“Watch out Google & Facebook! Amazon is becoming an advertising giant!”
Across 2018 & 2019, media was bullish that Amazon will become a big rival to the duopoly of Facebook & Google in digital media & advertising. And this was when Amazon Ads was just getting started.
Fast forward to now, Amazon Ads has seen phenomenal growth and become a big cash cow for Amazon, even overtaking AWS! Amazon Ads already has a 12% market share and will grow to 15% by 2023.
No kidding! Remember, we talked about all of this here.
But that’s just the tip of the iceberg. The real deal is how even others like Walmart & Apple are posing a threat to the leaders.
Great then, let’s jump into this right away!
Walmart wants a bigger piece of ad revenue!
Sure Google & Facebook are still the leaders in the digital ads business with a collective market share of ~50%. And Amazon is their biggest challenger with a 12% share.
But Walmart, world's largest retailer, is also catching up. They made a handsome ~$1.5bn in revenue in 2021, which is more than Twitter or Snapchat, whose entire business model is ads!
If you look at just the last quarter of 2021, Walmart has doubled its ad business compared to 2020. That growth rate of ~100% is impressive by even Amazon's standard, which only saw a 50% growth in 2021 versus the previous year.
Of course, you can argue that the numbers for Walmart are much smaller even when compared to Amazon. Amazon Ads makes almost 10x the yearly revenue of Walmart in a single quarter! So it's natural for Walmart to have higher growth rates — easier to grow fast on smaller revenue vs. showing growth on a huge revenue number.
But the world is changing, and moving more & more towards privacy. People don't want to give their personal data away, and this poses a huge problem for companies in the ads business like Facebook & Snapchat. However, it benefits newcomers like Walmart.
My bad, that's too much information with very little context. Let's rewind a bit and first understand how Facebook & Snapchat make money from ads.
How Facebook uses my data to make money from ads
Let's start from the beginning.
Companies like Facebook & Snapchat make money entirely from ads. They know a lot about you, not just based on the information you share through their apps but also from all the activity you do on your phone or computer.
Consider you've an iPhone. Your iPhone will have a unique identifier called IDFA that all apps on your phone can access, and share with each other.
So assume that you saw a shoe advertisement on Facebook. You get distracted by a message and don't click on it. A couple of days later, you visit the shoe maker's website and buy the shoe.
The shoe company shares your unique identifier with Facebook, and after tallying your IDs, both agree that the purchase was made because you saw the Facebook ad.
Not just this, Facebook also shows ads across other apps based on this unique identifier.
No more! You can't track my data, and show me ads
Now here's the interesting bit. By default, as an iPhone user, you don't have a say on whether your unique ID should be shared by apps with advertisers like Facebook or Snapchat.
Of course, you can change your iPhone settings and explicitly say that your activity should not be tracked across apps. But most people probably don't know that their activity is being tracked, let alone the fact that they can turn off this tracking too.
Naturally, as more and more people got to know about this tracking, they started complaining about it. So Apple changed the game on this entirely in 2020 when they switched the default for tracking user activity.
Users had to explicitly say that they want apps to share their information with other apps. Well, who would say yes to that! At just the first update of iOS, 62% of users opted out of this tracking!
Only if you have your own data, you're the king!
This privacy change by Apple hurt the advertising companies badly. It wiped off $10bn in revenue from YouTube, Facebook, Twitter & Snapchat in just 6 months 🤯
But if all these companies lost so much revenue, did anyone even gain something from it?
Apple did! Apple's own ads suddenly became more lucrative for brands, and their conversion rates spiked from 17% to 58%. Apple is also all set to make $20bn in revenue from ads by 2025!
Well, not just Apple, as the world moves towards more privacy, companies that own user data will become more lucrative advertising platforms.
Let me explain. Facebook & Snapchat rely on tracking your activity across websites & apps to show ads and make money. But companies like Amazon & Walmart have a lot of data about their users, just based on the time they spend on their website or app.
All of the data that Amazon & Walmart collect when you shop on their website or app is completely owned by them. No privacy change by phone makers like Apple will ever take the data away from these companies.
Now the value of this data becomes even more significant when you don't have data being tracked across websites or apps.
So not just Amazon or Walmart, but even other retailers online stand to benefit from these changes. The data they "own" has just become more valuable for ads!
Hrishikesh! So you're telling me that every company that owns user data is an advertising platform?
Absolutely yes! Any company that attracts you to their website and collects your data has the potential to be an ad network.
Everything, my friend, everything is an advertising network!