Amazon is the latest threat to Facebook as ad targeting suffers

Mark Zuckerberg, chief executive officer of Meta Platforms Inc., left, arrives in federal court in San Jose, California, U.S., on Tuesday, December 20, 2022.

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For Matthew Hassett’s smart alarm clock company GarretThe holiday shopping rush of 2022 is the busiest in its five-year history despite the lackluster US economy and persistent fears of a recession.

Hassett, who lives in New York, attributes the benefit to a major decision. He reallocates his marketing budget, reducing spending on Facebook and, for the first time during the holiday season, commit to spending money on advertising Amazon.

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“A lot of people started shopping on Amazon,” Hassett said in an interview. “I do most of the work personally. So we have to be there.”

Loftie is representative of a larger trend taking place in retail that is making big ripples on Madison Avenue and Wall Street. Amazon’s increased offering of advertising services to millions of brands that sell on the site, coupled with Facebook’s diminishing targeting capabilities, is the result of Apple changes privacy has created a significant realignment in the digital advertising market.

Until a year ago, Amazon didn’t even disclose the size of its ad business, leaving analysts and investors guessing how much the company made by allowing sellers and brands to promote products. their products on websites and apps. Now, the company’s advertising division is a $38 billion annual business, and last week report Growth of 19% year-on-year in the fourth quarter to $11.6 billion.

Facebook parents metameanwhile report a 4% annual reduction revenue for the quarter to $32.2 billion, down for the third consecutive period. Google has been less affected by Apple iOS update, but the ad business is still being hit by the recession. Holding company Alphabet announced 1% revenue growth to $76 billion.

Amazon has risen to third place in the global digital advertising market, with a 7.3% market share, according to Insider Intelligence. Even taking market share from Google and Facebook, it still lags behind the two market leaders, controlling 28.8% and 20.5% of the industry, respectively. The Facebook figure includes Instagram.

Loftie continues to spend more money on Facebook than Amazon, but the equation has changed dramatically. In the days around November’s Black Friday, he allocated 10% of his marketing budget to Amazon, up from zero the previous year. Facebook and Instagram went from 71% to 40% of his budget. The rest of the money he withdrew from Meta went to Google, as he increased spending there from 29% during the 2021 holidays to 50% last year.

Hassett said Facebook ads simply no longer work, after an iOS update in 2021 began forcing app developers to ask users if they wanted to be tracked. With more and more consumers opting out of app tracking, Hassett said, the lead pool has been “vacated and so we can no longer reliably target people.” “.

“Facebook has to serve an audience to a larger group of people to find people like you’re looking for before, and that just costs more,” he said. “You pay more than you did a year ago, and most of that is due to Apple’s privacy changes.”

Meta’s chief financial officer, Susan Li, told earnings analysts last week that growth in the company’s biggest vertical, online commerce and consumer packaged goods, “remained negative” in the quarter. . She said the annual rate of decline for “online commerce has slowed compared to the previous quarter”, but is uncertain whether the sector will recover significantly soon.

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

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For Loftie, Amazon and Google offer better value because shoppers are demonstrating intent by searching for a specific item. Hassett purchased keywords like “white noise” as well as “Loftie” to ensure that consumers looking for his products weren’t misled.

“The work we do outside of Amazon on advertising is definitely profitable on Amazon because people go there and type Loftie,” Hassett said, adding that the shift in his ad spend has helped Loftie generate a record $250,000 in sales over a four-day period during the holidays.

Investment bank Cowen noted in a recent survey of ad buyers that “Amazon was the most common survey response when we asked respondents which advertising platforms outside of products of GOOG/FB may appear or emerge as a meaningful part of a buyer’s Digital ad spend, prior to TikTok.”

The survey indicates that there continues to be “widespread interest among advertisers” to increase their Amazon budgets in 2023, with 54% of Amazon advertisers surveyed saying they plan to spend in the second half of the year. This year more than last year.

While Facebook remains a core part of a brand’s budget, its influence is dwindling and the company’s investment in a TikTok-like Reels product will lose out, Cowen analysts say years to make a significant financial impact.

