Amazon Poised to Challenge Facebook-Google Ad Duopoly

Amazon.com Inc.'s (AMZN) digital advertising business has grown much faster than expected to become the third-largest company by market share. The rapid growth of the well-financed e-retailer’s digital ad business has positioned Amazon to challenge the Alphabet Inc. (GOOGL) and Facebook Inc. (FB) duopoly that has long reined over the business. The quick success of Amazon’s emerging segment has enormous positive implications for the tech giant’s stock, as well as bearish ones for shares of rivals Google and Facebook, both which depend much more heavily on ads for profits. According to a recent report by eMarketer, Amazon’s ad revenue is expected to increase to $15 billion in 2020, or just under 10% of the digital ad market share in the U.S. While Google and Facebook will maintain in the lead, generating a combined $89 billion in forecasted digital spending in 2020, their share is likely to fall as Amazon's growth explodes.

Amazon's Torrid Digital Ad Growth

• $3.3 Billion in 2017
• $15 billion in 2020, 10% of market

Source: eMarketer 

Digital Ad Spend to Overtake Traditional Mediums in 2019

Digital ad spending in the U.S. continues to boom, slated for 19% growth to $129.3 billion in 2018, according to eMarketer. As digital video and social platforms gain prominence over more traditional channels of advertising, digital ad spend is expected to overtake mediums like TV, radio, print and outdoor, as digital surpasses traditional ad spending for he first time ever. This year, digital ad spending in the U.S. is expected to account for 54.2% of total U.S. ad spending.

Amazon to Grab 10% of Market

EMarketer has again lifted its estimates for Amazon’s digital ad-business, just after hiking its forecast for the size of the business in September. This time around, the increase was attributed to third-party data suggesting that advertising contributes more to Amazon’s top line than previously thought, according to eMarketer’s Monica Peart, per the Wall Street Journal. 

EMarketer upped its forecast for Amazon’s 2019 ad business revenue by $3.7 billion, from the $11.3 billion previously estimated. This represents a 10% share of the market versus the last estimate at 8.8%. Google and Facebook are slated to represent $88.25 billion in ad revenue in 2020, per the research firm. EMarketer also upped its forecast for Facebook’s ad revenue by $1 billion for 2019, thanks to strong growth from its popular Instagram business, as advertisers increasingly decide to up spending on the social media platform. Both Google and Facebook directly report their advertising revenues, while Amazon reports a revenue category which includes advertising, yet does not hash out advertising dollars specifically. 

Prime Provides Valuable User Data

Amazon’s key to tapping into consumers is its immense set of data, primarily through its sprawling Prime platform. 

“Prime has enabled [ads] for [Amazon],” said George Manas, president of Omnicom’s Resolution Media performance marketing division. “It’s turned that economy of services into a connected network around an individual and identity. It’s similar to what Google has been able to do around Gmail and other logged-in services."

George points to what he calls Amazon’s “purchase graph,” noting that, “if Google is all about the intent graph, and Facebook’s advantage is the social graph, Amazon basically represents what you intend to buy and, unlike any of the others, owns that buy touch point.”

Deep-Pocketed Amazon Has Few Limits

While Google and Facebook remain much larger in the digital ad space, the encroachment by Amazon is even more feared due to the company’s proven ability and willingness to enter into new industries, potentially steamrolling its mega-tech peers and traditional industry giants in areas such as publishing, retailing, groceries and drugs. 

 The Seattle-based tech giant maintains much more flexibility than Google and Facebook in the ad space, given the firm still generates a bulk of its revenues from online commerce and the cloud, the latter comprising the largest portion of profits. Amazon also has a handful of other revenue streams, the number of which are only growing as it builds out its physical store locations, pushes its AI-driven Alexa platform, builds out its Video service, and expands into new markets. 

Looking Ahead

Amazon also presents a threat to its tech peers in search, another key market. While Facebook and Google still account for a majority of growth in the digital ad business, there is great reason for investors to be concerned.