A week ago, yours truly cautioned owners of Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) that Facebook Inc (NASDAQ:FB) was starting to pose a real threat to the display ad market that made GOOGL stock the giant it is today. In short, the supply/demand market Facebook has established was very transparent, and advertisers (not to mention publishers) loved it. Google had largely refused to move into that era of internet advertising.
Now GOOGL stock holders have another headwind to deal with. As it turns out, Amazon.com, Inc. (NASDAQ:AMZN) — which was already helping Facebook with its new ad-sales product — is getting a surprising amount of traction with its own search engine. This, of course, lays the groundwork for an increasing degree of advertising dollars devoted to the e-commerce giant, and diverted away from Google.
The same as before, Alphabet really needs to step up its game and do business like it’s 2017 rather than 2007. Everybody else is.
Amazon Takes Aim at Alphabet
Calling a spade a spade, NYU Stern School of Business professor Scott Galloway may have been speaking more for effect than for accuracy when he told CNBC on Tuesday that Amazon could soon be a “more important search engine than Google.” But, his point was well taken all the same. He points out that while Google still draws a search engine crowd, many of those consumers aren’t apt to be shoppers. A consumer who visits Amazon.com, though, has already self-identified as a likely buyer.
Amazon is now leveraging the nuance of this relationship with web users.
Put this term in your Lexicon, particularly if you’re a fan of Amazon (or if you’re worried about your GOOGL stock position). — “sponsored goods.”
It’s exactly what it sounds like. That is, goods that Amazon does a little better job of featuring on and off its website for a bit of extra nosh from the seller providing the item. It’s happening now, and perhaps a little more than most internet shoppers may even realize.
Analysts are taking notice too. BMO Capital Markets analyst Daniel Salmon sees enough opportunity ahead to make a point of commenting on Amazon’s new-found focus. He explained:
“A key point of differentiation for Amazon [from competitors] is the massive amount of consumer purchase data it possesses,” Salmon said in the note to clients covered by Yahoo Finance. “While Google knows what people are searching for and Facebook knows what people are interested in and who they are connected to, Amazon knows the specific products that customers are purchasing and how frequently they are purchasing these products.”
He went on to downgrade GOOGL stock from “outperform” to “market perform” due to Amazon’s increasingly impressive move into Google’s turf.
Facebook Already on the Offensive
The development comes at a time when Alphabet was already on the defensive.
Last week, FB stock officially unveiled what it’s calling the Facebook Audience Network, which brings what’s called Header Bidding into the mainstream. Header Bidding is just an approach that connects advertisers willing to pay for placement and publishers with ad slots to fill with revenue-bearing advertisements. The buying and selling all happens in real time, and there’s no confusion about who’s getting what and where those ads are being displayed.
Some observers believe that — barring a change on Google’s end — the advent of header bidding could ratchet down Google’s display ad market share of 90% to something on the order of between 40% and 50%.
The flexibility of Facebook Audience also puts control of advertisements back in advertisers’ hands at a time when those clients are less than pleased with where their ads are showing up.
It’s not a new problem, but the lack of solution from Google to prevent an advertising customers’ ads from showing up on inappropriate sites (like racially charged venues or hate-mongering websites) came to a head last month when AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) along with a handful of other customers suspended their advertising business with the search engine giant.
It can be fixed, but not quickly or easily. And, even though Alphabet can adapt, its reputation has been dinged. Amazon just handed those advertisers looking for other options another viable one.
Bottom Line for GOOGL Stock
As was the case a week ago when Facebook unveiled its direct threat to Google’s dominance, it’s not exactly clear to what extent or how quickly Amazon’s new offer to advertisers might make a dent in Alphabet’s bottom line. There’s little doubt that it will take some sort of toll though, particularly if Alphabet does nothing… as it seems wont to do of late.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
