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Facebook And Google’s Russian Ad Scandal Could Leave An Opening For Amazon

Fast Co.Exist 2017-10-11 18:40:11

In the wake of revelations that Facebook ran a slew of Russian-bought ads intended to sway the 2106 election, the company has pledged to crack down on attempts to use the social network as a way to spread false information or illegally impact the political process. This includes changes to how Facebook vets political or controversial ads, answering questions from federal investigators, and preparing for possible new government regulations.

If or how much this will affect Facebook’s bottom line remains to be seen, but the changes strike at its existential core as an advertising platform, and will surely have some impact on how it operates business.

In the short term, Mark Zuckerberg’s social media empire need not worry. Analysts frequently survey agencies that dictate ad spends from quarter to quarter to keep tabs on demand. According to some analysts I’ve spoken with in recent days, the general sense is that, at least in the near future, Facebook’s ad flow is going to continue pumping as it usually does. After all, political advertising represents just a tiny sliver of Facebook’s revenue; Borrell Associates estimates that all digital political advertising (which includes Facebook, Google, and other digital platforms) hit $1.15 billion in 2016. By comparison, Facebook’s entire advertising revenue in 2016 hit $26.89 billion.

Even so, this tumult does leave an opening for some disruption. Together, Facebook and Google dominate the digital advertising industry. With both companies becoming the target of public scrutiny and tighter government rules, advertisers may begin more aggressively seeking out alternatives to the longstanding duopoly–and Amazon may emerge as the most likely choice.

“There’s a real sense of urgency from the market to find a third viable alternative to Facebook and Google,” says Perry Gold, an analyst at MoffettNathanson. “Advertisers are wanting Amazon to succeed.”

Currently, Facebook and Google control most of the ad digital ad spend–in the United States they make up more than 60% of digital ad revenue, but that kind of control already makes advertisers uncomfortable. Increased scrutiny due to suspicious advertising practices, says Gold, has surely made a third advertising option more enticing.

Gold adds that, according to people who control advertiser budgets, Amazon is slowly gaining steam–particularly in the retail advertising space–and has been building out its system over the last few years that serves customers ads based on their searches and purchase history. “It is, in a way, a cleaner platform,” says Gold. “They are trying to build a more holistic ad platform.”

Like both Facebook and Google, Amazon’s consumer data is a treasure trove for advertisers, although it’s predicated on what people buy and less on their ideological slant. As Gold puts it, Amazon is not yet a “jihadist or right-wing” advertiser platform yet, which makes it even more palatable.

The Black Box Bezos Built

It’s unclear just how well Amazon’s ad efforts are faring. The company doesn’t break out its advertising revenue numbers, but some analysts estimated the platform generating as much as $1.4 billion in 2016. Another eMarketer report forecasts Amazon’s digital ad revenue to balloon to $3.19 billion by 2019. That’s nowhere near Facebook, of course, which made $9.16 billion in ad revenue in the second quarter of this year, but it’s impressive growth.

What could also aid Amazon’s ad progress is if Facebook begins to falter. One of the bigger factors that could hurt Facebook’s bottom line is its effort to hire humans to address its platform woes. Zuckerberg has pledged to hire over 1,000 new employees just to help vet advertisements, and that won’t be cheap. He also said he’d hire at least 250 new employees to focus on “election integrity.” And earlier this year, Zuckerberg announced Facebook’s plan to hire thousands of new content moderators. These sorts of roles require a real money, and will likely end up costing the company upwards of $100 million (and that’s a conservative estimate).

Michael Priem, CEO of marketing company Modern Impact, adds that Facebook will likely focus on building better technology to fix its current platform problems. The company will place an even great emphasis on its technicians to figure out ways to identify suspicious use of the platform. “What you’ll see happen is Facebook place more effort into the technology,” says Priem.

Potential government intervention could also play a role in hindering Facebook’s business. “It slows down their pace of innovation,” Gold says. What’s more, external oversight and regulation could significantly hinder acquisitions. With greater regulatory hurdles, says Gold, they “can’t be as inquisitive as they want to be.”

Thus the pendulum may be swinging in the digital ad space. While Facebook and Google may seem like an impenetrable blockade, ad-spend trends can just as easily shift. And with Amazon investing in nearly every industry out there, this would be as good a time as any to go full steam ahead.