than more cars.

The second is what Facebook has been selling all along: an ad mechanism unlike Google's search-based recommendations.

Each rests on its own algorithm, which is why data now matters so much in advertising. Google, Facebook and China's BAT have pushed the entire industry into an algorithm-driven age. The algorithm decides which ads, and which products, you see — usually without your noticing.

Google and Facebook are worth singling out because, by revenue, both are advertising companies in the plainest sense: 89% of Alphabet's revenue comes from Google advertising, and ads account for 96.9% of Facebook's, which is nearly all of it. Among the world's 10 most valuable public companies, they rank second and fourth.

And in mobile advertising, the market widely seen as having the most room to grow, the two of them hold more than half the share, according to research firm eMarketer.

They wrote the rules of search advertising and social advertising respectively. Both have huge user bases, deep data, the ability to target precisely, and pricing tied to results.

The fundamental difference — and the basis of the two mechanisms — is the kind of user information each of them holds.

Google's recommendations are built on what you search for: your search history, the routes you look up on Maps, the people you email on Gmail. What Facebook takes is your social information. Besides the details you enter when you sign up — where you live, your gender, your job, single or married — every like you give on the platform and every exchange with a friend is recorded.

Put another way, Google starts gathering information once you already have an intent; it works out what you want to do. Facebook gathers more actively; it guesses who you are.

Both accounts are, of course, the target-consumer "relevance" each company offers when courting advertisers.

In the words of Ben Winkler, chief digital officer of OMD, Omnicom Group's media agency: "Facebook believes the most important thing for making an ad work is user identity. That's the key to performance … They know who you are, and they know a great deal about you. Google believes identity is secondary to intent. What matters is what you want right now, because the products and services being advertised exist to satisfy a wish or a need."

For advertisers, the two do different jobs. Rob Norman, global chief digital officer of GroupM, WPP's media agency, put it to QDaily this way: "Google Search lets consumers who already intend to buy find you. Facebook lets you find the consumers you want."

Both look indispensable. And for years Google wore the crown of data marketing — until Facebook came for it.

In 2015, Google held 33.7% of the global mobile ad market and Facebook 17.4%. In 2012 Google's share was 52.3% and Facebook's only 5.3%. For the past year and a half, Facebook's ad revenue has been running at a growth rate above 40%.

By the industry's own creed — where the consumer is, the money follows — what lies behind this is a race for consumers' time and attention.

People spend longer and longer on their phones. According to the 2016 Internet Trends Report from Kleiner Perkins Caufield & Byers (KPCB), Americans spend 2.8 hours a day on the phone, 90% of it inside apps and only 10% in a browser.

Three of the top ten apps in the US App Store belong to Facebook — Messenger, Instagram and Facebook itself — and two to Alphabet, YouTube and Google Maps. In research firm comScore's report, American users spend an average of 35 minutes a day on Facebook, more than on any other platform and more than they give Alphabet's YouTube (17 minutes).

Facebook's edge on mobile is easy to see: sharing, interaction and the rest have made it steadily more attractive to advertisers, and the ad revenue it has piled up in recent years came from mobile. In 2015, mobile made up about 50% of Google's total ad revenue. For Facebook the figure was 77%, and by the second quarter of this year it had reached 84%.

A more threatening signal for Google: the price of its ads is falling, while Facebook's average ad price keeps climbing.

Part of that is simply that Facebook is the newer platform. More important, as Peter Metcalfe, digital director at Carat UK, wrote to QDaily by email: "Facebook's ad products have developed extremely fast, and the new ad formats have opened up a lot of opportunities for it."

Facebook's moves on ad products can fairly be called aggressive. In the past three months alone it launched Shop Visits, a location-based service that tracks whether a consumer walks into a store after seeing a brand's Facebook ad; added a "buy now" button in the messaging app Messenger for the merchants on it; and changed its recommendation algorithm with a product called "app event optimization", meant to place mobile app ads more precisely.

App-install ads matter enormously to Facebook. According to an analysis Citigroup published earlier this month, mobile app-install ads brought Facebook $2.9 billion in revenue in 2015 — against an optimistic estimate of $4.6 billion for the whole US mobile app-install ad market.

"But the kind of advertiser Facebook has has changed a lot in the past few years. At the start they were mainly small companies," Metcalfe says. "Now, going by our internal data, paid social is the fastest-growing part of the business. More and more big advertisers are joining in, and their budgets are large." Facebook has indeed done plenty to court them — custom ad formats built for a single brand, for instance, a service both Walmart and Samsung have used.

Google, for its part, keeps rolling out ad products and features too. Promoted pins on Maps let a merchant put its logo on the map; Shop the Look lets shoppers buy straight out of the search results. There are also "trial ads" that give a consumer 60 seconds inside an app before deciding whether to download it, and "interactive ads" that turn the ad into a web page you can play with. Most recently it has polished Brand Lift, a product for testing how well YouTube ads work.

