Clues to Google’s ad revenue mystery

Industry Contributor 6 May 2019 - 3 min read

Clues to Google’s ad revenue mystery

By Paul McIntyre - Executive Editor

Market Voice 3 min read

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Tags: Alphabet, Amazon, Google, Facebook, advertising, digital, YouTube, Apple, search, video shopping, data, attribution

Alphabet shares tumbled after Google posted weak first quarter ad sales growth. Management didn’t offer much in the way of explanation – leaving analysts to speculate on underlying issues. Here are five of those theories (Bloomberg).

Key theories:

There is only so much room on a phone screen for ads – and Google's running out
Changes to YouTube ad mechanics: Google made changes to enable advertisers to place targeted direct response ads around a year ago and maybe struggling to replicate initial success year-on-year
YouTube cleanup costs may be hitting profits as the company makes changes in a bid to reassure advertisers it is brand safe
Apple's crack down on ad tracking via the Safari browser may be biting
Amazon's play for brand dollars is starting to add up, with Google losing out

Google's ad growth slowdown has spawned all manner of investor theories and its silence on the matter is partly because managing such discussions is new territory for the tech giant.

It's got to be due in part to Amazon's masterplan to cut Google out of the loop and it may be slicing deeper and sooner than expected.

For a company that holds some of the world’s largest data sets, and boasts of its AI prowess, the silence around Alphabet's slowing growth is deafening. But, for perspective, 15% quarterly growth is something just about any other business would kill for.

Of all the theories, Amazon's rise is most compelling – and has been expected. The company's ad business is growing fast, backed by vast behavioural and purchase data. eMarketer predicted earlier this year that Amazon's share of the digital ad market would more than double in 2019 to 8.8 per cent. Jeff Bezos's juggernaut appears to be eating up the distance between itself and GooBook faster than anticipated.

That poses a double-edged sword for brands, for whom Amazon is now distributor, media channel and increasingly, private label competitor. Meanwhile, Google may look to raise rates if mobile real estate is saturated.

Amazon's rise - and the threat of other commerce-driven marketplaces - could also be the underlying driver Mark Zuckerberg's 'pivot'. He wants to bring together all of Facebook's apps and services so that every purchase and service is delivered within its walls - if regulators will let him.