Apple, Facebook Poised to Show Further Signs of Tech Dominance

Apple, Facebook Poised to Show Further Signs of Tech Dominance
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Amazon and Alphabet posted results that extended their dominance of how we shop and search online. Apple and Facebook will in the coming days add evidence that tech behemoths command an ever widening share of consumer time and spending.

According to Bloomberg, Amazon’s revenue soared as shoppers favored it over brick-and-mortar stores, while Google parent Alphabet reported surging quarterly profit that highlighted the ubiquity of its search advertising business, especially on smartphones.

Facebook is expected to report first-quarter profit of $2.57 billion, up 70 percent from a year earlier, while revenue climbs 45 percent to $7.82 billion, according to analysts’ estimates compiled by Bloomberg. When Apple reports fiscal second-quarter earnings, sales are expected to climb 5 percent to $53 billion. Revenue from the App Store and other services such as Apple Music will likely jump 20 percent to $7.2 billion, according to UBS analyst Steven Milunovich.

Every time Apple sells an iPhone, the customer buys apps and other services, feeding data such as photos and contacts into the device, making it harder to swap for a competitor’s device. Higher margin service revenue then feeds back into Apple’s development budget, helping it build more advanced products to sell to the same consumer.

Google’s advertising business is very different, but has similar self-feeding qualities. The company got 97 percent of mobile paid search clicks in the U.S. in the first quarter of 2017, according to client data from digital marketing firm Merkle Inc. That was up from 82 percent in the same period in 2014.

With more searches, Google gets more ad dollars to reinvest to keep its search engine ahead of the competition, mostly represented by Microsoft’s Bing. Google also gets more data on what results people click on, which can be used to improve its software even more, and keep people coming back to find information. For advertisers, Google’s large online audience makes it one of the first places to go to run online marketing campaigns. The other is Facebook.

Facebook and Google captured 77 percent of U.S. digital ad spending last year, up from 72 percent in 2015, according to a recent analysis of data from the Interactive Advertising Bureau by Pivotal Research Group. For advertisers it’s “easier to concentrate budgets with a smaller number of players. It’s easier to manage,“ said Brian Wieser, an analyst at Pivotal.

Marketers have long griped about the "duopoly" atop digital advertising. But they keep giving Google and Facebook money. That’s largely because few other places offer wide reach, channels for targeting consumers and better returns. Those advantages only multiply as the tech companies expand.

Advertisers disagree about what company could offer a viable third alternative. Some suggest another internet titan: Amazon. The largest online retailer isn’t a leading digital advertising destination yet, but on its earnings call last week, CFO Brian Oslavsky reported "consistent growth" from that business. Research firm eMarketer expects the company to generate more display ad revenue than Twitter by next year.

Even so, most of Amazon’s first-quarter revenue gains came from grabbing retail market share as more people shop online, rather than in stores. That shift is fueling a record pace of retailer bankruptcies this year, despite a growing U.S. economy and solid consumer spending.