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AT&T Has A Daunting Task In It’s Quest To Challenge Google and Facebook for Advertising Dominance

Randall L. Stephenson,

Chief Executive Officer of AT&T

On July 5th,2018 the US Department of Justice filed a notice that it is appealing an earlier ruling by a US district court judge approving the AT&T/Time Warner Merger.The merger was  authorized in a very decisive ruling in mid June, 2017 by US district judge, Richard Leon who approved the AT&T/Time Warner merger without any conditions. In the months preceding  the approval  of the acquisition of Time Warner ($85 billion ), AT&T CEO,Randall Stephenson  consistently suggested that the merger would help his corporation challenge the dominance of Google and Facebook ,in the area of internet advertising.AT&T believes that  the recent acquisitions of Time Warner and   AppNexus ($2) billion provides them the distribution ;content(CNN,HBO,TBS,TNT)  and advertising platform that would provide more effective ways of serving mobile Advertising to their over 100 million mobile customers.However,the evidence suggests that AT&T management should realize that challenging Google and Facebook for online advertising dollars will be a daunting task. Google and Facebook are innovative technology entities built on the internet, but in comparison ATT in spite of its recent acquisitions remains largely a digital corporation built on a legacy telecommunication infrastructure. Currently Google and Facebook control nearly 60% of advertising spend in the US but with their innovative approaches, AT& T will have a difficult task mounting a challenge especially regarding online advertising revenue.

         Also, AT&T’s acquisition of Time Warner has given them access to rich programming that is based on scripted and edited content which remain expensive to produce and are declining in terms of audience preference. On the other hand, Google and Facebook are built on a platform that promotes user generated content which is free and tends to breed more consumer interest. Also, the value of Google and Facebook comes from the amount of registered users on their platform. In North America, Google remains the dominant internet search engine with about 88% of internet search traffic with about 1.17 billion daily users and Google Gmail has about 1.2 billion users. The other top search engines as ranked by statscounter.com are Microsoft- Bing which is number 2 with about 6.7% and Verizon owned Yahoo is third with 3.67% of internet search traffic. However, on mobile devices and worldwide Google's dominance is larger.

                    Furthermore, CNN Money reported in 2018 that Facebook has nearly 2 billion registered users and about 1.45 billion daily active users. WhatsApp which is owned by Facebook has about 1 billion daily users according to information provided by the company. In addition, based on Alexa ranking the top six websites in the world are: 1.Google 2.YouTube 3.Facebook 4.Baidu 5.Wikipedia 6.Yahoo (owned by Verizon).The power of Google and Facebook comes from their massive user base, where consumers and advertising messages interact freely in continuous fashion. In contrast, all of AT& T, including Warner Media, Direct TV and App Nexus’s active customer base is projected to be in the region of 400 million .However,the number of customers who are daily visitors to AT&T websites are projected to be approximately 200 million. Actually none of AT&T related web properties are even in Alexa's list of top 50 global websites. The most visited of AT&T websites-CNN is ranked #125 by Alexa.Looking at it from a purely business perspective, Google and Facebook provide free but advertising supported platforms to users. As a result their user base continued to expand over the years while AT&T payed platform has continued to stagnate.

                      Another aspect of the unfolding dynamic is that the television distribution business (cable and satellite) of which AT&T (Direct TV), Comcast and Dish Newark are a part of, has faced huge challenges in the last few years. Over 22 million people have discarded those services and replaced them with cheaper alternatives like Netflix and Hulu. In the last two years Direct TV has lost over 2 million subscribers. So the AT&T Time Warner merger is part of AT&T’s strategy of the dealing with the dynamics of the pay television industry.

                     While AT&T has faced problems, one of their target competitors- Alphabet (Google's) has continued to be on the upward swing. Alphabet Google’s revenue for 2017 was about $110 billion dollars and a large chunk of that was from internet advertising. The other company that AT&T is targeting- Facebook's had revenue  of about $40 billion in 2017 and it was largely generated from internet advertising. AT& T and Warner media's combined revenue for 2017 was about $220 billion, but the advertising component may not have exceeded $30 billion.Approximately less than $3 billion of that may have been generated from internet related advertising.