Going forward, we expect Meta ad share to decline further in ’23 due to macro difficulties and the shift to Stories, they wrote.

A spokesperson for Meta declined to comment for this story but sent CNBC examples of brands that the company says has increased attribution to Facebook and Instagram and has seen improved performance from ads. on the Web.

Like Loftie, robin golf must also move away from Facebook in promoting its portfolio of golf clubs and related equipment. Over the past year, more of that money has gone to Amazon, said CEO Peter Marler.

From July 2021 to that same month a year later, the cost of acquiring a Robin customer rose 260% to $180 from $50, Marler said. He attributed much of the increased cost to Facebook’s reduced targeting capabilities, and said Google wasn’t doing well either.

“We started investing more in Amazon,” said Marler. “We’ve moved our budget away from Facebook, we’ve moved our budget away from Google, and we’ve moved to Amazon. Our Amazon sales are up about 600% by 2022.”

Overall, the value of tracking cookies has withered because of the new emphasis on consumer privacy. Marler says there are very few major online advertising platforms that don’t rely on targeting.

“Changes in the effectiveness of those platforms have really forced us to rethink our reliance on them,” he said. “We’re actively shifting our budgets away and reducing the amount we’re spending with Meta.”

‘Not our customers’

Reliance on Amazon has its own pitfalls. The company is the dominant force in online retail and can make or break a brand’s success based on its performance on the website. That’s especially risky because Amazon has a thriving private-label business that regularly launches new products. complete with merchants on the platform.

vitamin company Health Manna Marketing director Ryan Farmer says it’s ramped up its presence on Amazon, pledging more ad budgets to the site since the iOS change, with plans to double its attribution by next year. 2023 from less than 10% currently.

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But he worries about brand loyalty, with so many deals happening on Amazon.

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

Farmer likens Amazon’s online advertising system to Google’s in that companies run ads based on keywords they think are relevant to potential customers who may be searching for certain products. certain products. Manna also uses Amazon’s on-demand platform advertising tool, which is useful for placing banner ads that people “looking for certain things” can see,” Farmer said.

Manna, like Loftie and Robin Golf, maintains a customized Amazon homepage that contains graphics, slogans, and a list of the various products the company sells on Amazon. However, the system is a “black box,” says Famer, as it doesn’t provide the kind of demographic data or other information to help Manna retain and nurture her customers.

Manna didn’t even get the buyer’s contact information. CEO Jeff Hill said he wishes that Amazon provided “obviously a better understanding of customers and email sharing to a minimum” so Manna could build community and talk with customers.

“‘Hey, you bought this bone supplement, you know, you might also be interested in our new bone supplement,’ says Hill, describing a potential follow-up email. “It will help our company and we can buy more on Amazon and it will benefit both parties to deliver products to customers and drive more traffic back to Amazon and products.”

Amazon declined to comment for this story.

Rachel Tipograph, CEO of marketing technology company MikMaksaid there were other unforeseen costs tied to Amazon’s advertising.

Unlike Meta, which only requires you to log in to Facebook’s business manager to start buying ads, Amazon ads come with product listings on the platform and a host of other services that advertisers can’t afford. brands often buy, including warehouse space. Premium ad placement equates to queuing fees in retail stores, where brands pay for shelf visibility.

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

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Tipograph expects these costs to “turn the pendulum back” toward promoting brands, and that companies will rely more heavily on channels that drive traffic to their own websites and give them control. more than its cost.

“What CFOs want is profitable advertising, profitable growth, and they want to know that they are driving incremental growth,” says Tipograph.

Ryan Flannagan, CEO of e-commerce marketing company media nuancessays as Amazon’s advertising business grows, so does the competition to run “premium copy and images.”

Flanagan said companies that don’t invest in advertising on Amazon are “basically losing market share because they don’t protect themselves.”

Amazon has a lot of work ahead of it to keep its advertising offerings compelling enough that brands continue to spend a larger portion of their budgets. But for now, companies like Loftie are content with the profits they get from Amazon, given the challenges with Facebook.

In Hassett’s view, even with the added costs and risks involved, Amazon is providing enough value to justify the headaches.

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

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