“Digital advertising is becoming a rather simple proposition: Facebook, Google, or don’t bother.”
     - Ben Thompson, February 2016

I’m not sure who coined the term, but The Facebook-Google Duopoly is a real thing. AdAge, Forbes, eMarketer and other industry publications often refer to this phenomenon simply as the duopoly.

I have seen this duopoly remain strong over the last six years. When our agency is making decisions about where to invest a client’s ad budget, the conversation generally starts with Facebook and Google, and then we consider the alternatives.

And for good reason! These two platforms have the most users, the most amount of data, and the most sophisticated tools for optimizing ad delivery and driving performance. 

How is it possible, though, that this duopoly remains completely unthreatened nearly five years after Thompson made this declaration? How has there not been one single adversary worthy of consideration?

In my upcoming book, Join or Die: Digital Advertising In The Age of Automation, I dedicate an entire chapter to emerging digital ad platforms and why I think Roku is one of two contenders that could join the ranks in the coming decade. However, I am concerned and discouraged by the short term moves I see being made by Roku and others. They appear to be missing the point and cannot get out of their own way.

If Roku is hoping to challenge the duopoly and become a major player in the digital advertising space—a move that would benefit the broader advertising industry—they need to embrace some of the core strategies that made the duopoly so great in the first place. Most important, they need to make it easier for new advertisers and small businesses to launch campaigns on their platform. 

(On Join or Die, I’m really excited about it. It will be available later this fall. You should take a second and go to www.joinordiebook.com and sign up for email updates.)

Common Themes of the Facebook-Google Duopoly

Facebook and Google are two completely different ad platforms, but their approach to growing their advertising revenue has included common themes, including:

1. Variety of ad placement options. The duopoly have access to just about everyone, everywhere, and at many times throughout the day. Google Search, Instagram stories, YouTube, Facebook desktop, Gmail, Facebook Messenger, Google Maps, WhatsApp, and a seemingly limitless inventory of native and display ad placements that can be accessed through Google Search Partners, the Google Display Network, and Facebook’s Audience Network.
   
   In short, if you’re targeting a person that uses the internet, there’s a near 100 percent chance that you can use the duopoly to reach them.
   
   According to Andrew Keller, Facebook’s Global Creative Director, the average person scrolls through 300 feet of mobile content every day—the size of the Statue of Liberty. A lot of that content is connected to the duopoly. So they have that going for them…
   
   
2. Access to a ton of data, and a commitment to accurate measurement solutions that make the data valuable. The duopoly have made key investments in conversion solutions, cross-device attribution, and other measurement tools. They understand that while ROI measurement is important to all advertisers, it is essential for small and medium sized businesses that are new to the platforms.
   
   It should be noted that these solutions are not easy to come by and require access to unfathomable amounts of user data.
   
   Similarly, the duopoly invests in sophisticated machine learning and automation solutions that can use this data to drive performance.
   
   
3. It’s stupid-easy for any business to start advertising on these platforms, and at any budget. Google has always offered free $100 or $150 ad credits for new accounts, and advertisers can get started on either platform for as little as $5 per day.
   
   They are willing to play the long game, knowing that advertisers will increase their budgets as they see positive results.
   
   They also make it easy for ad agencies to onboard new clients onto the platform. Agency buy-in is extremely important, as it creates a grassfire effect that is hard to replicate. Think of it this way: I’m basically a salesperson for Google and Facebook, and they’ve never had to pay me a penny’s worth of commission. There are thousands, perhaps hundreds of thousands, of PPC advertisers like me across the globe that fall into the same category.
   
   

The first two themes are most important to get an emerging ad platform to the starting line. If they want any chance at catching up to the front-runners, though, they need to take the third theme seriously. This is the area that most emerging platforms tend to ignore.

I give Microsoft Ads (Bing) a lot of flak, but they’ve gotten one thing right: they’ve basically copied Google’s model. And it works! And they’re also not ashamed of it! Good for them!

Not only does the UI look just like Google’s, but the Import Campaigns From Google Ads button takes prominence on their dropdown navigation menu. 

Microsoft is also constantly offering coupons to incentivize advertisers to experiment with new features. Just yesterday, our primary Microsoft rep reached out to me with a list of 8 accounts under our purview that are eligible for a $250 ad credit if they simply try a new shopping campaign beta feature. 

These things work! These little details add up and help keep Microsoft relevant, top of mind, and included in our service offering. 