                    In essence, a comparative review of internet advertising shows Google and Facebook are far ahead of AT& T.  AT& T's acquisitions of Time Warner and AppNexus are a survival strategy that is designed to ensure the company withstands the cut throat competition in the evolving mobile industry. To remain relevant AT&T has been developing an Ad platform that narrowly targets TV ads to its consumers based on user data. The acquisition of AppNexus, a New York based firm which has an ad buying platform and is expanding into online video advertising is AT&T’s arrowhead for challenging Google and Facebook. To support the advertising effort AT&T recently appointed Brian Lesser, CEO of its new Advertising and Analytics Company.

                    On June, 21, 2018 as part of the strategy of stimulating consumer interest AT&T announed its plans to  launch Watch TV, sports free low cost streaming service.Watch TV will have 31 channels and available for mobile customers who sign up for the new unlimited plans. Mass media analysts argue that Watch TV will strenghten AT&T in the realm of online TV streaming services.However, the facts suggest that strategy may not put the company in strong contention for dominance of internet advertising. This is because Google’s dominance of internet advertising is derived from the fact that it is a gateway to to the web.Facebook's dominant position is also because it able to offer a free platform that has rapidly grown its user base and it is the dominant social networking site.

                 Facebook has acquired over 69 companies since its founding .The most prominent Facebook's acquisition was WhatsApp ($19 billion)in 2014  and Instagram($1 billion) in April 2012 .Those acqusitions were  part of the grand strategy of achieving dominance on the mobile and web space. Furthermore, Alphabet (Google) has acquired nearly 200 companies since inception.Analysts say to dominate the web, Google developed its search engine and algorithm into a very effective and efficient application that is unrivalled. Google also developed the Chrome web browser and Android operating system (the most popular mobile OS in the world).Also, Google owns YouTube which is a social network and a video search engine. AT& T would find it a daunting task to outpace Google and Facebook because its business platform; philosophy and processes may prove inadequate for that challenge.

                      If there was any company that should have challenged Google in internet advertising, it should have been Microsoft especially after the Bing Search engine was launched in 2009. However, nearly 85% of Alphabet’s (Google)  2017 revenue of $110 billion came from search advertising .In comparison Microsoft’s Bing Search engine revenue for 2017 was about $1.8 billion based on its filing with US Securities and exchange commission.Microsoft’s Bing 2017 revenue of $1.8 billion is significantly low giving the fact that it was launched eight years prior. To dominate the web as Google has done any worthy competitor needs to develop a dominant search or social networking platform; a successful browser; mobile operating system or a dominant consumer web application. So far AT&T is not on track to develop any of those applications.

                      Google and Facebook have proved repeatedly that they have a business strategy tailored to developing web applications or platforms that are innovative and enjoy high consumer confidence.In addittion , the decision by the Department of Justice has brought some uncertainty into the future of the merger,but most analysts think AT&T will prevail in court. In spite of AT&T’s acquisition of AppNexus the company would face daunting challenges in seeking to challenge for internet search dominance .AT&T structure; platform and personnel still needs further re-tooling before it can build an advertising juggernaut that would compete with the current leaders. On the other hand the acquisition of Yahoo and AOL by Verizon gives that corporation a better chance of challenging for online advertising dollars. This is because Yahoo is the third largest search engine and like AOL is content site built for internet users.

            Google and Facebook's dominance of the web comes from the fact that they understand one of the immutable laws of Marketing-The law of Focus. All the acquisitions made by the two companies were strategically designed to strengthen their core areas of search and social networking respectively. Google’s dominance of internet search advertising is akin to how Microsoft Windows dominated the desktop computer operating system in the 1980's to early 2000's.Even till today Microsoft Windows still dominates in desktop computer operating systems. Despite AT& T's CEO, Randall Stevenson's dream of making AT& T challenge for internet search advertising dominance, Google and Facebook are likely to remain the leaders because they they have develpoed technology platforms with capabilities that are constantly evolving,dynamic,unrivalled and difficult to replicate.

This article was written by Mr.Henry Aladiume,who has  a masters degree in Mass Communications and  over fifteen years experience in Mass Media,Marketing,Brand Management and Internet Marketing.Mr.Aladiume is currently pursuing a doctorate degree in Marketing at Northcentral University,San Diego ,California.

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