The search ad market is one of the biggest sources of income in Silicon Valley. In 2022, companies invested about $400 billion dollars on online ads. Google and Microsoft are long-time players in the online ad sector, with Google taking up about a quarter of the annual revenue. TikTok now wants a slice of the search ad pie and is preparing to launch a search ads platform. Although its platform is still in the early stages of testing, TikTok is poised to become a formidable player in today's online advertising metaverse.
What the Current Search Ad Market Looks Like for TikTok
The leading key players in the search ad market include:
Ads linked to online searches bring in the majority of digital ad revenue. Advertisers look for high click-through rates to increase their chances for actual sales. Since Google has strong click-through rates and a majority of the search market share, it has been the dominating player for nearly 25 years.
How TikTok Can Threaten the Online Ad Space
Two major factors may potentially drive TikTok's search ad platform to success.
A Decrease in Online Advertising Budgets Creating Space for Competitors
Due to the economic downturn in recent years, the digital advertising industry has seen declining sales. Although this may seem counterintuitive, this slump creates opportunities for other online competitors to introduce innovative platforms for search ads. As companies apportion less of their budget toward digital marketing, TikTok can take advantage by offering a more price-friendly product than its competition.
A Strong Influence With a Difficult Population Share
TikTok has close to 2 billion global users, with a majority of users being under 30 years old. Millennials and Generation Z are typically difficult to reach through traditional advertising routes. In fact, some Google studies suggest that around 40% of this younger market uses either TikTok or Instagram to search for a place for lunch rather than Google or other search engines. Moreover, Generation Z is the leading group for performing online searches. As long as TikTok remains a solid influence over Gen Z's online search habits, it can become a strong contender in the digital ad space.
What Challenges TikTok Faces
Although TikTok is practically a household name throughout the globe, there are two big challenges it faces as it makes its way into the search ads market.
Lack of Experience
While brands already know that TikTok can drive sales, Google and other tech giants have had a considerable head start in this digital market. TikTok needs to ensure that its platform will be price-friendly to attract advertisers and user-friendly to prevent disengagement.
Advertisers' Concerns with Security
More and more countries are making the decision to ban TikTok either entirely or on government devices. These countries include:
- United States
- European Union
The growing fear that user data can be misused by the Chinese government to spread misinformation has spurred these bans. Considering the massive amount of TikTok users and the lack of algorithmic transparency, the amount of data being collected can pose significant national security concerns. If these bans become permanent and extend to personal devices, advertisers are less likely to invest in TikTok as a search ad platform.
How Microsoft Is Thriving in Digital Advertising
Despite stiff competition and a slower ad market, Microsoft continues to see revenue increases and holds nearly 40% of the desktop search market in the U.S. To increase its revenue, Microsoft has plans to double its ad business.
Steady Increase in Search Advertising Revenue
Since 2016, Microsoft's search ad revenue has more than doubled. With the slowdown in online ad sales, Microsoft has the opportunity to chip away at Google's market share. For every point gain in shares in the search ad market, there is a potential $2 billion dollar gain.
Diverse Advertising Properties and Channels
Microsoft owns a variety of ad properties, including:
Its properties also include other websites that use Xandr to sell digital ads. Microsoft has introduced additional marketing strategies as well, such as vertical advertising, credit card ads, and expanded audience networks. The areas they serve have increased nearly four times in recent years, causing a higher search volume.
To further edge out potential competitors, such as TikTok, Microsoft has partnered with Netflix, allowing advertisers to purchase ads through Xandr, and has acquired Activision Blizzard, an interactive gaming company, to delve into in-game advertising.
Alliance With OpenAI
Microsoft recently invested about $2 billion dollars into enhancing its Bing search engine with the help of OpenAI's ChatGPT tool and GPT-3.5. GPT-3.5 is the language model for ChatGPT. With over 175 billion parameters, Microsoft plans to use GPT-3.5 to enhance its online searches. This tech giant will also incorporate a chat function so that users can further customize their searches.
Enhanced Security Accreditation
Microsoft 365 has developed a Government Secret cloud that has security infrastructure approved for use within mission systems in the U.S. Department of Defense. While this is not a huge revenue driver, this level of security can ease advertisers' concerns about data security.
How Cloudficient Can Help Your Business Contend With TikTok
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