Let’s use our above framework to evaluate Microsoft’s chances at challenging the duopoly:

1. Variety of ad placements / ability to reach just about anyone that uses the internet: Meh, not really.
   
   
2. Access to a ton of data / sophisticated tools for measuring performance and driving automated campaigns: Meh, not really.
   
   
3. Stupid-easy to get started: Yes!
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Due to their lackluster results in these first two areas, Microsoft will never become a true challenger to the Facebook-Google duopoly. Their commitment to ease of access, though, is what allows them to remain relevant in the broader digital advertising ecosystem. 

This brings me to Roku. 

I am extremely bullish on CTV and the future of advertising capabilities that a company like Roku can offer.

But that is only if they can manage to get out of their own way.

How does Roku score on our aforementioned framework?

Roku’s Ad Placements and Reach: Pretty good!

Roku’s Access to Data: Pretty good!

Roku’s Ease of Adaptation: Really bad!

Let’s dive deeper. 

CTV Advertising Potential

From a WSJ article titled “Streaming TV is Surging But The Ads Remain on Repeat” published on September 23rd, 2020:

Connected-TV advertising is growing, although it remains a fraction of the roughly $70 billion that gets spent on traditional TV advertising in the U.S. every year. Ad spending on streaming TV will total almost $8 billion in the U.S. this year, up from nearly $6.4 billion in 2019, according to data from research firm eMarketer.

Connected-TV will soon become the primary medium through which consumers view video content. In the digital world, the only scarce resource is attention—advertisers have yet to fully adapt to the new mediums in which their target audiences are spending their time (less TV; more streaming services). Roku has an opportunity to position themselves in the middle of this transition, creating a gateway for advertisers to grab, or claw back at, the attention of the consumer.

The duopoly capitalized on similar consumer shifts over the last two decades; first a shift to web-based attention, followed by a shift to mobile. The next shift away from analog-cable television advertising is all but Roku’s opportunity to lose. 

What’s important to consider, though, is that the relative pie of advertising budget is not exclusive to the budget currently being spent on TV advertising ($70B). Instead, it includes all the money being spent on advertising, anywhere. An easy-to-use, effective CTV ad platform has the potential to steal budget away from other traditional ad placements, as well as the broader digital advertising universe. In short, a quality CTV ad platform could steal budget away from the Facebook-Google Duopoly.

Was Google’s pie limited to the market share of Search advertising? Was Facebook’s pie limited to the market share of ads that could be served on Facebook.com? No and no. 

The upside for Roku is massive, and they might not even realize it yet...
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Roku’s Ad Placements and Reach: Pretty Good!

Roku claims to reach four out of five households in America. That is not to say that four in five households own a Roku device or have even heard of the Roku brand. However, the Roku ad platform has the capability of reaching these folks through their platform directly or through partner networks.

Ads can be served through ad-supported streaming services that are accessed through the Roku platform (Hulu, ESPN, etc.). This includes The Roku Channel, a live network of exclusive and non-exclusive content available to Roku customers. 

Roku has partnered with several TV manufacturers, allowing the Roku operating system to be the backbone structure of the Smart TV itself. The host of Smart TVs offered by TCL, Sanyo, Phillips, and JVC are all using Roku’s technology. As a result, Roku’s advertising platform can tap into millions of U.S. households, many of which are occupied by people who may have never even heard of Roku.

What’s most interesting, though, is that Roku has partnered with other ad exchanges including Google and Spotify. Through Roku’s OneView platform, advertisers can serve audio ads on Spotify or display ads on the Google Display Network.

It seems, then, that four in five American households is a conservative estimate. This platform certainly has the capability to reach a ton of people in many formats. 

Roku’s Access To Data: Pretty Good!

Every ad platform has its own host of first party user data that can be leveraged as part of their advertising ecosystem. Roku, however, has taken this one step further. In 2019, Roku acquired adtech and data company dataxu for $150M—a clear attempt to provide more meaningful, data-driven capabilities to their ad platform. 

From my upcoming book, Join or Die:

When I first received a demo of Roku’s OneView ad platform, I was shown a twenty-six slide presentation. Of those twenty-six slides, fourteen were dedicated to highlighting their measurement and attribution capabilities. This was a notable contrast to other platform presentations I’ve seen, which focus almost exclusively on audience reach and ad formats. Measurement is either tangentially tacked on, at the very end, or not at all mentioned.