Both have made plenty of moves that look like raids on each other's territory — Facebook pushing toward purchase conversion, YouTube trying to attract more brand advertising. Yet Facebook is still thought better suited to brand advertising, and Google to direct response.

Their big clients say as much. Consumer-goods companies — P&G, Unilever and Nestlé among them — lean toward advertising on Facebook. The online travel firms that live on order conversion, Priceline and Expedia, both put more of their money into Google.

As Metcalfe sees it, "Google advertising is there to drive conversion; it sits at the very bottom of the sales funnel," aimed at consumers who have already formed a preference or are on the point of buying. Facebook, by contrast, "can target — and hit — consumers nearer the top of the funnel, who are still forming an awareness and an opinion of a brand or a product, in more natural and more native settings, and in creative formats such as video."

That is shifting, though. The online travel company Priceline recently changed its mind. Dropping its line that "Facebook ads are a waste," it said it would spend more on them. Until then roughly 90% of its ad budget had gone to Google. The reason it gives is that it expects the return on search advertising, Google's above all, to fall.

"Priceline was already very good at catching purchase intent. Now they need potential customers on Facebook to consider them." So expect more Priceline ads on Facebook painting the odd delights of a destination, or Booking.com telling you how snug and welcoming some small hotel is — instead of the line in Google's search results: "Book with us, fast and easy, no cancellation fee, sign up now for a $50 voucher."

On the other side, P&G's plan to rethink what it spends on precision targeting on Facebook has also set people talking. Rob Norman's reading: "I don't think P&G will cut its Facebook budget, but it will certainly develop more versions of the creative for different groups of people. Letting the algorithm tell them which version suits which potential consumer is not the same thing as making different ads for different audiences."

Metcalfe keeps coming back to the point that "the two platforms are complementary for an advertiser. Our earlier research found it very common for someone to see an ad on Facebook, then convert through a Google search and finally buy. To get the best result, I think you have to combine the two."

None of them sounds as though they are taking sides. In practice, how the agencies feel about the tech giants is more complicated. The giants began by going around the agencies straight to the advertisers — and they did not even have to go looking. Any advertiser can set up its own campaign, to its own budget, inside Google's or Facebook's automated ad system. For the agencies, that was a threat.

Agencies used to say, a little to comfort themselves, that both companies were partners. In reality, dependent as they now are on the giants' data and their channels, all they can do is follow. Google and Facebook later saw the value of working with the agencies too — the agencies hold the big clients.

Martin Sorrell, chief executive of WPP, is never short of a sharp line; he has said he hopes AOL, after its purchase of Yahoo, or else Snapchat, could become a third force outside the Google-Facebook duopoly. Even so, as we argued in the earlier articles in this series, the agencies' passive position in technology, channels and audience insight remains hard to change.

As for Google and Facebook, neither wants to be the one an advertiser calls a "supplement." Advertisers may always say they need both, but they lean, to some degree, one way or the other. Otherwise there would be no ebb and flow between Google and Facebook in the mobile ad market.

Google is certainly the one feeling more pressure. In the coming months it plans to launch a cross-device marketing tool that helps a brand reach the same audience across different devices, websites and apps, and so cap how many times one user sees a given ad. "Say you're a retailer and you want to advertise for the Halloween shopping season. You can reach consumers with a mobile ad during the morning commute. Then in the evening, when they're at home on a tablet, you send them another one." Brad Bender, Google's vice president of display and video advertising, said in a recent interview.

Matt Hill, a director at a research firm called Thinkbox, is doubtful: "Google puts too much weight on the last click. Advertisers need to understand that every media impression contributes to that final click." His other, larger objection is that none of it is measured by an independent third party.

Facebook has just had a scandal of exactly this kind. According to The Wall Street Journal, in late August the ad agency Publicis Media wrote to its clients: Facebook had been overstating its own figure for average video viewing time by 60% to 80%. Advertisers pay for every one of those views by the more than 1.6 billion people worldwide who use the platform each day, which means they had been paying a good deal too much.

The tech companies do not let third parties into the ad back end to check the numbers themselves. Agencies see only the simple figures — impressions, conversion rate, budget spent. Google and Facebook both work this way.

"Choosing between Facebook and Google isn't really a matter of preference; it's a matter of which platform meets which need." True enough — but the scales always tip one way in the end.

eMarketer expects Facebook to hold 20% of the mobile ad market by 2017, with Google squeezed further down, to 31.7%.

Though who knows: some other disruptive invention may yet turn up and finish off them both.

Graphics: Wu Lingwei

Cover image from Visual China Group