Amazon's Gorilla is in the Room
Does soaring advertising revenue at Amazon signal a risk to both marketers and the digital leviathans
Rapid Growth in Digital Advertising Revenues Reveals a Growing Threat
Despite the release of Amazon's roaring half year report on Friday, we get lulled into a false sense of security here in Asia Pacific, lulled by the gentle lap of our shallow seas and the warm embrace of our tropical sun.
It’s tempting to see ourselves as a world apart from the warring factions of North America and Europe, but context is crucial, and it may be wise to heed to a warning from history.
First let's have a look at the facts...
Amazon's strength is indisputable. Not only are they moments away from becoming the world’s second trillion dollar company, but they have arrived here through sheer commercial power, not the aspirations of venture capitalists.
Having secured their retail position after ruthless price cutting, quarrelsome employee relations and effective political bartering, Amazon are now celebrating 13 consecutive quarters of profit.
Their $2.5 billion dollar profit in Q2 came not only from their retail business, but from Amazon Web Services and, with increasing urgency, advertising revenue.
The Downside of Complacency
Here in Asia, we have a habit of neglecting external threats. Separated, perhaps by both time and distance, the digital revolution came slow upon us. When I arrived in Asia in the summer of 2007, with digital's share of marketing expenditure hovering around 2%, the growth and benefits were all to come.
Not for Asia Pacific was the urgency of enterprise and acquisition driven by the chill winds of harsh commercial reality, we preferred to imagine we could tread our own path, eased by the gentle hand of community and culture.
It’s understandable that we would have perceived the arrival of Google - building from an exploratory office in Singapore in 2007 to their acceleration in 2010 - or Facebook’s dramatic deployment in Singapore on US independence day in 2011, as passing storms in our rural idyll, the land that time forgot.
But as Tom Simpson of AdColony estimated so recently: “Latest earnings data reveals that in Q1 2018, Facebook and Google ad revenue grew by 40% in Asia Pacific (ex. China) year-on-year, while ‘The Rest’ – every publisher and ad tech business outside the duopoly – saw a fall in revenue of 20% over the same period.”
It seems it is not our regional colleagues that are cashing in on digital growth, it’s our emissaries from the US, and our homegrown Asian enterprises may be paying a significant price.
Dominant Suppliers Don't Make Good Partners
Whilst the EU’s multi-billion dollar fines against Google for antitrust violations recently grabbed the headlines, they masked similar wrath from regulators in the US and Russia.
Actions against digital SME 'Unlockd' in Australia and allegations by their Founder, Matt Berriman suggest they are willing to pursue similar restraining strategies at both a regional and local scale.
It remains to be seen whether Facebook can escape similar fines for the distraction of their leadership with fake news and data management, and the social chaos that litters the lands they conquered.
The world has perhaps been collateral damage in their relentless quest for dominance.
Both corporations argue strongly that their decisions are in the best interest of the consumer, but evidence from China demonstrates that local suppliers can deliver at least their equal in innovation and financial power when given room to grow.
And whilst Asia Pacific chews over the risks represented by these warring factions, it seem as if an even greater threat is apparent, for the early movers have woken from an icy exile and are already upon the gates.
Jeff Bezos is one of those early movers. Battered and beaten in the Dotcom Bust, Amazon retreated to lick its wounds, but slowly and surely built up their dominance on the other side of the retail divide.
A Unique Risk from Amazon
Adland’s temporary indifference to the threat was exemplified by Sir Martin Sorrell with classic British understatement at Davos in January: “Amazon's advertising platform itself - Google has about $100 billion in advertising, Facebook about $40 billion - Amazon has a fairly paltry pimple really, $2 billion or so, but growing quite quickly.”
Annual growth exceeding 100% is slightly more than "quite quickly" - on this record it need only match its competitors' growth cycles to be the largest supplier of advertising solutions in 5 years.
But it's Amazon's dominance in retail that may foreshadow the greatest regional risk of all. For whilst Google and Facebook have largely confined their regional conflict to the battlegrounds of media and communications, Amazon aim to dominate in that most hallowed of South East Asian grounds - retail spaces.
And in Asia Pacific the division between retail space and community is a narrow one at best. Retail is at the heart of regional identity.
The Full Funnel Proposition
What Sorrell's advertising-centric assessment ignores is Amazon’s expansion at all levels of the Marketing Funnel. With Prime set to follow Netflix in entertainment, Kindle beating Barnes & Noble and acquisitions like the Washington Post reflecting ambition with information management, Bezos is constructing a value chain of suffocating strength.
In the information age, insights into what inspires audiences, engages and prompts purchase, down through the murky hinterland of the retail process itself represent the ultimate treasure trove in consumer engagement.
And Amazon is rapidly becoming the only faction with access to the full stack.
A Strategic Imperative
Whatever the outcome of this war, it’s clear from previous experience with both Facebook and Google that Asia Pacific cannot assume that the consumer is the winner.
The flexible approach that the mega-corporations have taken to taxation, communications quality and data management suggest that national integrity and the people on the street are not the primary focus of their business. It is not immediately apparent that the regulatory authorities have either the will or the means to haul them in.
For the marketing industry in Asia Pacific, we ignore this at our peril.
It is becoming clear that all stages of business strategy, from consumer and market insights, to engagement, distribution, retail and customer service, may become increasingly dependent upon a few dominant suppliers whose interest in our growth may be conditional upon their profits.
Perhaps the time has come to establish Asian strategies independent of these industry leaders, choose allies and defend ground.
Many commentators would observe that Asia Pacific was caught napping by Google and Facebook. Let’s hope we don’t do the same as the warning lights start flashing around Amazon.