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Amazon's ad business is booming. Some advertisers are moving more than half of the budget they normally spend with Google search to Amazon ads instead, amounting to hundreds of millions of dollars, according to execs at multiple media agencies. Some of these execs requested anonymity as they are not authorized to discuss their clients' expenditures in public.
Amazon's growing success could pose a rare threat to Google parent company Alphabet, which generated $95.4 billion in ad revenues last year, 86 percent of its total revenue. Google is the dominant digital advertising platform in the U.S., and will take in an estimated 37 percent of digital ad budgets in 2018. Although Alphabet does not disclose the breakdown of its ad revenue, most estimates believe the vast majority comes from search ads — approximately 83 percent in the year to date, according to research from eMarketer.
Alphabet has remained somewhat insulated from the threat so far, and its overall ad revenue growth actually accelerated in the first half of 2018 compared with last year. Not all categories of brands are shifting money to Amazon — most of the movement is coming in consumer packaged goods, while huge and lucrative advertising categories such as automotive and travel are not yet moving to Amazon. Also, while Google search may be flattening, advertisers are moving parts of their ad spend from other media to different Google properties, particularly YouTube.
Nonetheless, Amazon appears to be emerging as the most credible threat to Google's cash cow advertising business since Facebook conquered mobile advertising beginning shortly after its 2012 IPO.
Amazon and Google did not respond to requests for comment.
However, a manager in Google's ad sales organization, speaking on condition of anonymity, said that he's not seeing clients shift search budgets to Amazon, but is increasingly seeing clients come up with separate brands to sell exclusively on Amazon. "Leadership is definitely concerned, but [it's] not a huge threat right now," this person said.
Executives at six media agencies confirmed Amazon is making huge inroads in advertising, supporting the recent eMarketer report that the tech giant has become the third-largest U.S. digital advertising platform behind Google and Facebook.
One exec from a large agency said some brands find Google search ads "quaint" and want their budgets moved to Amazon because it directly correlates to sales. About 49 percent of product searches begin on Amazon, according to Survata.
Another said clients appreciate Amazon is a seamless shopping experience. Using a Google search ad to lead to a purchase may require a person to set up an account and input their credit card information with a separate website. Especially for smaller brands, there's not really an advantage between selling direct to the consumer versus selling through Amazon.
Those budgets have to come from somewhere.
While some of the dollars are being siphoned from print, TV and programmatic display advertising, one executive at a large agency said some clients who sell products on Amazon are moving between 50 and 60 percent of their allocated Google search ad dollars specifically to Amazon. The shift amounts to hundreds of millions of dollars a year, he noted.
Another exec at a different large agency said some brands that they handle are shifting 50 percent of their Google search budgets to Amazon in certain worldwide regions. These moves also amounted to hundreds of millions of dollars a year.
Mark Douglas, CEO at ad tech firm Steelhouse, said some of its clients have discussed moving large portions of their ad budgets directly from Google Search to Amazon.
For all of these advertising firms, the brands in question mostly fall in the consumer product goods category.
Chris Apostle, executive vice president and head of performance for North America at Havas Media, said his agency is seeing 20 to 30 percent of its clients shift 50 to 70 percent of their total search budgets to Amazon. Companies are realizing the more they spend with Amazon, the more they can add other bells and whistles such as content or reviews that can help encourage more sales.
In general, Apostle's clients have increased their Amazon budgets by 300 percent since last year, and he expects them to increase an additional 200 to 300 percent next year.
"Over 90 percent of searches for products that start on Amazon end with a purchase, even though that user may end up on social channels," agreed Apostle from Havas. "The bang for your buck is where people are ultimately going to buy."
An exec from a third large ad agency, who requested anonymity, said Amazon budgets among its clients had grown 300 to 400 percent from last year.
"Every company I know that sells on Amazon is basically moving budget to Amazon because they have no choice," Douglas said.
According to IPG Mediabrand's Reprise, the majority of the new Amazon budget is coming from a mix of sources, including programmatic display ads such as banner ads, or ads bought directly from media companies — not Google specifically. Still, Amazon is growing overall, while Google budgets have remained "flat," according to Joseph McConellouge, who leads e-retail ad buying for Reprise.
"In many cases we see Amazon is the better performer and by a significant margin," he said. "If those numbers are true, we will recommend for a specific client."
Despite Amazon's massive growth, Google is still maintaining a strong hold on digital advertising budgets overall, and it has shown accelerating ad revenue growth in the first half of 2018.
Last quarter, Google reported its ad business was up 23.8 percent year over year — that's actually an acceleration from Q2 2017, when ad revenues went up only 18.4 percent from the previous year. The same trend happened in the first quarter of 2018, when ad revenues rose 24.4 percent from the previous year, compared with 18.8 percent year over year growth in Q1 2017.
There are several possible reasons for the discrepancy.
Not everything is sold on Amazon — yet. Large advertising categories such as auto, travel and some entertainment, including ticketed events such as movies or sporting events, still don't conduct direct sales on the platform. Those companies don't have any reason to advertise on Amazon, while Google search still drives a lot of direct sales. Money is moving over from television to Google for these categories, one agency executive noted.
Many agencies said Google is pushing its other ad products, especially video ads on YouTube. A lot of advertisers are spending more on the video service, with one executive noting clients can see above a 50 percent return on investment, or ROI, if the right ad shows up on the right category.
"They have such a broad base to monetize," Douglas said. "On top of it, they could just add one ad per hour."
Google Search still provides a high ROI, and some companies, including Apple and Casper, prefer customers to buy from them directly rather than Amazon to save on fees. And Amazon's business is a lot less developed outside the United States in certain regions, including some countries in the Asia/Pacific area.
Google is also taking the battle directly to Amazon, investing in tools that make purchasing online easier. Google Shopping, which competes against Amazon Marketplace, is a product search engine which helps people find items to purchase online, and counts Target, Walmart and Costco among its partners. Amazon temporarily stopped buying Google Shopping ads, but returned to the platform in July, according to Bloomberg.
But since Google is on top, growth will get harder, most agencies agreed.
"Google's challenge is they have to find more money every year, and it's harder and harder to find that in the ad business," said Matt Mierzejewski, senior vice president and search capability lead at Merkle.
"They're tweaking the search page, creating more automation, finding new retailers, and adding a lot of new ways as they try to edge out the next dollars." Mierzejewski said Merkle is not seeing a shift in search budgets from Google to Amazon but that overall spending on Google is "flat."
— Jillian D'Onfro contributed reporting.