Will Google be Amazoned?

The media industry deals in the currency of attention and is one of the most influence-bearing industries. The legacy media industry has been in the throes of disruption for the last two decades now. The industry – at an inflection point, is witnessing unprecedented activity with the interplay of technology, telecom and media leading to a rapidly-evolving universe of new players, new structures and new horizons.

No one could have predicted fifteen years ago that Google and Facebook will go on to become the largest media companies of the world.

Google’s success lies in offering its ability to ‘discover content’ through algorithmic indexing, thus establishing itself as the new gatekeeper aggregating users. Google offered great products – algorithm-driven, contextual relevant search for the user and cost per click model and highly sophisticated affiliate advertising tools and products to deliver hitherto unknown levels of precision targeting to the advertiser. Google moved the bar in terms of availability of far greater data and analytics for the advertisers.

Enter Amazon – the sleeping giant of media. Perhaps the sleeping ones are the ‘new’ legacy media players.

The new era that Internet in general and Google, in particular, unleashed – digital, is prone to aggregation theory and that the power on the Internet flows from controlling demand and not supply – are exactly the reasons why Amazon may have superiority in the changed context.

Amazon has several advantages.

One of the key battlegrounds against Google is data. Amazon operates on the top and bottom end of the funnel. Where Google indicates intent, Amazon talks purchase; where Google suggests ‘think and feel’, Amazon delivers ‘do’.

Amazon is ubiquitous as an omni-platform. Amazon’s consumer insights with data on browsing, purchasing, music and video consumption are far greater and deeper. No one else has a span of data across retail, search, media and voice. It equips Amazon with unprecedented power to move the customer through the journey from awareness to consideration to conversion to loyalty. In short from search to purchase.

The evolution of online product finding is seeing a clear shift – from discovery led to data-driven, personalised and competitive. Curated product discovery combined with 24x7 recommendations is the order of the day as regards data driving commerce. With more than 50% of product searches now originating on Amazon, Google has reasons to be worried. Amazon affords a journey from search to fulfilment, unlike Google where product finding starts at search but is fulfilled by others.

The future of search is voice and the path to IoT is voice-enabled. Future-ready Amazon with Alexa and its investments in artificial intelligence (AI) has a lead in voice technology. There are no content adjacency issues with Amazon offering a brand-safe environment.

Amazon has developed highly sophisticated advertising tools in accelerated mobile pages (AMP). Amazon’s digital signal processing (DSP) is said to be surpassing Google’s double-click. Amazon is able to offer the most effective targeting with delivery on every single vector – effectiveness, reach, return on investment (ROI). What more could you ask for as an advertiser? The top media buying agencies have developed Amazon best practices on the lines of how they developed best social media practices with Facebook and Twitter a decade ago.

Amazon could be out to build an explosive media business opportunity in the highly profitable arena of online advertising unlike e-commerce where the revenues are huge but margins wafer-thin (Net income of $3 billion plus for revenues of $178 billion as of 2017). The ad business model could help consolidate Amazon’s hunger for margins coupled with its cloud computing business which currently accounts for 11% of revenues but contributes nearly 73% of income. Amazon’s ad business could deliver more income than its cloud business - as soon as 2021, according to Piper Jaffray analysts. Amazon realises the massive opportunity of higher margins on its advertising business model and has invested in building an army of ad sales personnel.

Amazon is creating a full-fledged media play with two social media networks – Spark and Anytime. Amazon Prime is being built into a hot video and live destination. At annual content budgets of $4.5 billion, Amazon is not leaving any stone unturned.

And finally, there seems to be no dearth of ammunition in Amazon’s arsenal. With the delivery giant tag firmly under its belt, Amazon is uniquely in a position to push sampling-for-dollars from consumer packaging companies – something that they seem to be quietly piloting currently. Analysts estimate that this could be another unique advantage for Amazon over Google and Facebook.

Amazon’s model is simple. Amazon e-commerce giant creates value for the users by offering the best products at the best prices with all other benefits. Amazon Advertising Business model is using Amazon e-commerce giant’s infrastructure to extract value for the advertisers.

eMarketer analysis forecasts a 7 cents of each new dollar of U.S. digital ad spending in 2020 to be collected by Amazon. It is the category ‘other’ of Amazon’s financial results which is attracting analysts’ attention. This ‘sponsored products’ revenue is largely revenues from the advertising business model of Amazon. It registered a near 130% increase to 2.2 billion in comparable 2017 quarter.

A study by eMarketer expects “increases of more than 50% per year through at least 2020 when Amazon will enjoy 7.0% of all U.S. digital ad spending”. eMarketer forecasts the ad revenues to double to $5.83 billion. As per Cowen & Co, Amazon ad sales are expected to shoot up to $28.4 billion over the next five years. At this level, it will be more than the combined increase in ad revenues of all television networks globally as per GroupM.

Even as advertisers would want the Google-Facebook duopoly – as much as 58% of U.S. online ad spending, according to eMarketer, to end, Google is not going to sit easy. While Amazon is moving from commerce platform to an ad platform, Google is moving in the reverse from Google ad words to ‘google home’ ordering.

Even as eMarketer estimated in September that Amazon’s ad business will bring in $4.61 billion this year, up 60% from the projection of $2.89 billion in March, Amazon has its challenges. Consumer backlash in the wake of an advertising push for one. Conflict of interest vis-à-vis vendors on e-commerce platform for another. And finally an active regulatory environment as the most critical one.

For a company that wins more than it loses, Amazon may be the equivalent of Lord Shiva who has the power of destruction, disruption and transformation. Like Lord Shiva’s third eye in Hindu mythology, the stocks of the stalwarts tumble when Amazon trains its eyes on a new industry. There are new targets on the horizon - healthcare, entertainment, consumer electronics and advertising. Jeff Bezos has done it to retail. And to cloud. Will Google end up being on the wrong side of the stick this time?

Out-googling Google. Tall order? Is it?

For what Amazon could do to Google for the rest of the world, there is the duopoly of Alipay and Tencent waiting in the wings for the Asian market.

The media business has its complexity: formats, categories, business models and more. The big media landscape is clearly up for a change. There’s consolidation amongst large legacy companies, there’re large tech companies vying for action.

And then there is Amazon.

Piyush Sharma is executive-in-residence at the indian School of Business (ISB), Hyderabad. He is also a global CEO coach and a C-Suite + start-up advisor.

Rajendra Srivastava is the dean of the Indian School of Business (ISB) and the Novartis professor of marketing strategy and innovation.

Views are personal