Tech Transformers

Google's biggest threat in advertising is Amazon, WPP's Sorrell says

Amazon is the biggest threat to Google in search, while Snapchat could be the "third force" in the digital ad market behind the Alphabet-owned company and Facebook, Sir Martin Sorrell, CEO of the world's largest ad firm, WPP, said Wednesday.

Sorrell said that the amount spent on Google compared with the others shows how effective a platform it is to advertise on, but Amazon could pose a real challenge.

"The threat to Google in my view, is Amazon. It's Amazon and search on Amazon that is potentially the biggest threat. The threat to Facebook, however, is from Snap," Sorrell said during a CNBC-hosted fireside chat at the Mobile World Congress in Barcelona, Spain.

"Amazon's tentacles are spreading rapidly into all areas."

Jeff Bezos speaking at the new New York Economic Club luncheon in New York on Oct. 27, 2016.
Adam Jeffery | CNBC

The WPP chief did not expand on what strategy he thinks Amazon could take to challenge Google. But the U.S. e-commerce giant essentially hosts a massive online shop where people search for all kinds of items. This could be monetized through some way. It is also leading the market for smart speakers with the Amazon Echo which has its voice assistant Alexa built in. Users can ask Alexa questions. This is another form of search.

On behalf of clients, WPP spent just under $5 billion on Google advertising in 2016, an increase from the $4 billion the year before. The global ad company also spent $1.7 billion on Facebook and $90 million on Snapchat.

Sorrell said Google and Facebook represent 75 percent of spend on digital, and this needs to change and become more balanced. WPP's spend on Google could go up to $6 billion this year, while on Facebook it could hit $2.5 billion, Sorrell said, adding that Snap is still "relatively insignificant" in terms of spend on the platform. It could become a strong third, however.

"I think it's a defining moment in that it could well be the third force," Sorrell said, adding that "Snap … is definitely a potential third force."

The CEO said that one issue with Facebook is that the results from advertising on the social network are not always clear.

"The reason that Google has been successful … is that the results are very clear. Facebook is a little bit more woolly. I have always referred to Facebook as a brand mechanism as a way of building brands, rather than necessarily being about effective sales generation in the short term," Sorrell said.

Facebook has been fighting back against Snapchat by copying many of the ephemeral messaging app's features across all the services it owns, including WhatsApp and Instagram. Snap is also gearing up to go public, likely on Thursday. Given the kickback from Facebook, Sorrell had some advice for Snap CEO Evan Spiegel on how to stay relevant.

"The biggest key thing that I think Evan and his colleagues have got to demonstrate is return on investment. The number of clients say to me because of disruption … we have to make sure that the return on our media investment is considerable," Sorrell said.