The Google-Facebook ad duopoly is facing a bigger challenge from the trio of Snap, Pinterest and Amazon

Key Points
  • Snap, Pinterest and Amazon all grew their ad businesses much faster in the latest quarter than did Facebook or Google, which still dominate the industry.
  • Snap's growth rate of 50% was the highest in the group.
  • EMarketer predicts the U.S. digital ad market will grow 17% next year to $151.3 billion.
Evan Spiegel, CEO and co-founder of Snap Inc.
Adam Galica | CNBC

Google and Facebook are still firmly in control of the online advertising market, but a group of challengers is eating into their dominance.

With third-quarter earnings season is in the books, the trajectory is clear: Snap, Pinterest and Amazon's ad businesses are growing faster than the industry giants, giving brands of all sizes more opportunities to diversify their marketing spending.

Facebook this week recorded 28% advertising revenue growth, its third straight quarter of sub-30% expansion. Google is now stuck in the teens after reporting 17% growth at the beginning of the week. EMarketer predicted earlier this year that, while those two companies would still control over half the market, 2019 would mark the first time their combined share of U.S. online ads would drop. Overall, the U.S. digital ad market will grow 17% next year to $151.3 billion, eMarketer says.

Amazon is the biggest disruptor in terms of size, but it's not the fastest-growing platform. That distinction belongs to Snap, which reported 50% growth in the quarter to $446.2 million. Snap has experienced a major turnaround this year, with its stock price surging over 175% as advertisers start to recognize that the photo-sharing, video-sharing and messaging app can provide a return on their investment.

After Snap reported earnings on Oct. 22, analysts at J.P. Morgan Chase said the company's story was "strengthening" and that it was poised to capture greater ad spend.

"We believe there is meaningful monetization headroom going forward as Snap leverages its hard-to-reach audience, builds out innovative ad products, & increases ROI," the analysts wrote.

Amazon's ads division was a bright spot in an otherwise disappointing quarter — the company reported weak earnings, soft guidance and missed estimates in its Amazon Web Services division. Revenue in Amazon's "other" business, which is primarily advertising, increased 44% in the third quarter, almost double the rate of growth at the parent company.

Brian Olsavsky, Amazon's finance chief, said on the earnings call that the company's tools to help brands reach customers on the site are "increasingly popular with vendors, sellers and third-party advertisers." To showcase its growing list of ad products, Amazon recently held an event called AdCon, which drew about 400 people in Seattle, CNBC reported earlier this month.

EMarketer says Amazon is poised to "start making a small dent in the duopoly." And analysts at SunTrust Robinson Humphrey said in a note that Amazon's ad growth rates could accelerate with "such a large opportunity ahead."

Pinterest's strength in shopping

Pinterest is growing faster than Amazon, but not quite as quickly as Snap. Even though the image-sharing social media company missed revenue estimates and provided a disappointing forecast, sending the shares tumbling 17% on Friday, it still recorded sales growth of 47%.

An area of strength for Pinterest is shopping, which makes sense given how much content the site features related to fashion and home and garden. Aaron Goldman, chief marketing officer of data science and marketing technology company 4C Insights, said Pinterest has taken a thoughtful approach to shopping ads, luring users who are primed to make purchases.

Ben Silbermann, co-founder and chief executive officer of Pinterest Inc., center, rings the opening bell on the floor on the New York Stock Exchange during the company's initial public offering (IPO) in New York, on Thursday, April 18, 2019.
Michael Nagle | Bloomberg | Getty Images

Whereas Instagram is much more entertainment-focused, Goldman said Pinterest users are often working on a project or booking a trip and are likelier to be in a shopping mood. "It feels a little more native," he said.

Pinterest is also gaining traction in categories outside of its roots. Areas like financial services, where companies could pitch a mortgage to someone buying who is browsing content related to home, or travel companies, who could advertise to users browsing content about honeymoons, are starting to see the potential.

"You're starting to see the life stage advertisers," Goldman said. "Someone who opens a home equity line of credit, people are willing to pay hundreds of dollars for that acquisition."

Goldman said Pinterest can do much more with video ads, giving brands the ability tell consumers a deeper story, and could also widen their limited number of ad formats.

While Snap, Pinterest and Amazon are all growing faster than Google and Facebook, Twitter is a laggard. In the third quarter, sales increased 8% to $702 million, which was far short of analyst expectations of $756 million.

The earnings miss, which Twitter blamed in a part on issues in a product that advertisers use to promote mobile apps, sent Twitter shares down 21% that day.

WATCH: Pinterest shares fall on revenue miss

Pinterest shares fall on revenue miss
Pinterest shares fall on revenue miss