Oakland, California: Google's and Facebook's advertising businesses, which have roughly tripled in combined size over the past five years, may be headed for a rare stumble as the coronavirus pushes the global economy into a tailspin.
Once-abundant travel and entertainment ads have all but disappeared from Google search. The prices for Facebook advertisements are at record lows. And Wall Street analysts are estimating that annual revenues will decline for the first time in the history of the two companies.
It's the type of downturn that traditional media has experienced before but was hard to imagine for the duopoly that accounts for more than half of the spending in online advertising.
And yet, as gloomy as the situation may appear for Google and Facebook, the outlook for the rest of the digital advertising industry is even bleaker. What little digital spending there is will still flow to them, leaving smaller social media platforms and publishers out in the cold.
"To the extent that people are still spending, it will be even more concentrated with Google and Facebook," said Nicole Perrin, principal analyst at research firm eMarketer. "They are likely going to end up in a stronger position after all this is over."
A shakeout is starting to take shape. Review site Yelp said Thursday that it was laying off 1,000 employees and furloughing another 1,100. In an email, Jeremy Stoppelman, Yelp's chief executive, said it needed to cut costs in the face of stay-at-home measures that have hammered restaurants, bars and other local business - the company's main advertisers.
After projecting revenue to increase between 5% and 11% in the first quarter, Twitter withdrew its quarterly estimate last month and forecast revenue to decline slightly. Pinterest pulled its projection of full-year revenue growth of more than 30% because it said it started to see a sharp decline from mid-March. It did not offer updated guidance.
David Rodnitzky, chief executive of ad agency 3Q Digital, said during lean times advertisers opted for ads that translated most directly into new business. Combining a wealth of information about users with the most visited destinations on the internet, Google and Facebook are safe.
That's not to say the two companies aren't heading into a rough patch. In an investor note last month, John Blackledge, an analyst for the investment firm Cowen, trimmed his 2020 revenue forecast for Google and Facebook by nearly 20%. He now predicts a decline in annual revenue for both.
The prices of Facebook ads have declined 35- to 50% on average in recent weeks, said Alex Palmer, an analyst for Gupta Media, a digital marketing agency. Last month, Facebook warned that it was already seeing signs of an early pullback.
"Our business is being adversely affected like so many others," Alex Schultz and Jay Parikh, two Facebook vice presidents, wrote in a company blog post in March. "We've seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19."
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Mark Mahaney, an analyst with RBC Capital Markets, ran 50 Google searches last month and found no paid ads for travel and restaurants.
"We can't recall ever NOT seeing a 'Paid Ad' under the search term 'Las Vegas Hotels'," he wrote. "This is indicative of the broader trends across online advertising."
Average daily spending on digital ads slumped more than 20% in the latter half of March for sports and entertainment businesses, according to the advertising analytics platform Pathmatics. Cirque du Soleil, for example, went from sometimes spending more than $140,000 a day on digital ads in late February, to spending less than $40,000 a day in late March and then nothing in early April.
Travel companies like Korean Air and Norwegian Cruise Line dropped their digital ad spending to near zero in mid-March, according to Pathmatics. Home-rental company Airbnb suspended all marketing, cutting back from a projected $800 million this year.
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Advertisers that are still spending are tiptoeing around coronavirus news. Stories or posts about death, illness and economic turmoil are not exactly advertiser-friendly, and many mainstream marketers are avoiding any pandemic-related content.
"Many brands are being cautious," said Nancy Smith, chief executive of Analytic Partners, an advertising consulting firm. "People don't want to see, say, a Pantene ad next to their loved one who is in the hospital."
Before the coronavirus upended its plans, real estate firm Coldwell Banker was preparing for an advertising blitz online and TV during the NCAA men's basketball tournament. When the pandemic forced the cancellation of games, Coldwell Banker put a freeze on its plans and halted spending on ads for terms like "vacation homes."
But after shutting down advertising, Coldwell, like other brands, is edging back to Google and Facebook. The company debuted a revamped version of its ad campaign Monday that will run entirely online on Facebook, Instagram and YouTube.
United Airlines pulled nearly all its advertising for four days before returning with a new message about its waived change fees, according to Pathmatics. Ahead of Easter, chocolatier Godiva said it had placed ads on Google, Instagram and Facebook to direct customers to its online ordering site. Panera Bread said it bought ads alerting customers to pickup and delivery options including a new grocery service.
Many advertisers are avoiding coronavirus content on news sites and Facebook feeds. Google said it had controls to ensure that advertisers were comfortable with the content that their brand appeared alongside. It allows advertisers to opt out of coronavirus content as well as sensitive categories like tragedy or infectious diseases. Facebook has a similar feature.
At the same time, Google and Facebook are struggling to strike the right balance in policing problematic ads.
Google said it had started a "sensitive events" policy last month, which restricts ads on coronavirus content. On March 9, it also placed a temporary ban on ads selling masks, citing a supply shortage for medical professionals.
But mask ads served by Google continue to appear on publisher websites across the internet. There are also ads served by Google for hand sanitizer and disinfectant wipes from e-commerce sites offering a wide selection of masks and other items in short supply at significant markups.
Google said that it had taken down 50 million ads as of the end of March, and that up to 80% of the 10 million or so bad ads it flagged daily were coronavirus-related.
Facebook banned the placement of predatory ads for masks, sanitizer and other personal protective equipment, and it eliminated nearly all mask ads across the social network. But its efforts hampered volunteer groups that have banded together in Facebook groups to donate homemade masks to health care professionals.
"This is a continual battle that goes back and forth with sophisticated entities on the other side who are trying to circumvent Google's detection system," said Scott Spencer, a vice president with Google's ads business.
