How Big Media Handed Digital Advertising to Big Tech

By: Oles Andriychuk (Oxford Business Law Blog)

The current structure of digital advertising markets makes the Google-Facebook duopoly an unavoidable trading partner for every party in the content consumption supply chain, creating a typical ‘bottleneck’ problem. The media industry remains the only meaningful market force potentially capable of mitigating the duopolistic order of digital advertising, but traditional media appear to be more interested in partnering with Big Tech than competing with it.

The digital advertising industry shows a remarkable trajectory of growth, both in terms of scaling up as well as technological advancement. Being an omnipotent and omnipresent intermediary between the end-users and their digital life allows a handful of digital champions to hold a unique market position, improving endlessly their algorithmic matching expertise. Extraordinarily, out of all market players active in display advertising in the UK, Facebook generated over 50 percent of revenues. Google alone generated over 90 percent of UK search advertising revenues. 

It is a matter of fact that the entire digital advertising supply chain is being dominated by Facebook’s and Google’s expanding duopoly. This dominance is not only about the scope of their presence in the market, and not only about the astonishing absolute figures of their revenues and profits. 

These are the consequences. An important trigger of this radical metamorphosis in the area of online advertising was a fundamental reconfiguration of the entire ‘production process’—the path from the advertiser to the consumer has become much more technologically advanced. The entire process is currently characterized by tailoring and individualization and underpinned by robust algorithmic matching techniques. This allows myriad individual transactions to take place automatically within milliseconds—and despite some quite astonishing revelations and allegations of horizontal collusion and vertical exploitation, the system is incomparably more affordable than traditional advertising. Micro-targeting and consumer profiling allow a very effective matching of advertisers, publishers, and end-users. Clearly, the technological robustness of the model is accompanied by the objective features of the digital markets, which are characterized by strong network effects and oligopolistic structure, and which until recently have been evolving without any systemic regulatory supervision and enforcement. In antitrust circles, this is now a well-known story…