AdMoolah News and Views

There was recently a thread at DigitalPoint forums that asked the question, “Is AdSense a monopoly?”. Almost half of the people who responded to a poll thought it was a monopoly. AdSense is not a monopoly, and here’s why.

Investopedia defines a monopoly as “A situation in which a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition – which often results in high prices and inferior products.” Given this definition, AdSense is clearly not a monopoly.

AdSense Does Have Competition

AdSense does have a large share of the self-service ad market, but could you say it owns “all or nearly all of the market”? A survey of the Technorati Top 100 blogs shows that AdSense is the biggest player, but doesn’t even own half of that space. AdSense appeared on 24% of the top 100 blogs, 21% had no advertising, BlogAds and Doubleclick each appeared on 15%, with other ad networks appearing on 25% of blogs. So there is clearly significant competition.

AdSense Doesn’t Have Monopoly Power

So, I’m sure there are those that will argue that the above survey is too unscientific and doesn’t count. Lets move to important part of the second part of the definition: “high prices and inferior products”. Does Google have so much power in the market that it can get away with treating publishers like crap? Hardly. It has been calculated that Google give 78% of the revenue to publishers. This is a much better cut than many advertisers give. For example ReviewMe keeps 50% of the revenue and Affiliate Network typically keep 30%. So with Google keeping a smaller percentage of revenue than many of their smaller competitors, they cannot be accused of using their market leading position to slack off. When it comes to features and innovation it is also clear that they are continuing to push the envelope. Just this year they have introduced major improvements like Video Ads and Referrals 2.0. If Google had a true monopoly there would be no need to continue to innovate.

Why Isn’t AdSense a Monopoly?

So given that Google has great brand recognition and it seems like all anybody talks when it comes to Web site monetization about is AdSense, why doesn’t it have a monopoly? Unlike the in physical world, it is difficult to maintain a monopoly in online services. For example, take Bloglines. Bloglines used to have a lions share of the online feed reader market. It was basically the dominant reader – until Google Reader took off and now has a larger market share than Bloglines. Also, take the example of MySpace. There are no arguments that it has dominated the social networking space. However Facebook is making huge inroads here. If Facebook continues to innovate and attract users like it has been, it will soon be a very real challenger to MySpace.

In the physical world large players can make it difficult to compete by very legitimate means, like getting great ecomomies of scale, or sother tactics, like setting up exclusive contracts with suppliers. In the online world, these types of competitive advantages are simply not possible. In the physical world, being bigger means you can do things efficiently, such developing large distribution networks that smaller competitors can’t match, or making sure you have a larger and better space on the supermarket shelf compared to your competitor. In the online world bigger is not really better. Anybody can get cheap, reliable hosting and compete with just a bit of time and talent. Just look at Markus Frind who run plentyoffish.com on his own and competes in the lucrative online dating service with much bigger companies like Match.com.

That is the reason that AdSense will never be able to have a true monopoly, there are so many second tier players waiting in the wings, and it’s so easy to switch to another service, that if Google ever really tries something unfair, then they will quickly lose their dominant market position. So in that sense, nobody will ever have traditional monopoly power in the online ad space.