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Google and Facebook have the lion’s share of the digital advertising market, producing billions in profit with steep revenue increases – leaving rivals Snapchat and Twitter struggling to compete. Google’s parent company, Alphabet generated $79.4 billion in global ad revenue in 2016, three times more than Facebook, which took $26.9 billion in the same year.
In fact, the two organisations’ combined global market share of advertising spend is predicted to reach 49% by the end of 2017 according to eMarketer.
Increased mobile adoption has also been a contributing factor in the growth of this duopoly. In the US alone, it’s estimated that Google controls almost a third of the US mobile ad market, while Facebook owns almost a quarter.
But there’s been widespread speculation that Amazon could be the next technology giant to take a bigger slice of the digital ad market as overall digital ad spend continues to increase. Although Amazon’s ad revenue falls far below that of Google and Facebook, the online retailer is predicted to achieve a 48% increase ($1.65 billion) in US ad revenue alone in 2017 according to eMarketer. And by 2019, Amazon’s US ad revenue is estimated to reach $3.19 billion.
A unique position
Consumers are increasingly turning to Amazon as a destination for product research. It’s been reported that up to 55% of US consumers make their first product-related search on Amazon.
While Google beats Amazon in terms of overall reach, a recent study by Kenshoo, suggest rivals such as Amazon see greater loyalty from their users. In fact, the study which looked at the shopping journeys of consumers in Germany, France, UK and the US, found that 72% of consumers research products on Amazon before making a purchase.
The online retailer ultimately acts as a one-stop-shop for consumers in terms of product research. All product listings contain detailed descriptions, photos, reviews, prices and recommendations. You could say that Amazon’s search feature acts like a product-based search engine, serving users with better quality results than Google in terms of relevance.
With an increasing share of the online retail market and a sizeable product offering over multiple categories, we could see an increase in brands partnering with Amazon to sell their products as traditional retail stores continue to struggle outside of peak shopping periods such as Black Friday.
Calvin Klein is one of many fashion brands expanding its distribution model to connect with new customers through Amazon. The PVH-owned retailer recently partnered with Amazon to exclusively sell new underwear during the Christmas shopping season in 2017, bypassing its own retail stores which are historically first-in-line to sell new products.
Nike, Kate Spade and Levi Strauss & Co have also followed in Calvin Klein’s footsteps, indicating an ease in concerns in the retail sector over brand positioning and price when partnering with Amazon which was once considered a competitor.
The battle for data
Data will be the holy grail for Amazon if it wishes to make any sort of impact in the digital ad market. The search queries and intent of Amazon users will be hugely valuable to advertisers as Amazon positions itself further down the conversion funnel compared to Google.
Coupled with tracking data and access to consumer purchase history to produce targeted ads, the online retailer is in a unique position to leverage itself as a viable product-based advertising platform for brands within Amazon’s garden walls.
In fact, Proctor and Gamble (P&G) worked closely with Amazon during 2017 to clean up its digital supply chain and ad overload issues, specifically, using unique customer ID data and to target consumers precisely when they’re ready to buy, according to P&G’s chief brand officer, Marc Pritchard.
It’s no surprise that there have been reports of impressive growth of the Amazon Advertising Platform (AAP) which has become the most used demand-side platform – even surpassing Google’s DoubleClick Bid Manager according to a survey conducted by Advertiser Perceptions.
Although companies may not currently be ready to move large marketing budgets to Amazon’s ad platform, marketers are taking the online retailer’s growth in the market seriously. Nearly two-thirds (63%) of brands who currently advertise on Amazon plan to increase their budget in 2018, according to an Amazon-focused study by ClickZ Intelligence.
It’s a clear indication that the online retail giant – as a platform to market products – is on the radar of retailers worldwide, which could put pressure on Google and Facebook in the future.
We also can’t forget the traction Amazon is getting with its artificial intelligence platform Alexa – carving a future for itself in the area of voice search with its Echo device.
Although Amazon’s primary focus for the voice-enabled device is to increase its Prime subscription, the data it holds from voice search alone could be a valuable asset to advertisers in the future. For example, when Echo users switch from mobile to tablet or desktop devices.
Competing with the Duopoly
Amazon’s leverage lies in its product-based revenue stream and the ability to further monetise its own searches, as opposed to Google, which solely relies on ad revenue. As a result, Amazon could make a significant dent in Google’s revenue stream from advertisers in the retail and FMCG markets as its product catalogue, Prime membership and overall customer base continues to grow.
But it won’t be plain sailing. Google currently has a firm grip on the search and paid ad market. Amazon will need to carefully tow the line between driving ad revenue and continuing to maintain its position as one of the world’s leading online retailers, without alienating its customers and suppliers.
Amazon will also have to take into consideration some of the limitations of its ad platform – the biggest being; if it doesn’t sell a particular product, the brand won’t be able to advertise on Amazon’s ad platform. But in the short-term, competition definitely lies in the ownership of consumer goods and retail searches and Amazon is quickly catching up with Google in terms of volume.
As a social media network, Facebook stands less of a chance of direct competition as user behaviour and expectations are completely different. However, as Amazon continues to expand and make inroads with its services including Amazon Video and Amazon Music, Facebook could still be hurt in the future if advertisers in the retail and FMCG market move to Amazon as its product offering and services continue to be enhanced and expand.
Despite this, Amazon’s stake in the digital ad market is certainly growing, in fact, the company is reportedly in talks to incorporate more advertising in its video content. It’s certainly capable of building a video ad platform that could rival YouTube, Facebook or even Hulu. However, it will need to tread carefully when serving ads to its customers who pay a premium to use its video streaming service and are accustomed to a video experience that’s primarily ad-free.
Amazon Web Services is the world’s leading cloud infrastructure ahead of tech giants such as Microsoft, IBM and Google, and has been a leader in the market since 2006. But it’s the recent rollout of Amazon Publishers Services’ Transparent Ad Marketplaces (TAM) that’s getting marketers excited about the future of Amazon’s digital ad growth.
TAM (which originally launched in the US back in 2016) is now available in Germany, France, Italy, Spain and the UK, offering digital content owners and app developers a cloud-based, server-side header bidding solution that helps increase their ad revenues, while improving the user experience.
As bidding takes place on Amazon’s servers, publishers spend less time on inputting complicated code from different ad buyers on their site, leading to faster page load times. Publishers have full visibility of who’s bidding on their impressions, who’s winning and why.
While the company is reluctant to disclose any type of strategy regarding plans to expand its ad services, the European rollout TAM, the $13.7 billion purchase of Whole Foods Market, continued brand partnerships and record Cyber Monday sales all signal that Amazon certainly has the data and scale to compete with the likes of Google and Facebook in a growing digital ad market.