Amazon is the newest risk to Fb as advert concentrating on suffers

Mark Zuckerberg, Chief Executive Officer of Meta Platforms Inc., left, arrives in federal court in San Jose, California, Tuesday, December 20, 2022.

David Paul Morris | Bloomberg | Getty Images

For Matthew Hassett’s smart alarm clock company Loftie, the 2022 holiday shopping spree was the busiest in its five-year history, despite a lackluster US economy and ongoing recession concerns.

Hassett, who lives in New York, traces the blessing to a key decision. He reallocated his marketing budget and cut spending on Facebook and tying up advertising dollars for the first time during a holiday season Amazon.

“So many people start shopping on Amazon,” Hassett said in an interview. “I do most things personally. So we have to be there.”

Loftie is representative of a larger retail trend making waves on Madison Avenue and Wall Street. Amazon’s expanded advertising offering for the millions of brands sold on the site, coupled with Facebook’s reduced targeting capabilities resulting from Apple’s privacy changes, has resulted in a significant realignment of the digital ads market.

Up until a year ago, Amazon didn’t even disclose the size of its advertising business, leaving analysts and investors guessing how much the company was making by allowing sellers and brands to advertise their wares on the site and apps. Now the company’s advertising division is a $38 billion annual business and last week posted 19% year-over-year growth in the fourth quarter to $11.6 billion.

facebook parents Meta, meanwhile, reported a 4% annualized revenue decline for the quarter to $32.2 billion, shrinking for the third straight month. Google is less affected by apples iOS update, but the ad business is still being hit by the economic slowdown. parent company alphabet reported revenue growth of 1% to $76 billion.

According to Insider Intelligence, Amazon has catapulted itself to third place in the global digital advertising market with a 7.3% share. Even as it takes shares from Google and Facebook, it still lags far behind the two market leaders, who control 28.8% and 20.5% of the industry, respectively. The Facebook number includes Instagram.

Loftie continues to spend more on Facebook than Amazon, but the equation has changed dramatically. In the days surrounding Black Friday in November, he allocated 10% of his marketing budget to Amazon, up from zero a year earlier. Facebook and Instagram fell from 71% to 40% of its budget. The rest of the money he pulled from Meta went to Google as he increased spending there from 29% over the 2021 holidays to 50% last year.

Hassett said Facebook ads just aren’t working as well anymore after the 2021 iOS update began forcing app developers to ask users if they wanted to be tracked. As more consumers opt out of app tracking, the pool of potential customers “has been eroded and we can no longer target people reliably,” Hassett said.

“Facebook has to offer the audience a larger pool of people to find the same people you find before, and that’s just more expensive,” he said. “You’re paying a lot more than you were a year ago, and a lot of that is because of Apple’s privacy changes.”

Meta CFO Susan Li told analysts on last week’s earnings call that growth in the company’s largest verticals, online retail and consumer goods, “remained negative” during the quarter. She said the pace of the annual decline in “online commerce has slowed compared to last quarter,” but wasn’t sure the sector would bounce back significantly any time soon.

People take selfies in front of the logo of Facebook parent company Meta on November 9, 2022 in Menlo Park, California. Meta will lay off more than 11,000 employees, the company announced on Wednesday.

Liu Guanguan | China news service | Getty Images

For Loftie, Amazon and Google offer better value for money because a shopper shows intent by searching for a specific item. Hassett bought keywords like “white noise” and “loftie” to ensure consumers trying to find his products weren’t misled.

“The work we’re doing outside of Amazon on advertising is definitely paying off at Amazon because people go there and type in Loftie,” Hassett said, adding that his ad spend shift has helped Loftie, within four days make a record $250,000 in sales during the holidays.

Investment bank Cowen, in a recent survey of ad buyers, noted that “Amazon was the most popular survey response when we asked respondents what ad platform outside of GOOG/FB properties could emerge or become a significant part of buyers’ digital ad spend in the future will emerge from TikTok.”

The survey found that there remains “broad interest among advertisers” to increase their Amazon budgets in 2023, with 54% of Amazon advertisers surveyed saying they plan to spend more this year than they did last year .

While Facebook remains a centerpiece of a brand’s budget, its influence is waning, and the company’s investment in its TikTok-like Reels product will take a few years to have a significant financial impact, the Cowen analysts said.

“In the near term, we expect meta-ad share to continue to decline in 23 given macro headwinds and the focus on reels,” they wrote.

