A Blog by Jonathan Low


Nov 4, 2019

Can Anyone Topple Google In the Ad Game?

Facebook is probably less of a threat in the long run than Amazon due to the latter's purchase data. But the real wild card is what is seen as the inevitable regulation which may hurt all three. JL

Ronan Shields reports in Ad Week:

Given Facebook’s rise as the second tower of the digital advertising duopoly—the company boasted $17.4 billion in ad revenue for the third quarter—and Amazon’s emergence to turn the duopoly into a triumvirate, not to mention the coming wave of data and privacy regulation, many are asking how long Google can stay on top. The attraction of Amazon is that internet users there are much further along the purchase funnel than Google users.
Google, the search giant, is the undisputed cash cow of parent Alphabet, and earlier this week it flexed its muscles, reporting revenues of $40.5 billion for the three months ending Sept. 30 with $33.9 billion in ad spend.
But given Facebook’s rise as the second tower of the digital advertising duopoly—this week the company boasted $17.4 billion in ad revenue for the third quarter—and Amazon’s emergence to turn the duopoly into a triumvirate, not to mention the coming wave of data and privacy regulation, many are asking just how long Google can stay on top.
On one hand, Google is, shall we say, big.
In its now customary laudatory quarterly report, it announced an increase in ad spend (see chart). Sundar Pichai, Google CEO, informed analysts that its increase in revenues, which were up 20% year-over-year, was down because of higher demand for other types of Alphabet products like mobile search and YouTube advertising opportunities.
Pichai also said Google wants to expand its product suite for advertisers—such as the unification of measurement standards in app and web-based campaigns—with Pichai highlighting its recent BERT announcement.
“This was the biggest leap forward for search in five years,” Pichai said, noting the update which helps the search giant better understand the contextual nature of queries, as opposed to a series of keywords.
He went on to reference how this could potentially affect future search advertising products given that it “creates a virtuous circle where people engage more.”
Predictably, market analysts repeatedly inquired how this, along with developments in the frothy OTT space, could be converted into revenue drivers. Questions also persisted over how the organization could ride out industry headwinds, such as regulation.

Regulatory pressure

On the other hand, some have inquired as to how regulations such as the California Consumer Privacy Act (CCPA) and the EU’s General Data Protection Regulations (GDPR) will affect the digital industry titans that are reported to be lobbying to weaken them.
“They [Google] will have undoubtedly prepared legal responses to any claims they may face with CCPA, much like anticipated risks around GDPR, and try to anticipate any limitations,” Richard Kramer, founder of Arete Research, told Adweek. “Our view is that GDPR put the likes of Google in a better position. … GDPR limited collection of third-party data, while Google has many opportunities to collect first-party data because of all the times they engage consumers day to day.”
He added, “One can expect a string of opportunistic lawsuits against the likes of Google, and they’ve surely had in-house legal teams prepare to deflect them but haven’t made their arguments public.”

Antitrust headwinds

Currently, Google is facing antitrust proceedings by federal and state legal arms, but it is also likely to have constructed a legal, and end user-focused defense to allegations it could face given any data clawback its CCPA compliance policies might result in, according to sources.
“Being as deliberate and cautious as they are, they’re unlikely to get blindsided,” Kramer said. “The worst-of-all outcome, unfortunately, for the industry (as you saw with GDPR) is that those with the least resources to fight back or craft their businesses around regulation will suffer the most, and that will further centralize power in the world’s largest publishers: Facebook and Google.”
Some speculate that the weight of regulatory scrutiny may lead to a scenario where Google divests some of its interests, with many questioning whether Google would contemplate giving up on (or even be forced to give up) its display advertising business.
“There’s a big distinction between Google search—where consumers voluntarily provide information to Google in the form of keyword searches—and the display network, which utilizes cookies or pixels, and a whole bunch of aggregated data about consumers,” Colin Sebastian, managing director and senior equity research analyst at Robert W. Baird & Co., told Adweek.
For Sebastian, given that Google’s programmatic advertising business incurs more scrutiny than search but remains a relatively small part of the overall business, selling off this part of the business could “lessen some of that scrutiny at the government level.”

The threat of Amazon

And then there’s Amazon. Google and Facebook collectively account for more than 50% of all U.S. ad spend, but successive eMarketer reports have identified Amazon as a rapidly approaching third-placed contender.
In particular, Google faces challenges on its home turf as Amazon increasingly comes to the fore and claims an increased share of marketers’ search ad dollars while also investing in its ad-tech suite. For example, earlier this year, the Seattle company picked up bits from the now-defunct buy-side ad platform Sizmek, combining its own demand-side platform with Sizmek’s ad-serving capabilities.
Dan Salmon, managing director for equity research at BMO Capital Markets, noted the attraction of Amazon to search advertisers was mainly down due to the fact that internet users there are much further along the purchase funnel than Google users.
“While I’d expect Amazon [with its purchase history and intent data and sponsored products] to take budget away from Google … Google still has great data,” Salmon said.
Primarily, Amazon is gaining budgets from in-store and trade promotion categories, but undoubtedly it will start to compete even more rigorously with Google when it comes to variety of performance advertising budgets.
This was made evident earlier this year when Amazon purchased Sizmek’s ad server as part of the ad-tech company’s fire sale, with many noting that it now possesses the second-most commonly used ad server on the market (behind Google).
For Dan Larden, managing partner for product and partnerships, at programmatic media agency Infectious Media, there have been historic challenges for buyers using the Amazon platform, but this is about to change.
“With the Sizmek acquisition still to translate into a tool in the platform, Amazon are focusing on improving their DSP’s usability,” Larden said. “Little things like being able to make bulk changes, or the quality of the UI, make a big difference on the sharp end of campaigns. So, while the overall offering is getting stronger, it still is quite far behind other DSPs in terms of features and efficiency.”

Purchase data is not enough, but TV could be the key

Larden said Amazon’s purchase data is not enough to significantly eat into the duopoly’s budgets .
“Upper-funnel branding is not something Amazon is considered for by agencies,” Larden told Adweek, adding that traditional television advertising is where Amazon may pose the biggest risk to Google’s role as the biggest beneficiary of media budgets.
“To get investment budgets across the entire marketing plan, the data needs to be combined with premium content,” he said. “That’s why Amazon’s recent investments in licensing deals with MGM and Sony for their AVOD product IMDb TV, and sports rights, have the potential to worry the duopoly.”
As the industry continues to shift, eyes are on how Google, Amazon and Facebook circle each other. The question for marketers: Do you want to know your consumers’ interests (Facebook), their curiosities (Google), what they actually buy (Amazon)? And it is the question these three companies ask themselves as they build out the capabilities to provide an industry with a clear answer: Pick me.


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