Q1 Snapshot: Advertising and Media in Big Tech
The past three months saw big tech’s advertising and media practices thrust into the spotlight, with the very public Cambridge Analytica controversy swiftly following the EU’s introduction of GDPR. Such developments come at a particularly interesting time for media in tech, with such changes being reflected in the Q1 earnings releases this week.
- Alphabet is slowly diminishing its reliance on advertising: Although advertising remains a fast growing sector of Alphabet’s overall business, with Q1 advertising revenues increasing by 24% year-on-year, its share of the company’s total revenue for that period fell slightly to 86%. Meanwhile, Alphabet’s ill-defined ‘other’ revenue grew by 35% to around $4.5 billion. In the meantime, Facebook actually increased its reliance on advertising, with 99% of revenues coming from advertising, which is up by 1% from last year, suggesting that the company’s plays into other areas, such as the Oculus Rift, have thus far achieved limited success.
- Amazon ad business is in hyper-growth: Amazon’s ‘other’ revenue, which can largely be considered its nascent advertising business, was the fastest growing segment in the entire company. For Q1 year-on-year, the business grew by 139%, from $850 to $2031. Whilst this is still early days for Amazon’s advertising business and small fry compared to the $26.7 billion Google earned from digital advertising in the same period, in just a few years Amazon has built a subsidiary that accounted for 3% of every new advertising dollar spent last year.
- Alphabet is also diversifying geographically: The US still accounted for 45% of Alphabet’s total Q1 revenue, but this is down from 48% the previous year. In fact, if we look at the share of Alphabet’s growth (or the new revenue generated YoY), Europe, the Middle East and Africa are equal to the US, with both regions driving 37% of this new revenue in Q1.
There is a reason why subscriptions are such a hot commodity within tech media. If you able to control your churn rate it becomes a far better business than advertising, which changes every quarter and in developed economies is tied to GDP, as ad dollars are closely linked to how much the advertiser believes their audience will spend. Google, Amazon and Apple therefore look enviously towards the success of Amazon’s Prime offering, which has allowed the company a far less volatile source of revenue that enables investment in other areas, including the very digital advertising business that remains Facebook and Google’s raison d’etre.
These were particularly positive earnings for Alphabet, which could also potentially benefit from a short-term reverse halo effect around Facebook that sees advertisers become cautious around the platform. Snapchat has thus far not become the hallowed ‘third player’ that those in ad land, not least WPP founder Martin Sorrell, who quit the company last week, had hoped for. Amazon’s fast-growing media and advertising division is certainly challenging the duopoly and could benefit from the present uncertainty around Facebook.
The discussion around this post has not yet got started, be the first to add an opinion.