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No More Cash Cow: Google’s Dominance In Advertising May Be On Shaky Ground With Amazon’s Entry

Amazon.com Illustrations Ahead Of Earnings

Just a little more than a decade ago, an entrepreneur named Jeff Bezos started a company called Cadabra. It quickly became rebranded as Amazon focused on Web commerce. For the past few years, though, it’s been slowly evolving to a point where it’s becoming more media-focused and today is showing signs that it’s ready to be more receptive to business needs…more than what any other online property can offer — including Google.

How can a company that specializes in e-commerce really rival Google? Through its expertise in customer service and market-tested recommendation engine. Yes, many companies and platforms each put up a good fight against Google, but only one potentially seems to have a leg up on chipping away at the technology giant’s “Cash Cow”: Google advertising. Whether it’s AdWords or AdSense, Google has seen a lot of revenue coming in each quarter. In Q2 2014 (three months ending June 30), Google announced that advertising made up 90 percent of its total revenue, amounting to $14.359 million, a 19 percent increase from the same quarter last year. So how can this

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So you might be asking: how can Amazon really take on Google? The answer is within reports that state the online retail giant is planning to develop its own online advertising platform that could leverage “the knowledge of millions of Web shoppers.” Called Amazon Sponsored Links, it is said to be rolling out later this year and the company has already approached potential ad partners about signing up for it. Of course it’s worth noting that Amazon does have its own ad platform already as part of its media group, with a reach to more than 244 million customers worldwide. However, as the Wall Street Journal notes, it’s currently in limited production and isn’t something that necessarily competes with AdWords or even AdSense.

Reach versus Conversion

Google has had a monopoly on the online advertising business for many years now and has even overcome many challengers, including that of natural rivals like Yahoo and Microsoft. But while advertising is the logical conclusion for many services and platforms that have become quite popular, none have really came close to potentially bringing down the Mountain View-based company’s empire. But here’s the thing, it’ll take some time before that happens, but Google really needs to be worried because it’s a matter of reach versus conversion.

Advertisers today have the option to have their ads shown on thousands of publications and websites on the Internet today thanks to Google AdWords and AdSense. But the way things appear is often based on a bidding war — the bigger your budget, the better your chances of your ad appearing. But it’s mostly based on anonymous demographics and cookies. Google doesn’t necessarily know that it’s John Doe or Sally Smith who is interested in the laptop, camera, vacuum, or backpack — at least unless you’re signed into your Google account. Amazon does, but it’s not without a huge risk: how many people are constantly logged into their Amazon account?

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With conversion as its main focus, Amazon could entice more businesses to use its offering over AdWords because it’s focused on not only displaying ads relevant to the consumer, but also ones that could lead to actual purchases. In most AdWords campaigns, the result is to get someone to make a purchase, but the ad could be pointing to the advertiser’s website. With Amazon, its advertising platform could deliver a more direct-to-purchase model, while also offering businesses their own store front. Its customers are already have the “buy from Amazon” mentality — when was the last time you were looking to make a purchase and you thought about going to a company’s website versus going to Amazon?

Another potential advantage to Amazon is that it’s able to bring its advertising beyond the traditional webpage (both its very popular site and third-party publishers), but also to mobile devices and applications. There’s nothing to stop the company from leveraging its Appstore, which has over 240,000 apps — yes, still something that pales in comparison to the Google Play store, but there’s an ecosystem in play. In some reality, it might be possible for Amazon to extend its advertising platform into apps to help developers monetize their work in a method similar to mobile app install ads — an ad offering currently available with Google. Perhaps a more direct reference is perhaps what one would see with Kiip and other mobile advertising services — so we mustn’t rule out a possible acquisition or two by Amazon to make its ad platform even more powerful.

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Perhaps this best summarizes the advantage Amazon could have over Google, according to The Motley Fool:

 An Amazon ad network could threaten Google’s dominance because the company would be able to leverage its vast user base and insight into buying behavior in a way that Google can’t. Google can serve ads through AdSense when a customer lands on content that uses certain keywords. Amazon can use past buying patterns to serve a user an ad for something that they are ready to buy at exactly the right time.

AdSense is focused on behavior — a customer has to go looking for something. Amazon can do that, too, and it has the ability to be prescient — to serve ads based on predictive analysis.

And yes, it’s well-known that Google could hold its own and it’s not as if Amazon would be doing anything remarkably new that no one else hasn’t already done. But the twist here is that Google has spent most of its time building out its advertising platform to rival Yahoo back when Search Engine Advertising was the newest thing for marketers to latch onto. Now, the whole program has become more complex and marketers are looking for the complete package. Google does have its own shopping platform, but let’s face it, it isn’t that strong compared to the likes of Amazon — it’s an online commerce juggernaut.

The new commercial form

Last week, Amazon made a surprise acquisition of Twitch, the game live-streaming platform for $970 million in cash. It was surprising in that it flew under most people’s radar and scooped the company from right under Google, which offered to pay more than $1 billion for Twitch. But why would Amazon make such a purchase? According to Re/code:

Two things: A video audience that’s deeply engaged, and a media company that’s making money in an unconventional way.