Roku is directly addressing a key challenge that advertisers have struggled with since the introduction of digital: How can we ensure that affinity-based advertising is not just reaching our target audience, but also generating any sort of profit? Roku has invested more than $150M in attempting to answer this question.

Today, their platform can leverage data from partners, including Neilsen, Salesforce, Oracle, LiveRamp, Factual, Tapad, Acxiom, Neustar —as well as your second-party data (retargeting audiences, etc.) to help achieve this. 

The above-mentioned WSJ article addresses the need for such data in the CTV advertising space:
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The wealth of [CTV streaming] options brings limitations: Roku, Amazon and Walt Disney Co. ’s Hulu, for example, each sell ads and have their own audience data, but it is hard for advertisers to track or target viewers from app to app, or from one operating system to the next. Ad inventory bought from multiple sellers can often show up in the same app.

Over the past few years, General Motors Co. has been increasing its media spend on connected TVs, executives from the company said. One limitation from spending more has been a lack of transparency on when and where ads run within streaming platforms and apps, said David Spencer, assistant manager of audience buying strategy for GM. Platform and app owners have been better about sharing such information over the past 18 months, but the issue hasn’t been completely resolved, he said.

“The better that gets, the more willing we will be to invest larger dollars,” Mr. Spencer said.

It’s quite possible that the author was unaware of Roku’s dataxu acquisition. 

While tracking and attribution will never be completely solved within any ad platform, I have full faith that Roku is making significant strides in these areas. 

Even if Roku is able to address the concerns that marketing executives like David Spencer have, they will still need to tackle a second issue; one that took precedence in the WSJ article’s headline. Emphasis is mine:
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People are streaming more movies and shows on internet-connected TV sets. But keeping track of who is watching what and where—and how many times they see the same ads—is becoming a bigger frustration for advertisers seeking to move money into the medium.

“Connected TV usage has gone up significantly—and everyone is dumping money into it—but you can see how it’s breaking at the seams,” said one ad buyer who plans to spend $15 million this year on streaming TV advertising for marketer clients, more than double what he spent last year. “You get the same ad over and over—it’s worse than ever.”

The article mentions the introduction of frequency capping and other features that can help prevent this annoying phenomenon… but all of this completely misses the point! 

The best way, perhaps the only way, to increase the variety of ads that a user sees is to onboard a larger supplier of advertisers. Frequency capping is not the answer. 

The current CTV advertisers, as well as their users and their investors, are concerned about the lack of variety of ads that users are being shown. You would think, then, that CTV advertising platforms like Roku would be pulling out all the stops to increase the sheer quantity of advertisers that are participating in these ad exchanges.

You would think that there would be a library of easily accessible support documentation and training videos, and agency outreach, and coupons that could help incentivize advertisers to get started at no risk—you know, like what Google and Facebook have done forever? 

Nope. None of that. 

Roku’s Ease of Adaptation: Really Bad!

Roku’s OneView platform is not currently “self-service.” To earn that title, an advertiser should be able to sign up for an account, create campaigns, and set up billing (by credit card), all without having to speak to a salesperson. At present, the only way to gain access to Roku’s OneView platform is by submitting a contact form on their site. 

What’s more, there is no agency dashboard where agencies can easily toggle between multiple clients. There is no “Agency Solutions” page listed anywhere on their website, and the reps that we spoke to were not completely sure about how accounts would be funded, how to manage user access, and how to remove agency access if a client chose to part ways with their current agency. 

If Roku wanted digital agencies to become free salespeople on their behalf—something that Facebook and Google have benefited from—they need to launch a Multi-Client Center similar to Google. It needs to be easy for agencies to set up accounts on their client’s behalf, and for clients to easily link and unlink from agency MCC accounts. Clients need to be able to pay by credit card, and the platform should be void of terms like “insertion orders,” “flight dates,” and other outdated media terms that are gibberish to most folks. 

These are annoying roadblocks, yes, but not deal breakers. I’d still be willing to put up with these headaches because I have that much faith in Roku’s advertising capabilities. 

None of that matters, though, because it appears as if Roku’s ad platform was intentionally designed this way. Roku is not currently interested in opening their doors to all advertisers, and they’re actively turning away business.

To be blunt: if you don’t have deep pockets, you won’t be advertising on Roku anytime soon. This is their biggest mistake.

In July of this year, we attempted to get one of our clients onboarded into the Roku ecosystem. We were told that the client would need to commit to $25K per month before we could move forward with setting up an account. We were fed a boilerplate line about how they require ad spend minimums to “ensure that enough data can be accumulated over that period to show statistical significance.” 

