Facebook’s India arm reportedly made Rs 177 crs revenue in FY16, the last year for which it reported revenues. In the same period, Google India made Rs 5,904 crs. Google is thus about 33x Facebook revenues in India.
For the year-ending Mar’17 we will very likely see a lower multiple, for Google may not grow as much as Facebook in India, given its higher base. Let us assume it will be about 30x.
Now let us look at global numbers. Google closed FY16 (ends December though) with ~$90b in revenues while Facebook ended with ~$27b in the same period (both publicly available numbers). Globally this is a multiple of 3.3x.
Compared to the global multiple of ~3 for search vs social, India’s search v social multiple is ~33. Wow!
I tried to look for similar Search v Social numbers for other countries. Keep in mind that I use the word Search here somewhat loosely. Google India’s pure search revenue is ~2000 crs; the rest is display (contextual ads served on other sites) and video (youtube). Youtube is anywhere from 700–1,000 crs depending on who you believe. Google’s Display revenues are thus anywhere between 3,000 – 3,300 crs.
China & Indonesia – Search is 3x Social
When we look at China, the equivalent of Google there, Baidu pulled in $9.8b for 2015. The leading social network Tencent had online ad revenues of $2.7b for the same period. This is a multiple of 3.5x, more akin to US.
Let us look at Indonesia, a country closer to India in per capita income. In Indonesia, for FY15, Google made $455m and FB $126m (pieced together from this and this) .
It is clear India’s revenues for FB are really low. This is surprising, given its large user base of 165m, which is the 2nd largest after US with 190m odd users.
So what explains this? Can Facebook’s India revenues be this low?
To understand this, I spoke to a couple of small digital agencies as well as two marketers. The following is what i have pieced together from them.
- Facebook’s revenues from India are not Rs 177 crs. It is likely to be somewhere between 500 and 1,000 crs. The 177 crs is where Facebook does some of its billing. A larger part is billed by its international arm. For that matter, my contacts feel even Google does some billing and revenue capture via its international arms. A likely figure for Google is thus 6,500 crs and for FB about 700 crs. This makes the multiple a more realistic 9x.
- Still 9x is a much richer multiple than in other countries. One likely explanation is Google coming early to the game in India. It invested in a large sales infrastructure, appointing account managers for mid-sized accounts, partnering with several resellers etc to tap the SME market. FB has only started doing some of these things now in India. One of the marketers said that if you take just the larger corporates, you may even see a 3:1 and not a 9:1 multiple.
- In fact if you take the very small outlets, especially retail aimed at women, such as a saree shop, Facebook is likely have an even higher share than Google. It is far easier to get started on advertising in Facebook while advertising on google can be a bit intimidating to the first-timers.
- One of the agencies complained about FB not deducting 6% withholding tax as it should in India. The same agency mentioned that FB (likely their international arm) not charging 15% service tax as it should. Given that some of their advertisers are manufacturers who don’t have a Service Tax registration number, it looks like there is less tax getting paid than it should.
Google is thus India’s biggest advertising brand today. Youtube’s 700-1,000 crs ad realisation would easily put it in the top 5 of TV channels when it comes to ad spend, possibly even #3 after Star Plus and Zee (I am talking channels, not networks). Most estimates put the size of the Indian digital ad market at ~7,000-7,500 crs for 2016. Basis my estimates, just Google and FB alone would cross 7,000 crs. It is thus clear that the likely figure for the digital ad market may well be around 8,500 crs at the least. This is roughly about half the print ad market now, and about a third of the TV ad market.
With the present pace of growth, it isn’t very long before Google / Youtube and Facebook power digital beyond the print and the TV advertising segments.