Amazon Catching Up to Google, Facebook in Search

U.S. digital advertising revenue surged 23% to a record $49.5 billion in the first half of 2018, according to a report from IAB Internet Advertising Revenue. The accelerated growth of digital ad budgets signals major gains for leading internet giants Facebook Inc. (FB) and Alphabet Inc. (GOOGL), as well as e-commerce behemoth Inc. (AMZN), which has been doubling down on its digital ad business. 

Digital Ad Market Opportunity Increases, Legacy Leaders Could Still Lose Revenue

In the first six months of the year, mobile drove total digital ad revenue growth, posting a 42% gain YOY to $30.9 billion in revenue, compared to just $3 billion in revenue for the full year 2013. Social media also drove gains, up 38% to $13.1 billion over the year-long period, followed by video ads, which rose 35% YOY to $7 billion. Search revenue jumped 19% to $22.8 billion. 

“At $49.5 billion in total ad revenue for the (first) half (of the year), it’s safe to say digital advertising should exceed $100 billion for the year (in the U.S.)," wrote Pivotal Research Group analyst Brian Wieser in a note on Tuesday, as cited by Barron's

While social media pioneer Facebook and global search giant Google maintain their duopoly in the media space, their deep-pocketed tech peer Amazon has been seen as a major competitive threat. 

Wieser notes that if Google and Facebook were responsible for 75% of all digital ad growth, including and excluding U.S. search growth, digital advertising that did not go through the two platforms performed "reasonably well" in the first half of the year. His calculations estimate the gain for non-Facebook and Google digital ad growth at 18%, or about $1.5 billion. 

On the other hand, the bulk of the growth outside of the duopoly could have been concentrated in Amazon's expansion, noted the senior analyst, who indicated that Amazon "probably added $1 billion in domestic ad revenue" over the same period last year.

A September eMarketer report forecast U.S. advertisers will spend $4.61 billion on Amazon's platform in 2018, accounting for 4.1% of all digital ad spending in the U.S., making the tech giant the third-largest domestic digital advertiser. The research firm expects increases of more than 50% per year for Amazon ad business through at least 2020 when the retailer is forecasted to enjoy 7% of all U.S. digital ad spending. For comparison, Facebook currently controls 20.6% of the market, behind Google at 37.1%. By 2020, eMarketer expects Facebook's share to grow by 0.2%, while Google is slated to fall 2%. 

Ultimately, even as the total market opportunity increases, legacy industry leaders may lose ad dollars to new competitors, putting the tech giants' earnings, revenue and stock growth at risk in the long-term. 

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