$25K per month is a significant amount of money no matter how you package it. AdVenture Media works with some big clients, many of which would be willing to invest $25K or more into a platform like Roku. However, would any of them be willing to jump in with that level of commitment, to a brand new ad platform with no previous track record of results? Add in all of the headache of getting started on such a new venture (account creation, pixel installations, gathering the creative assets, etc.), and this all of a sudden becomes a huge risk. 

Even the most aggressive clients on our roster would still want to ease into a brand new ad platform, perhaps with a $5K commitment. And that should be reasonable!

Hypothetically, if a client called me tomorrow and said they want to increase their budget by $25K, I would first consider how much incremental budget can be invested in Google and Facebook. There’s almost always an opportunity to test something new within these platforms, and we have more experience and more confidence in the returns that we’d yield from these platforms, so why would we go through the hassle of Roku? 

It’s somewhat insulting that Roku feels that ad agencies and their clients cannot be trusted to understand statistical significance and what constitutes a worthwhile test budget. To be clear, this is not our first rodeo. I have no intention on dealing with the headaches of learning about and adapting a new ad platform into our media mix, and then pulling the plug too soon. Trust me on this.

Keep in mind that this conversation happened in July of 2020, while the COVID-19 pandemic was and still wreaking absolute havoc on the advertising industry. According to Business Insider, 76% of companies plan to reduce their ad budgets this year. Ad agencies and major CPG brands are facing massive layoffs, and there is an overall sense of uncertainty about what the upcoming election season, holiday season, and start of 2021 will have on the industry as a whole. 

In what universe did Roku think that a $25K commitment was necessary and feasible? 

But here’s the kicker… Roku is willing to offer a concession to agencies. If your agency is willing to commit $100K per quarter, across a book of clients, then they are willing to set you up with an account. 

“If you had three clients that could commit to about $11K in spend per month, that would come out to $100K per quarter. So it’s less than half the commitment for each client, which drastically reduces the risk.” 

My colleague, Ronnie Cardno, picked up on this immediately and asked:

“What if we had 10 clients, each willing to commit $3,300/month? That would add up to $100K per quarter across our book. Or 20 clients at $1,700? Would that be enough to justify an account setup?”

Without hesitation, the answer was yes. 

It is therefore a complete fallacy for Roku to implement the original $25K/month minimum spend commitment on the grounds that they care about enough data for the test and statistical significance. If $25K was in fact a meaningful threshold, then there would be no concessions. We would have received pushback after suggesting we bring on 20 clients that were willing to spend just $1,700/month, a mere fraction of the original statistically significant threshold. 

This had nothing to do with statistical significance, and everything to do with Roku not wanting to waste their time with smaller advertisers. 

Do we have 10 clients that would be willing to jump into Roku at $3,300 each? Probably. Is it worth the hassle of setup, or the anxiety that would come if two of those clients pulled the plug after the first month? Not a chance. 

That extra $100K from our book of clients is going to the same place it has gone for the last six years: Google and Facebook.

Perhaps this decision was made with good intentions. Perhaps Scott Rosenberg, the Senior VP at Roku that manages the ad platform business, believes that a higher spend threshold will ensure that only premium, high-quality advertisements are being served to their user base? They might want to protect the integrity of the platform and prevent poorly-made ads from disrupting the experience. 

It’s a valid concern, of course, but that way of thinking is never going to help you challenge the Facebook-Google duopoly. If you want to make a splash in the modern digital advertising environment (and justify the $150M dataxu acquisition), you need to be willing to take those risks. 

There are better ways of policing ad quality. Google uses their proprietary Quality Score algorithm to determine which ads are taking away from the user experience. Facebook has a similar feature called Relevance Score. Facebook Ads always had a policy that forbade any image ad from having too much text covering the image, under the belief that this created a negative user experience (this long-standing policy was removed last month). Poor quality ads are taxed with higher CPMs and CPCs, and advertisers eventually adapt to the best practices and commit to creating better ads. 

The duopoly therefore lets the market determine what ads are worth seeing, and which ones stink. Poorly-made ads rarely generate sales, which makes the advertising venture unprofitable, which forces bad advertisers off the platform. The duopoly are willing to play the long game.

