In the current advertising fiasco, who will weather the storm?

Written by on March 27, 2017 in Guest Blog with 0 Comments

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Facebook will be hit much harder than Google. Although it is Google that is taking most of the heat in the current boycott of its digital display advertising, it is Facebook that is likely to be hit hardest by this problem.

A series of global firms have pulled their advertising from YouTube is response to finding their advertisement placed in videos which are deemed to be offensive or contain extremist content.

  • This is not a new problem but has come to a head after a series of lapses on the part of YouTube have gone viral raising the ire of companies who would appear to endorsing such content.
  • The net result is that a number of multinational companies (more likely to follow) have pulled their advertising from YouTube until they are confident that Google is able to ensure that their logos and advertising only appears along aside acceptable content.
  • This is a difficult problem because YouTube is adding 400 hours of content to its website every minute and thousands of websites are added to its network on a daily basis.
  • This makes monitoring content on a proactive basis extremely difficult which is why a meaningful number of lapses have come to light.
  • Fortunately for Google, I think that the impact of this issue will be limited and short-lived as:
    • First: this issue only affects YouTube and display advertising which RFM estimates makes up just 12% of gross revenues.
    • Hence, even if this were to fall to zero, the vast majority of Google’s business would be unaffected.
    • Second: Google is the best equipped to deal with this problem compared to any of its competitors.
    • The amount of content that has to be checked on a daily basis is so vast that it can only realistically be carried out by a machine.
    • This means that AI is needed to scan uploaded content and new websites and flag any that are suspected to contain content that Google customers are likely to consider objectionable.
    • Google has the best AI available when it comes to image and video recognition as well as sentence and text recognition.
  • Hence, I think that Google should be able to fix this problem in a comparatively short period of time.
  • However, I do not have the same degree of confidence when it comes to Facebook which already has this problem but has yet to suffer a loss of businesses as a result of it.
  • I think that when this does happen at Facebook, it will be a much more serious problem as this type of advertising is a much larger part of its revenue and I do not think that Facebook has the AI to fix it.
  • RFM research (see here) has found that Facebook is far behind its global peers when it comes to AI, mainly as a result of having not worked in the field for very long.
  • This means that while it is sitting on the world’s second largest treasure trove of data, it is unable to understand what most of it is and is therefore unable to weed out content that is objectionable to its customers.
  • I think that this will take a very long time to fix compared to Google and so when this issue hits Facebook, it will hit it harder and it is likely to last longer.
  • This is just another reason for me to remain pretty cautious on Facebook which I think will see much lower than expected growth this year which is likely to take a toll on the short-term valuation.
  • I also think that Google remains fully valued and would prefer the shares of Microsoft, Tencent, Baidu and Apple for long-term value based investors.

This article was first published on RadioFreeMobile.

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Richard Windsor

About the Author

About the Author: Dr Richard Windsor is the founder of Radio Free Mobile which is an independent research provider. The research helps clients to understand and evaluate the players in the digital ecosystem and presents a unique perspective on how all the pieces fit together in an easy to read and digest way. The product is available on a subscription basis and counts members of the handset, telecom carrier, Internet, semiconductor and financial industries as its subscribers. RFM is the land of the one man band meaning that Dr. W. also makes the tea. .

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