It's no secret that Amazon.com (AMZN +3.47%) has mastered the art of online sales to become the leader in the space. Not content to rest on its laurels, the company has set out to disrupt a growing number of other industries. Amazon also leads the cloud-computing industry and the smart-speaker category, both of which it pioneered.
These business successes have helped the stock reach new levels. Late last year, Amazon briefly became only the second U.S. public company to exceed a $1 trillion market cap.
Now, Amazon has its sights set on advertising, and while it's still very early in the game, the company is quickly becoming a force to be reckoned with. It appears that Amazon's ad business is taking share from its biggest rival Google, a division of Alphabet (GOOGL +1.71%) (GOOG +1.44%).
Image source: Getty Images.
Taking market share
Advertisers are beginning to shift some of their ad dollars to Amazon at the expense of Google, according to a recent report in The Wall Street Journal. The world's largest ad buyer, WPP PLC, reportedly spent an estimated $300 million on Amazon ads in 2018, up from between $100 million and $150 million in 2017.
About 75% of that total came at the expense of Google, the report said. That's still just a small part of the $3 billion-plus the agency spent on Google advertising last year, but it does show that the landscape is starting to shift in Amazon's favor. It also seems to confirm earlier reports that advertisers were moving a growing portion of their digital ad budgets from Google and Facebook (FB +2.48%) to Amazon, which helped the company become the third largest digital ad platform in the U.S.
Google and Facebook are widely considered to have a virtual duopoly in the digital-ad market, garnering an estimated 38% and 21% of the market, respectively. However, a look at Amazon's advertising revenue shows just how quickly it's growing -- up 117% year over year and topping $10 billion in 2018.
|
Period |
Q1 18 |
Q2 18 |
Q3 18 |
Q4 18 |
|---|---|---|---|---|
|
Net sales |
$2.03 billion |
$2.19 billion |
$2.49 billion |
$3.39 billion |
|
Year-over-year growth |
139% |
132% |
122% |
95% |
Data source: Amazon's Fourth-Quarter Financial Release.
Your controversy is my opportunity
Google has been dealing with a number of controversies in recent years that have advertisers seeking other options. Earlier this year, YouTube -- the company's video-sharing service -- terminated more than 400 channels after it was reported that child predators were making inappropriate comments on videos aimed at children. The company faced several major boycotts by advertisers after their products were paired on YouTube with videos that promoted hate speech and extremist views. The European Union (EU) has also assessed several record-breaking fines, alleging that Google continues to run afoul of European antitrust rules.
Facebook has also seen its share of difficulties. The company is facing a growing list of allegations regarding the misuse of user data. Facebook has also been criticized for spreading hate speech and allowing political operatives in Russia to spread propaganda in an attempt to influence the U.S. presidential election. Most recently, the company sparked outrage for live streaming a mass shooting in New Zealand.
The negative spotlight on the two biggest digital advertisers has created an opening for Amazon, and it's doing its best to leverage that opportunity.
An "ad"vantage
The company has a distinct advantage when it comes to advertising. More than half of consumers now begin their product search on Amazon rather than Google. Once a customer searches for a product on the e-commerce website, advertised or "promoted" products appear first -- and consumers are only one click away from a purchase. This gives advertisers a captive audience within its targeted demographic that could produce a significant return on their advertising investments.
The growing body of anecdotal evidence and the massive growth of the company's ad revenue show that digital advertising is the next industry being disrupted by Amazon. Although it probably won't be the last.