Rosenberg’s Dilemma

Mr. Rosenberg brings a long career of television-based advertising experience to Roku. It is no surprise that Roku’s OneView platform looks more like a traditional media buying experience, and less like the kind of self service digital advertising platform that many of us have grown accustomed to. 

In a separate 2016 Stratechery article titled “TV Advertising’s Surprising Strength — And Inevitable Fall,” Ben Thompson addressed the key differences between traditional television advertising and modern digital advertising. He begins with two statistics:

1. Advertising’s share of GDP has remained consistent for roughly 100 years (about 1% of total GDP).
2. TV’s share of advertising, after growing for 40 years, has also remained consistent at just over 40% in the last 20 years. That is to say advertisers have grown their share of spend in other channels, as opposed to television (digital, for example). 
   

There are two important takeaways here: Advertising is a zero-sum game. From a macroeconomic standpoint, advertisers are not increasing their relative investment in media. If Roku is asking for a $25K per month commitment, they need to realize that that budget is coming from somewhere else. The second takeaway is that television’s share of advertising budgets has stagnated, and the declining rates of television consumption would suggest that the ad dollars will soon shift away from TV. 

Thompson describes the traditional relationship between TV and advertisers: 

The most obvious reason for TV’s enduring appeal to advertisers is that it is a pretty fantastic advertising medium: relaxed viewers, immersive experience, etc. The appeal, though, goes deeper: the very institution of television advertising is intertwined with the kinds of advertisers that use it the most, the products they sell, and the way they are bought-and-sold. And what should be terrifying to television executives is that all of those pieces that make television advertising the gold mine that it has been are under the exact same threat that TV watching itself is: the threat of the Internet.

He goes on to list the top 25 advertisers in the U.S., made up of the major household names from telecom, automotive, credit cards, CPG, entertainment, retail, and electronics industries. The common theme with all of these companies is that they’ve built their businesses by leveraging massive scale and distribution channels. 

All are looking to reach as many consumers as possible with blunt targeting at best, all benefit from scale, and all are looking to earn significant lifetime value from consumers. And, along those lines, all can afford the expense of TV. In fact, the top 200 advertisers in the U.S. love TV so much that they make up 80% of television advertising, despite accounting for only 51% of total advertising (and 41% of digital).

Another common theme from these top companies is that their vulnerability has been exposed through the adoption of the internet. Dollar Shave Club took on Proctor and Gamble by heavily focusing on—wait for it—Facebook and Google advertising. 

Still, the inescapable reality is that TV advertisers are 20th century companies: built for mass markets, not niches, for brick-and-mortar retailers, not e-commerce. These companies were built on TV, and TV was built on their advertisements, and while they are propping each other up for now, the decline of one will hasten the decline of the other.

TV advertising spend in the U.S. is currently around $70B per year. The broader digital advertising space commands an additional $130B.

So this all begs the question: Is Roku trying to create an ad platform that more closely mirrors traditional television advertising? Or are they trying to create an ad platform for Internet-based video content? 

It seems as if they are comfortable with the former option. If they position themselves as the latter, though, the total addressable market and overall opportunity exponentially increases with the rest of the digital advertising industry. 

Copy The Duopoly

Roku needs to welcome smaller advertisers with open arms. A larger quantity of smaller advertisers will check all of the boxes. It would:

• Increase the variety of ads being served to users.
• Increase competition and therefore drive up the auction price of each ad placement.
• Increase overall revenue flowing through the Roku advertising platform.
• Increase the total amount of data that Roku can leverage to improve their optimization algorithms.
• Increase diversity, and therefore decrease the risk of being over-invested with a smaller set of large advertisers.
• Probably sell more Roku devices? The more that people talk about, and learn about this service, the more likely they are to consider using the product themselves. This is tangential, but shouldn’t be overlooked.
  

It is exactly these dynamics that not only led to the duopoly’s dominance, but has also helped them continue to dominate throughout the COVID-19 pandemic (as well as many attempts by big brands to boycott the platforms, including this example and this example. In fact, some estimates predict that the latest Facebook boycott, organized by some of the world’s largest brands, will actually increase ad revenue over the long term, as decreased competition allows opportunities for smaller companies to see increased performance and therefore double-down on their commitment to said platform).

The duopoly is anti-fragile, and they are going to continue to dominate unless an emerging ad platform has the wherewithal to do the right thing and copy their model. 

So as we approach 2021, Ben Thompson’s anecdote remains true: Digital advertising is a simple proposition for most—Facebook, Google, or don’t bother.