A meta spokesperson declined to comment on the story, but sent CNBC examples of brands that the company says have increased their attribution to Facebook and Instagram and noticed improved performance of ads on the site.

Like Loftie, Robin Golf had to step away from Facebook to promote its catalog of golf clubs and related equipment. CEO Peter Marler said more of that money has gone to Amazon over the past year.

Between July 2021 and the same month a year later, Robin’s cost of acquiring a client increased 260% from $50 to $180, Marler said. He attributed most of the cost increase to Facebook’s reduced targeting capabilities and said Google isn’t doing as well either.

“We’ve started investing more heavily in Amazon,” Marler said. “We’ve budget-shifted away from Facebook, we’ve budget-shifted away from Google, and we’ve shifted to Amazon, and our Amazon sales have skyrocketed about 600% in 2022.”

Overall, the value of the tracking cookie has dwindled due to a renewed emphasis on consumer privacy. There are very few major online advertising platforms that don’t rely on targeting, Marler said.

“Changes in the effectiveness of these platforms have really forced us to reconsider our reliance on them,” he said. “We are actively shifting our budgets and reducing the amount of money we spend on Meta.”

“Not our customer”

Trusting Amazon has its own pitfalls. The company is a dominant force in online retail and can make or break a brand’s success based on its performance on the site. That’s particularly risky because Amazon has its own expanding private label business that regularly launches products that compete with sellers on the platform.

Vitamin company Manna Health has increased its presence on Amazon, allocating a larger chunk of its advertising budget to the site since the iOS changes, with plans to potentially double its allocation in 2023 from less than 10% currently, marketing chief Ryan Farmer said.

But he worries about brand loyalty when so many transactions happen on Amazon.

“It’s not our customer, it’s Amazon’s customer,” Farmer said.

Farmer compares Amazon’s online advertising system to Google’s in that companies serve ads based on keywords they think will resonate with potential customers who may be searching for specific products. Manna also leverages Amazon’s demand-side platform advertising tool, which is useful for placement in banner ads that can be seen by people “looking for specific things,” Farmer said.

Manna, like Loftie and Robin Golf, maintains a customized Amazon home page that includes graphics, slogans, and a listing of the company’s various products that it sells on Amazon. However, the system is a “black box,” Famer said, because it doesn’t provide the kind of demographics or other information that helps Manna retain and nurture its customers.

Manna does not even receive the buyer’s contact information. CEO Jeff Hill said he wishes Amazon “obviously offered more insight into the customer and email sharing was a bare minimum” so that Manna could build a community and talk to customers.

“‘Hey, you bought this joint supplement, you know you might also be interested in our new bone supplement,” Hill said, describing a possible follow-up email. “It would help our business and we could buy more from Amazon, and it would be beneficial for both of us if we could get to the customer and drive more traffic back to Amazon and the products.”

Amazon declined to comment on this story.

Rachel Tipograph, CEO of marketing technology company MikMak, said there are other unforeseen costs associated with Amazon advertising.

Unlike Meta, where you just need to log into Facebook’s Business Manager to start buying ads, advertising on Amazon happens alongside listing products on the platform and a variety of other services brands often buy , including storage areas. Premium ad placement matches slotting fees in retail stores, where brands pay for on-shelf visibility.

A Target customer views a board game display while shopping at the Target store on December 15, 2022 in San Francisco, California.

Justin Sullivan | Getty Images

Tipograph believes that these costs will result in the pendulum ‘swinging back’ towards brand advertising and companies will rely more on channels that drive traffic to their own website and give them more control over their spend.

“What CFOs want is profitable promotion, profitable growth,” Tipograph said, “and they want to know they’re driving incremental growth.”

Ryan Flannagan, CEO of e-commerce marketing firm Nuanced Media, said that as Amazon’s ads business has grown, so has competition for “premium copies and visuals.”

Companies that don’t invest in Amazon ads “are basically losing market share because they’re not defending themselves,” Flanagan said.

Amazon still has a lot of work to do to keep its promotional offerings attractive enough for brands to continue spending larger chunks of their budgets. But for now, given the challenges with Facebook, companies like Loftie are happy with the returns they’re getting from Amazon.

The way Hassett sees it, even with its rising costs and associated risks, Amazon offers enough value to justify the headache.

“I think you have to be there,” he said.

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