Growth of the triopoly

After every end of quarter, we feast on quarterly reports showing just how massive growth these three giants are consistently creating. The illustration below show the quarterly evolution of each of the three players’ advertising revenues. They peak in Q4 as advertising traces the end of year ecommerce peak. Therein lies the explanation for the success of these platforms – they drive sales. And they are able to demonstrate it in their reporting.

The only exception to the Q4 peak happened during the pandemic in 2020 where we had a “christmas in May” effect where consumers were in lockdown, spent hours behind their screens and started on accelerated their online buying.

Amazon Advertising grows faster

Amazon Advertising now represents 9% of the Triopoly and catches up a little more on its’ competitors for every year that passes. From a mere 3% of the triopoly in 2017 to 6% in 2018 and 2019 and now at 9%. Advertising spend picks up in Q4 as it traces the end of year ecommerce peak.

The largest share of Amazon Advertising is shown inside the marketplace itself. When ecommerce peaks, there is more ad inventory, and when ecommerce sales peak, so do advertising investments. Amazon Advertising grew at a staggering 77% in Q1 2021 compared to 2020. The ecommerce platform itself grew at around 40% and the advertising solution has shown its capability for generating a rate of growth well above the platform growth. This is easy to visualize when you look at the correlation between ecommerce and ads sales for Amazon.

Google has restored its health

In Q2 of 2020, Google Ads experienced its only ever negative growth in revenue for a quarter compared to the previous. However, the 32% growth YoY of Q1 of 2021 erases that dip. This growth level is the highest Google has seen since 2017.

Facebook advertising hits a 46% growth YoY in 2021, also much higher in recent years. This level of growth hasn’t been seen in Facebook since Q1 of 2018.

Digital maturity, hope and economic growth

The year of the pandemic was 2020. The world came to a halt. We stopped moving our feet and accelerated our online usage. For better and for worse. During that year, businesses accelerated their digital transformation like never before. Online shopping boomed like never before – it X-mas in May as we were bored, or replacing social interaction with online shopping. I think I ate disproportionately more chocolate than I used too out of self-pity. Or maybe that was when I started exploring exotic cocktails before dinner.

Now that we are expecting the end of the pandemic, businesses are investing, consumers have higer hopes, and we are expecting economic growth to take off and maybe recapture some of the lost growth of 2020. All of these factors are beneficial from an advertising point of view. If this trend confirms itself, we may be in for continued above-normal* advertising growth way further into 2021.

“Above-normal”. What is normal in 2021, anyhow?

I wonder if people today know the film Matrix better than Plato’s allegory of the cave. They illustrate the same concept of a superficial reality projected onto us, from which only the fearless can escape. This is the image that we used to illustrate the state of digital marketing in 2020. Digital marketers staring at a wall onto which digital marketing providers are projecting images of end-users. Those images are not nearly as perfect as in our illustration. They are expressed as data sets, as interest categories, as intent.

For how long will we be calling it digital marketing, I wonder? We could already rebaptise it to Data marketing, for that is all it is about. Using data, to direct and optimize a campaigns executed by algorithms onto digital media. A few months back, Google removed more of the transparency in their data. They are of course far behind Facebook in that game: “No tracking allowed, here is the data you need”.

It made me think about the troubled waters data marketers are navigating in. We know that a lot of the digital activity that goes on behind the scenes is automated bot traffic. We know that we cannot track users from one marketing channel to the other, unless we are inside one of the big media players’s universe. We know that some users have installed ad blockers, that some are using incognito browsing windows, and in the future, third-party cookies will completely disappear. It is a wonder data marketers have any insight into the data at all.

Thinking like Plato and Neo: Does the data really provide insights? 

Nothing like a little philosophical step back to look at the bigger picture. The big worrying characteristic of the big marketing providers is that they are dictating the rules of the game, while they are providing the data on the basis of which you make decisions. By definition, the arbitrage is carried out by algorithms, not engineers fiddling with your data. This provides us with no guarantee whatsoever, that the data is free of bias. A very simple example from my days running a digital media agency: Google Analytics (the abiter) by default attributes conversions to paid search (the commercial offering) more favourably than organic (free) traffic.

Digital marketers are not dealing with raw data most of the time. It is interpreted data, and the interpretation has commercial intent. This is why the most important direction for digital marketers in these challenging times is to build proprietary data. If the entire user journey takes place within Amazon, or within the Google universe, or withing Facebook, you should be aware that you are not seeing raw data, but interpreted data. Building proprietary data means getting users to your own website, it means capturing tangible user data like email addresses, phone numbers and names, rather than relying on retargeting lists and intent audiences.

Read the full article on PPC Hero here:  https://www.ppchero.com/digital-marketing-in-a-vuca-world-is-it-time-to-emerge-from-platos-cave/

In our recent report “Digital Marketing in a VUCA World” we looked at how digital marketing is affected by COVID19, the rise of AI and the end of cookies. The most abrupt changes are of course due to the lockdown and drop in advertising investment. Now, in Q3 we can see how each of the platforms recovered.

Amazon Ads grows 51%, Facebook Ads 22% and Google Ads 9% in Q3 ’20

Every quarter, the three members of the triopoly of digital advertising publish their revenue figures and it used to be almost predictable. An average growth every of around 15% year on year and a peak in Q4. Amazon Ads playing catch-up by steadily eating triopoly share every quarter but still representing only ¼ of Facebook Ads and 1/7 of Google Ads.

