Can Facebook and Twitter Dethrone the King of Online Advertising?

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Social media companies like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) really only have one true way to make money, and that’s through advertising. The bread and butter of their business is to bridge the gap between users and marketers — to facilitate an exchange of information between those two parties and to get paid for their services.

The proof is in the pudding. In the third quarter, Facebook generated revenue of $2.02 billion, 89 percent of which came from advertising. Twitter generated 89 percent of its revenue for the nine months ended September 30 through advertising. The beating heart of each business is its ability to court marketers and its ability help them develop targeted, effective advertising strategies without jeopardizing the integrity of the service.

But despite their dependency on advertising dollars, Facebook and Twitter don’t rule the roost. According to eMarketerGoogle (NASDAQ:GOOG), with its iron first clenched around search, took in 40.9 percent of all digital ad revenue in 2012. This compares to just 5.9 percent for second-place Facebook and 0.6 percent for Twitter, which holds the eighth seat in the pantheon of online advertising giants.

Google’s dominance of the online ad industry is expected to continue into the foreseeable future. EMarketer predicts that its share of total advertising revenue will shrink just slightly, to 39.9 percent, in 2013 before expanding to 40.8 in 2014 and to 42.3 in 2015.

Facebook and Twitter are expected to grow their take of the market, but the leader board will remain relatively unchanged. Facebook’s share of the market is expected to expand to 7.4 percent in 2013, to 8.2 percent in 2014, and to 9 percent in 2015, giving it a commanding second-place seat behind Google.

Twitter’s share of the market is expected to expand to 1 percent in 2013, to 1.6 percent in 2014, and to 2.2 percent in 2015, putting it in a tie for fifth place with InterActive Corp. (NASDAQ:IACI).

Even though Google dominates the market, it is big enough to comfortably fit all of the Internet giants. The total amount of money spent on digital advertising is expected to increase by more than 25 percent by 2015, from $42.58 billion in 2013 to $53.36 billion. A 2.2 percent share would put Twitter ad revenues conservatively at $1.17 billion in 2015, compared to expected total revenues of about $640 million for the current year.

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