How Serious Is Amazon’s Challenge to Google and Facebook?

Tech giant's purchase of Sizmek's assets makes clear its ad-tech ambitions

The duopoly accounts for 57.7% of U.S. digital advertising market share. How can Amazon close the gap?
Getty Images, Facebook, Amazon, Google

Amazon ended weeks of speculation by confirming its intended purchase of the Sizmek ad server and Dynamic Creative Optimization (DCO) suite. Some believe that this move could disrupt the very top of the digital advertising market.

The agreed sale price of Sizmek’s ad server and DCO assets were not disclosed publicly, but separate sources with knowledge of the proceedings stated that Sizmek’s assets were in the region of $75 to $100 million and estimated that the final offer was below that figure.

This deal almost brings to a close Sizmek’s Chapter 11 process, which also involved the sell-off of its data management and demand-side platform assets to Zeta Global for an estimated $36 million.

The Amazon transaction has yet to conclude—plus the assets of Sizmek’s remaining contextual advertising business Peer 39 has yet to attract an offer—but given the growth of Amazon’s ad business in recent years, it has sparked much speculation about the company’s prospects in an industry ruled by Facebook and Google.

Challenging the incumbents: Facebook and Google

Facebook and Google currently dominate the U.S. digital advertising market with a joint market share of 57.7% as of last year, according to eMarketer, making the two an effective “duopoly.”

However, the growing market share of Amazon Advertising, which accounted for 4.1% of all spend in 2018 and is set to hit 7.1% by 2020, is disrupting the status quo.

In the opening quarter of the year, Amazon Advertising generated $2.7 billion in revenue for the period, and Amazon’s svp and CFO Brian T. Olsavsky explained that the company wants to offer advertisers better insights on how media spend invested with its platform can drive e-commerce sales.

In particular, Amazon wants to make it easier for brands to understand how to use its DSP, including how spend can help generate ROI, according to Olsavsky’s comments in a Seeking Alpha transcript. Doubtless, it was this strategy that has driven its interest in what is the second most commonly adopted buy-side ad server on the market.

How much of a task lies ahead?

Amazon has yet to discuss its integration strategy. But given that its U.S. market share is still in single figures, it’s worth looking at what it will take to advance this number.

Some theorize that one of the drivers behind Amazon’s burgeoning advertising business has been the reallocation of spend from search budgets. A dollar away from Google means a dollar elsewhere. Why not Amazon?

Jay Friedman, president, Goodway Group, agreed with this assessment. “Search has always been the ‘lowest of low-funnel’ tactics,” he said. “And what’s better than being able to buy search on the same platform as the product is sold on?”

On whether Sizmek’s assets will significantly accelerate Amazon closing the gap on the duopoly’s market share, Friedman was cautious, holding that ad serving is a high-marketing but low-dollar-volume business.

“I don’t believe it will make Amazon’s ad business appear to grow significantly,” he said. “But that’s not what this is about. This is about building a fully integrated stack where advertisers don’t need to touch anything other than an Amazon product. Search, on-platform display, off-platform display, audio and video all in one place. Sound familiar?

Paul Silver, COO of MiQ, explained that a buy-side ad server gets Amazon into the measurement space in an exciting way: It means the company could better provide closed-loop measurement to advertisers that spend money on its DSP. This is especially the case since up to 50% of e-commerce transactions happen on its own platform.

“Amazon can provide marketers complete visibility into the 50% that happens brand-side, plus now the 50% that happens behind the walls of Amazon,” said Silver. “This has to be a really compelling proposition for any marketer.”

Another platform with longtail priorities?

Ana Milicevic, principal and co-founder of Sparrow Advisers, told Adweek that another source of growth for Amazon Advertising has been traditional in-store shopping budgets. She noted that (similar to the duopoly) it may be making a play for the ad budgets of SME players, not necessarily the media plans of Madison Avenue advertisers.

“While larger advertisers may frown upon using a specific ad server, it’s likely that, as in Google’s case with AdWords, a joint Sizmek-Amazon offering will be welcomed by players with smaller budgets and longtail advertisers,” she said. “But what will all this look like to the consumer? Given how much of Amazon’s product page is already dedicated to a variety of paid efforts, I worry that their advertising expansion will really come at the expense of consumer experience.”

Other sources noted how the addition of an ad server to the Amazon stack could help it mount a challenge to Google Data Hub, a platform it launched last year as part of the overhaul of its ad-tech offering.

“If Amazon can integrate Sizmek intelligently to their identity, they’ll be able to start accelerating their Data Hub product here, which then, again, becomes a genuine threat to Google’s dominance in this space,” said Silver.

Lessons to be learned

Meanwhile, Mark Irvine, director of strategic partnerships at Wordstream, noted how Amazon would have to adopt a page from the playbooks of its rival duopoly players—whose primary sources of revenue, unlike the e-commerce giant, is advertising.

“The Amazon ad platform changes quickly: introducing and depreciating new ad units, audiences, targeting techniques frequently,” he said. “But it’s challenging not knowing what’s coming and going.”

Compare this with the two market leaders that have a greater tendency to give potential media buyers advanced warning of changes to their product road maps, which in turn gives them time to test, learn and adapt their platform strategies. “Amazon, however, changes their ad tech at a whim,” said Irvine.

Moreover, the duopoly’s ad platforms provide more options specifically to acquire new customers at different stages of their purchasing decision, unlike Amazon.

“Amazon ads are specially designed to help you sell your product on Amazon, and they do that well. But they’re solely transactional and not a strategy for growth alone,” said Irvine.

Rob Webster, CEO of Canton Marketing Solutions, added that Amazon should take note of some of the difficulties Facebook encountered when it (unsuccessfully) attempted to rival Google’s DoubleClick offering with its Atlas project.

“Facebook Atlas tried to be the ad server based on Facebook data,” said Webster, noting that technology integration will be crucial.

“When they bought Atlas, it was so old they basically had to throw it away. And while they built the measurement side of it quite fast, what they then didn’t do was build all of the components of a full ad server,” he added. “You can’t get people to move off Google Campaign Manager, Adform or Flashtalking if you don’t have a fully featured system.”

Several sources noted that while Amazon’s retail data is highly desirable for advertisers looking to hone their campaigns, its ad stack is not a market leader. Hence, much integration is necessary before it can genuinely rival Facebook or Google.

That is, until the Department of Justice comes knocking.

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