In Q2’20 Google Ads saw negative growth YoY

With COVID19, things were shuffled around a bit. Google Ads saw the first ever quarter of negative growth yoy in Q2 (-8%) whereas Amazon Ads and Facebook Ads resisted. But the recovery was so much stronger for Google Ads in Q3 that the lost quarter of COVID19 may be soon forgotten. Facebook didn’t seem to be impacted in Q2, and experiences higher growth than recently in Q3 (22%).

In Amazon, E-commerce exploded in Q2 and ads picked up in Q3

Amazon Ads grows with over 50% in Q3, a level of growth the platform hasn’t seen since 2018. It is probably riding on a delayed impact of the massive Q2 growth in e-commerce on the platform. Amazon Ads spend is strongly tied to the the e-commerce activity. On Amazon the media is the marketplace. When you plot e-commerce revenue against ad revenue over time, the correlation becomes very clear – all but in Q2 and Q3 of 2020 due to COVID19.

Amazon experienced massive growth of e-commerce in Q2 at 49% yoy compared to recent growth around the 20% mark, Q2 was a bit like christmas in May. However, advertising was affected by uncertainty and only picked up in Q3 with over 50% growth where recent quarters showed around 40% growth year on year.

Q4 outlook, anyone?

With a massive Q2 for e-commerce, recession, new lockdowns and an uncertain holiday season, Q4 shouldn’t be expected to be business as usua, should it?. Amazon, of course, pushed its Prime Day private sales event to Q4 and should be expected to benefit from a further surge in e-commerce. Advertising spend usually picks up strongly in Q4 too, so we have two contrary forces at work: high media pressure on one hand and uncertainty on the other. We are likely to see the traditional Q4 spike, but it will probably be composed of a different advertiser mix than we are used to, and there could be some platform shift also. One thing is certain. Q4 in digital advertising will be higher than ever before for the triopoly.

Amazon published its quarterly earnings report last week and I rushed in to discover the massive growth of Amazon Ads, which is the highest growing activity within Amazon. Amazon Ads increased by approximately 44% year on year and thus had slightly higher growth than in the last quarter as compared to the same quarter the year before.

I also made my way by the Google and Facebook quarterly reports to get a feeling for the state of the triopoly of digital advertising. Both are experiencing healthy growth: Google Ads grew 10% and Facebook Ads 17% YoY.

As, in the past, I have strongly insisted on the way Amazon Ads has been catching up on both Google Ads, of which it represented approximately 1/8 in Q4’19, and on Facebook Ads of which it represented almost 1/4 in the same period, I was curious to see whether the trend continued with the increase in growth we noted. To my surprise it was not the case. In Q1 2020, Amazon Ads dropped to a 11,6% of Google Ads and 22,4% of Facebook. A relative decline despite the high growth.

The explanation for this seeming paradox of higher growth but lower proportion, is that Amazon Ads have a higher seasonality than Facebook and Google. All the big internet players have an extremely high seasonality in the last quarter of the year due to the holiday seasons and shopping frenzy. But for Amazon, this is even more pronounced and the relative drop into Q1 is more pronounced as well, as Amazon Ads closely traces the ecommerce activity as shown below:

What this tells us is probably that a large majority of Amazon’s ad revenue is in Amazon Sponsored Ads, the advertising which is displayed inside the marketplace (as opposed to Amazon DSP which is mainly outside).

What does this tell us about the future?

The growth of Amazon Ads is strongly correlated with Amazon ecommerce. If Amazon ecommerce continues to grow by 26%, we can expect Amazon Ads to grow at the same rate or higher. Advertising has grown as a part of Ecommerce for a while, and the question is whether there is an upper limit. Within Amazon Advertising, one of the reporting measures is an internal ratio called ACOS: Advertising Cost of Sale. The higher the ACOS, the less net margin a merchant generates. This is a good illustration of existence of an upper limit to how much advertising the system can support.

With this potential ceiling for advertising on the marketplace, the huge growth opportunity for Amazon obviously resides outside of the marketplace and this is where Amazon DSP comes into play. Amazon DSP leverages user data for advertising outside of Amazon and has an almost unlimited potential for growth.

If the growth for Amazon Advertising beyond the growth of ecommerce, and solely based on the additional growth of the Amazon DSP offering, then we should probably expect to see a slowing of the growth in coming quarters with the floor being the growth rate for ecommerce itself. Currently sitting at 26%.

But with Covid19 predictions are hard to make

However, Q2 results in 2020 will reflect a completely different picture of where both Ecommerce and Ads are going due to the impact of the Corona virus disease which affects both the volume and types of ecommerce and the volume of advertising. In a crisis situation, advertising spend is often cut but in the present situation, there is also an effect of reorientation. There could be shifts from other channels to Amazon and there are definitely shifts between categories of products.

But whatever the Q2 figures will be, they are likely to show a further catch-up of Amazon Ads compared to Google and Facebook whose advertising revenues will likely be more affected in times of crisis. So, despite the crisis situation, Amazon is probably still catching triopoly share at the time of writing.