How Facebook's Ad Revenues Pose a Threat to Google

Facebook took in an estimated $1.86 billion in advertising revenue in 2010, and now accounts for 4.7 percent of total digital ad spend, according to Ad Age and eMarketer. That makes the social network increasingly a competitive threat to Google (GOOG) in terms of ad dollars.

While Google remains by far the dominant recipient of online ad dollars -- it took in $21 billion in revenue, most of it from advertising, in the first nine months of 2010 -- Facebook is fast-growing and becoming dominant in certain niches. It could rake in $4 billion in ads for 2011.

Consider this staggering factoid: Facebook has a 23.1 percent share of display ad impressions; whereas Google Sites (Google's network of media content providers, not its search engine) received just 2.7 percent, according to a note to investors from Deutsche Bank analyst Matt Chesler today. On top of that, "Facebook will eventually become many users' home pages," Chesler states.

The competition for eyeballs between Google and Facebook must inevitably lead to a showdown or a compromise: Facebook's unsearchable walled garden of content is largely invisible to Google, and Facebook uses Microsoft (MSFT)'s Bing for its search engine. The larger Facebook gets, the more it takes from Google.

And then there's the mobile ad arena. Mobile ad spend will finally reach $1 billion this year, according to Chesler's estimate -- a "tipping point" milestone in the nascent medium. About 29 percent of advertisers now have separate mobile ad budgets, and those budgets are 5-7 percent of their online ad budgets, Chesler's research says.

Clearly, mobile advertising is the future of digital advertising. Google has a head start here -- its Android operating system is installed on more phones that Apple (AAPL)'s iOS (25.1 percent vs. 17.4 percent). But Facebook's app is on both those systems. It does not yet carry ads (at least in its Android version). The showdown occurs when Facebook starts running ads on those apps. Google and Apple will -- surely? -- only tolerate Facebook's ads running on their phones if they also get a cut of the revenue.

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Images by Flickr user Mark Hillary, CC.

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