When Mark Zuckerberg swept into Washington to face politicians, they were not amused.
The headlines say privacy is under attack. Too late. Privacy died with Netscape and iPhones. Blaming Facebook and Google for building better digital mousetraps misses the point.
Those two companies are building the products advertisers need to effectively run their businesses in today’s digital world. Adoption of these products is not slowing down. It is accelerating. Just ask the Walt Disney Co. (DIS), which could soon ditch Comcast ad technology for Google algorithms, according to a recent Business Insider story.
Disney is an interesting case study…
In addition to theme parks and movie studios — Pixar, Marvel and Lucasfilm — Disney is home to a growing network media empire.
In 1995, it acquired Capital Cities/ABC for $19 billion. The deal brought control of 232 ABC television and radio stations. The deal included ESPN, the premier cable sports network in the country.
Today, other cable assets include the Disney Channel, and partnerships with A&E Television, Lifetime and Hulu, a digital media streaming service for network content.
In December 2017, Disney announced a $53 billion agreement to merge with 21st Century Fox. If approved, the deal would give the company control of third-largest movie studio, the Fox TV network (minus cable news), and cable networks FX and National Geographic.
The new House of Mouse would be the biggest media network ever assembled. It would also be largely dependent on its ability to monetize ads.
Robert Iger, chairman and CEO at Disney, intends to fully embrace digital. More consumers are cutting the cord, nixing their cable subscriptions in favor of digital streaming media over the internet.
To date, Disney has relied on FreeWheel, a Comcast (CMCSA) video adtech company, to serve its video advertising needs. Google would bring to the table an unparalleled trove of digital data and industry leading algorithms. Presumably, an alliance would mean more complete targeting, and higher ad rates.
Google’s adtech is hard to beat.
In December 2017, CNBC reported the latest data from Pivotal Research, an advertising analysis firm, showed Google and Facebook networks accounted for 73% of all digital advertising in the United States, up from 63% in the second quarter of 2015. In a note to clients, Pivotal’s Brian Wieser said the two companies accounted for 83% of the growth in digital spend.
In January, the Business of Apps observed that eight of the top 10 mobile apps were produced by Facebook or Google. Facebook Messenger and YouTube have a billion users.
And the two companies use all of that data to constantly refine their adtech.
If Google can win Disney’s business, it would be a seismic shift for advertising. Since 2008, Google has been trying to get a seat at the table of legacy media adtech. The search giant was always an outsider, too brash, too easy on media pirates.
A Disney hookup would be a clear sign that power of Google’s technology outweighs those concerns.
Apple CEO Tim Cook likes to argue that users are the product at Facebook and Google. Smugly, he opines that the real customers are advertisers.
He’s right, sort of.
Related story: Why Facebook Critics are Missing the Point
Before Facebook there was MySpace. Before Google, there was Yahoo!, AltaVista and Lycos. The reason Facebook and Google won digital is not because they collected more information about users. They won because they used machine learning and data analytics to have a better understanding of the data, and how they could leverage it profitably.
In the process they learned how to build large audiences with services people love. The many incarnations of Instagram, the popular photo-sharing app, and YouTube are perfect examples of this. The apps are in a constant state of upgrade, with new features on a near weekly basis.
The companies also learned how to build powerful tools for advertisers. Those tools are extremely valuable, and they are not easy to replicate.
Investors need to keep this in mind as politicians and envious business leaders drone on about the war on privacy. Hint, it was lost long ago.
Long term investors should buy both Facebook and Alphabet (GOOGL), the parent of Google, into weakness.
Best wishes,
Jon D. Markman
