Could Facebook's Pain Be Google's Gain?

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Digital advertising is big business, with the online ad market climbing to an estimated $220 billion by 2019, according to Markets and Markets. Online ads in the U.S. grew to $40.1 billion for the first half of 2017, and they will likely reach $85 billion for the year, according to figures provided by The Interactive Advertising Bureau.

Currently, the space is dominated by two major players: search giant Google, a division of Alphabet Inc. (NASDAQ: GOOGL) (NASDAQ: GOOG), and social media titan Facebook, Inc. (NASDAQ: FB). Estimates vary, but eMarketer forecasts that the two controlled as much as 63% of U.S. digital ad dollars last year, with Google grabbing the lion's share at 42%, and Facebook controlling another 21%.

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Facebook has been dealing with the much publicized Cambridge Analytica scandal, which may provide Google with an opportunity to grab an even bigger piece of the online advertising pie.

Not the first time

It is important to note that both companies have dealt with their share of controversy in the last couple of years. Facebook is still addressing the fallout from Russian-bought political ads that appeared on its social media site during the U.S. presidential election.

Google hasn't gone unscathed. The company faced backlash last year when it was revealed that advertisements from major brands had appeared next to extremist content on YouTube. The company's image took another hit when strange and disturbing videos targeting children were found on its youth-centered YouTube kids.

These are just some of the recent troubles that have plagued the online advertising industry.

Focusing on solutions

Google has been publicizing steps it has taken to address issues that are unique to the digital advertising marketplace. The company has been hiring more human reviewers to check dubious ads and videos, ramping up its machine learning efforts to identify and flag questionable content, while increasing transparency about the data it collects.

The company also said it will have humans review every video that appears on its Google Preferred program, which includes the top 5% of content on YouTube, before posting any advertising on them. The company also changed the eligibility requirements for content creators to earn revenue on the site.

The recent data "breach" at Facebook provides Google with an obvious talking point. At a recent industry conference, the head of Google's European operations said, "We hear you. We hear you when you say you want transparency, you want safety, you want fraud protection ... We hear you loud and clear." The presentation was titled, "Advertising that works for everyone" -- a perhaps subtle message that its biggest competitor is somehow lacking.

A growing threat

Some reports indicate that the advertising duopoly is seeing increasing competition for other players. eMarketer recently lowered its estimates regarding Google and Facebook's share of digital ad spending, saying that Amazon.com, Inc. (NASDAQ: AMZN) is "slowly but surely chipping away at its larger advertising rivals." It estimates that Amazon will capture 2.7% of the online ad market this year, but forecasts that share will grow to 4.5% by 2020.

Amazon has been using data gathered from its e-commerce website and testing advertising methods as it plans to take the fight to Facebook and Google.

Even in the face of rising competition, though, Facebook and Google have shown that they are their own worst enemies, continually dealing with backlash from both consumers and advertisers over several very public missteps. Advertisers tend have very short memories, though, and their dollars always seem to flow to where they can best reach the public -- so Facebook's troubles may be fleeting.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Amazon, and Facebook. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Amazon, and Facebook. The Motley Fool has a disclosure policy.