Amazon hasn’t offered live-streaming through its offering, and the closest thing it has to games is what it sells through its website. But with the popularity of Amazon Prime, it’s probably not that far-fetched to think that online gaming could come soon to the service. Think about it this way, you can pay a subscription service to play your favorite PC, Xbox, Playstation 4, Ouya, and other platform games right through Amazon. Or, get premium quality and service when watching a livestream of your favorite tournament, whether it’s League of Legends, Starcraft, etc.

But then let’s not forget this:

And Drew is right…a huge potential is instead of the standard YouTube and Google AdWords-like banners that one typically sees on a Twitch livestream, it’s replaced with a contextual advertisement where you can buy that game, soundtrack, or associated movie, controller, accessory with just one-click. Amazon can further leverage this advertising offering to its other platforms as well, including its popular Kindle and much less-popular smartphone, the Amazon Fire.

In a way, this is the new digital commercial. Instead of putting out 30 seconds ads on the television, on the radio, or in videos a la YouTube, Amazon can make it more relevant, thanks to its targeted recommendation system. If you’ve watched “Breaking Bad” on Amazon Prime, it might recommend the DVDs for you to buy, or perhaps other shows to watch. No interruptions — it might seem like it’s part of your natural day.

The process is already there, but still needs to scale to impact the millions of Amazon customers: with the Amazon Fire smartphone thanks to Firefly. Through the Fire’s camera, the application will scan things like books, food, video games, and household products and then give you the option to buy it (where else?) on Amazon. In a way, the company is creating a pretty relevant Knowledge Graph, specifically around interests and purchases.

Will people mind?

While Amazon’s DoubleClick-like service, one question that consumers might be asking themselves is whether their privacy will be intruded upon with this offering? Is it that more invasive? The fact that Amazon would be able to gather more data about its customers and provide recommendations and…in effect…more revenue, could be a cause for some concern. However, how is it that much different than what Amazon already does through its recommendation engine?

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It’s difficult to say what Amazon’s stance is on data, but the one thing that may be different from Amazon and Google is that the latter will only have access to unidentifiable information, while Amazon will know that it’s Ken who bought Tuesdays with Morrie and watched The Avengers via Amazon Prime. That’s a big difference…the fact that it knows my name and has my purchase history would be a primary worry, especially with what it could do with that data.

Of course this raises up memories of Blippy, a failed social media sharing site that allowed users to post and follow each other’s updates about their purchase of goods and services. Dubbed the “Twitter of personal finance”, it let followers know that you went to Target and purchased a roll of toilet paper. But it wasn’t without any issues — on April 23, 2010, it was revealed that Blippy had allowed Google to index detailed transaction information from its site, causing some credit card numbers to be exposed to the public.

There’s probably little chance for this to happen to Amazon, especially one with a massive infrastructure to boot. However, before people become enamored by this ad platform, one must wonder about the privacy impact on consumers.

Gunning for Google at all sides

Okay, so maybe Amazon’s DoubleClick-like product isn’t up to snuff and can’t overthrow Google’s massive online advertising effort. We’ve seen this song and dance before, but with the popularity of numerous social networks, there’s a growing trend that Google’s time may be up — at least as a market leader.

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Amazon joins a growing line of services with their own advertising platform. Perhaps the biggest one is Facebook, which seemed to have been a huge success thanks to its utilization of the Social Graph and letting advertisers target based on specific interests, demographics, and more niche factors, unlike Google. Then there’s Twitter and Pinterest, and now Amazon. None seem to have the whole plan down pact yet…some have reach while others could or have the conversion down, but no complete picture.

Whether Amazon enters the fray remains to be seen — it’s just reports right now. But what would be “possible implications” of this event? According to ClickZ:

  • Websites in display networks may show less Google ads for Amazon-sponsored links. The Amazon website itself will show less Google ads. Overall this may lead to poorer-quality placements for advertisers. Advertisers with any success on Amazon through Google may be better off going directly to Amazon.
  • Platform options increasing ad competition could drive cost-per-clicks (CPCs) down for some placements or advertisers and possibly increase services and support from Google, who will become more aware of customer retention.
  • Bing Ads will not likely be impacted as much, as the larger budgets are usually allocated to AdWords. This will be the most likely place to take PPC budget from to allocate to Amazon.
  • The entry of a new Amazon platform into the market may result in slightly higher fees from PPC managers, who will need to dedicate extra hours and resources to add a new platform to the PPC mix. In-house PPC managers will need training and additional hours in management for this.
  • Amazon will offer greater consumer insights. While Google can see what websites are visited and even segment users into groups whose searching behaviors indicates they are in the market to buy, this is nowhere near the consumer insight that Amazon possesses on buying behavior. For advertisers with a consumer audience, this could be a gold mine.

So will Amazon ultimately unseat Google as the online advertising leader or will Google continue to thrive?

Photo credit: Fortune, screenshot of Amazon homepage via The Next Web, photo of Jeff Bezos holding Amazon Fire smartphone via Ted S. Warren/AP Photo, Private photo via PublicDomainPictures/Pixabay, Times Square via Wikipedia