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Who but Google is Thriving in Online Advertising?

Evidence abounds that the industry business model of online advertising, minus Google, is shockingly weak competitively, given how many people assume advertising is supposed to be the viable competitive monetization engine that will sustain the "free and open Internet" long term.

Anyone open to connecting-the-dots of recent public evidence will see an obvious dichotomy: Google is thriving, while much of the rest of the online advertising industry is struggling despite unprecedented: opportunity to reach users, technological efficiencies, and access to troves of private data to target ads to produce more revenue growth.

Examine the accumulating troubling evidence of how weak online advertising competition has become.

The Internet Advertising Bureau's latest reporting of 15% online advertising growth for the industry in 1Q12 masks the large Google vs. competitor revenue growth dichotomy. Given that Google grew 24% 1Q12 and comprises almost half of all U.S. online advertising per eMarketer, I calculate that the rest of the online advertising industry is growing only about 8%. That means Google is growing three times faster than its online competitors and continues to take market share at an accelerating rate.

Yahoo, despite being the world's largest Internet portal with over 700 million users, just reported -1% (-$12m) negative revenue growth for 2Q12, compared to Google's 24% (+$2,070m) revenue growth for 2Q12.

Facebook, the world's largest social media company with almost a billion users and with a stock that has fallen ~45% from its IPO price, just reported 32% revenue growth off a revenue base ten times smaller than Google's. Facebook's revenue growth is ominously decelerating much more rapidly than Google's revenue growth did at this stage. To put this in perspective, Facebook's 32% growth in 2Q12 produced +$289m in new revenue, which represents about 14% of Google's 2Q12 +$2,070m in new revenue. If Facebook cannot sustainably grow significantly faster than Google to take online advertising share, it will not become the competitive counterforce that conventional wisdom assumes.

Microsoft, the world second-largest search advertising company, just reported 8% online advertising revenue growth for 1Q12, or an increase of $55m, or 2.6% of Google's +$2,070m in new revenue in 2Q12. In addition to losing $1.9b (-40% margin) over the last twelve months in online advertising, Microsoft also just wrote off a $6.2b loss in 2Q12 for the Aquantive acquisition, which was supposed to be Microsoft's 2007 answer to Google's acquisition of DoubleClick's dominant ad-serving business in 2007.

AOL, which has the second-largest ad focus ranking in the U.S. after Google per ComScore, just reported 6% online advertising revenue growth for 2Q12 or an increase of $18m, or <1% of Google's +$2,070m new revenue in 2Q12.'s online advertising under-performance caused the New York Times Company to take a $195m writedown/loss in 2Q12, which represented about a fifth of the company's market capitalization.

All is not well with the online advertising business model that is supposed to be the competitively vibrant business model to sustainably monetize the free and open Internet. The under-appreciated reason is Google's expanding monopoly continues to broadly suffocate online advertising competition.

It is no coincidence that the future of online advertising is video and mobile and that Google dominates, and competitors are struggling, in video and mobile advertising. The facts tell an ominous story. In video, Google-YouTube has 82% U.S. total share of online unique viewers and 21 times the online videos served than their top competitor. In mobile, Google has 95% share of search mobile-ad revenue, 52% of all U.S. mobile-ad revenue, and 68% of all smart phones shipped in 2Q12 use Google's dominant Android operating system that systematically favors Google's advertising business.

Moreover, display advertising is proving to be a very weak sister to the search advertising business that Google has monopolized. The answer is simple. Search advertising enjoys the ultimate in knowing the immediate intentions of users. Display advertising is the opposite in that it depends on tracking and creating private dossiers on users to make display advertising just a fraction as effective as direct mail advertising is. It appears that users tune out display advertising even more than they tune our direct mail advertising to the home.

The take away question to ponder here is: Can an online advertising market that is suffering decreasing competition because of a rapidly-spreading Google monopoly, sustain a free and open Internet?