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Will Amazon’s entry in the digital ad space dismantles the dominance of Google and Facebook?


  • Current scenario of the global digital advertisement space
  • Growing market share and the future potential for Amazon

 

The global ad spending trend is transforming rapidly with the digital ad space gaining prominence over the traditional TV ad space. One of the main factors, which has been instrumental in this transformation is the rapid rise of mobiles. Advertisers for digital ads increasingly require marketing directed towards targeted customers only, and only those with massive customer base and data can fulfil this specific demand. Facebook with its huge user base of more than two billion monthly active users has abundant user information, with regard to their interests to deliver a specific digital ad to the advertisers required target group of people. While Google uses search data from customers to deliver the type of advertising for different users as per their search behaviour. This has given way to the rise of technology giants Google and Facebook in the digital advertising space, the two-dominant player command approximately 51.3% of the digital ad revenue globally. But of lately Amazon is positioning itself to venture into the digital ad space.

According to reports from eMarketer, the global digital advertising space is expected to hit $333.25 billion in 2019, while registering a growth of 17.6% between 2018 and 2019. The traditional media ad spending accounted for 54.1% of the total advertisement spending globally in 2018. Moreover, as per estimates, 2019 will be a year of the digital advertisement spending and this will be more than the traditional advertisement channels for the first time. If we analyse this further and look at country levels with regard to the digital advertisement spending, the countries such as the UK, China and Norway already have a more dominant digital medium of advertisement. Additionally, the early 2019 estimates saw some new economies including the likes of the United States and the Netherlands joining the group, with digital advertisement accounting for 54.2% and 52.6% of the total advertisement spending, respectively.

It is worth noting that many traditional advertisers have yet to move a majority of their budgets to the digital space, and once that happens, the growth for the digital market space will register a much higher growth rate.

Currently, Facebook and Google have a lion’s share in the digital advertising space. Google generated $116.32 billion ($95.38 billion in 2017), while Facebook generated $55.01 billion in 2018 ($39.94 billion in 2017). That is a contribution of approximately 85% to 98% to their total revenue as per their 2018 filings for Google and Facebook, respectively. They are still the leaders, on the other hand, for Amazon, the digital advertisement still generates approximately 4% of its total revenue of $232.89 billion (2018). Amazon does not report its advertising revenue separately but states in its filings that advertising sales are the majority of its ‘others’ segment. In 2018, the ‘others’ segment generated $10.11 billion that was a jump of approximately 117% from the previous year, which was $4.65 billion. In addition, recent developments like the world’s largest advertising company WPP, which has directed $200 million of its client’s advertisement budget to Amazon in 2017, with that the number increased to $300 million in 2018 and is a clear indication that Amazon is a serious contender in the digital advertisement market space. Furthermore, with digital advertising contributing almost all of its revenue for both Facebook and Google, Amazon’s entry will be a major threat for the two giants.

For years, Amazon has kept its advertisements on the website at minimal due to the fear of losing its customers, who had become used to choosing of products largely based on the price and other customers’ reviews. But recently, Amazon has been slowly giving more prominence to sponsored digital ads in its line of business by making some strategic moves that will bring in more revenue. Amazon Marketing Service (AMS) now known as ‘Advertising Console’ is the main business segment of Amazon for providing its online advertising services and solutions. It offers vendors and third party using the Amazon website feature ads, which can appear on selected pages or even on a competitors’ product page. Ads here can appear based on keywords or headline searches. It is a self-serve pay-per-click service. Amazon even has an in-house division selling Amazon’s ad products called the Amazon Media Group (AMG), which is into the company’s traditional advertising space. It enables agencies and companies to better place their ads, including direct display, video ads and other ads across multiple platforms. Further, also included in Amazon’s AMG umbrella is the Amazon Video Ads, which is an out-stream video ad solution. Amazon also has an offering called the Amazon DSP, which is Amazon’s advertising service where Amazon uses its customers metric and buys targeted ads for its retail partners. Amazon is pushing to further its digital advertising platform by introducing the Amazon’s Transparent Ad Marketplace, which was launched in the US in December 2016 and by launching it in Europe as well. It is a cloud-based platform on Amazon’s server that allows ad buyers to bid on ad space and the highest bidder wins the ad space.

Recent reports suggest that Amazon is in talks with consumer companies about running ads in its smart speakers Alexa. The reports also suggested that Amazon is looking for new avenues towards additional ad revenues within its e-commerce business, the details of which were not disclosed in the press release. Amazon is on track to set a tough competition on the digital advertisement market, while Google has information on what you are searching for and Facebook has information on what you like, Amazon has one of the most critical information on consumer intelligence, that is, data on buying habits. For a marketing agent that is the most relevant and important information. It is scaling its advertising business by leveraging on the deep understanding of people’s purchasing history while respecting their privacy. Amazon clearly has a unique opportunity to disrupt the current duopoly of Google and Facebook in the digital advertising ecosystem. According to Cowen & Co., the digital ad sales of Amazon are expected to jump $24.8 billion over the next five years, and if Amazon gets there it has the potential to re-shape the entire ad market.

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