Amazon (NASDAQ:AMZN) has quickly gone from $1 billion to $15 billion in ad sales over the last four years as it ramps up its advertising businesses. While it still pales in comparison to Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary Google, which brought in about 10 times as much ad revenue as Amazon in 2019, Amazon's eating into the search giant's share of search ad spending growth. That's very likely to continue over the next few years as a couple of key factors impact search advertising.
The acceleration of e-commerce
COVID-19 has changed the way we do our shopping. More people are shopping for more things online instead of going into stores, accelerating the shift to e-commerce. And these changes seem fairly permanent, as the pandemic has brought in new customers and opened new retail verticals for online shopping.
With more shopping happening online, marketers are quickly following consumers. That's good for both Google and Amazon.
But considering the high purchase intent of Amazon searches, the influx of digital advertising in categories like consumer packaged goods or electronics heavily favors the retailer instead of the general search engine.
Amazon has been eating into Google's share of product searches for years. And those searches are some of its most valuable. With Amazon seeing an influx of spending on its marketplace and growth in Prime memberships during the pandemic, investors should expect its share of product searches to have followed suit. And with more searches, there are more opportunities to sell ads.
The growth of Amazon's advertising business has supported strong operating margin expansion and ought to continue to support Amazon's bottom line as consumer packaged good ad spending keeps shifting online.
Google's status as the default search engine on iPhone is in question
Google generates a lot of revenue from searches on Apple's (NASDAQ:AAPL) iPhone. In fact, the company is willing to pay an estimated $12 billion per year just to be the default search engine in the Safari web browser across Apple devices.
But Google is under investigation of antitrust practices in its dealings with Apple. What's more, Apple is reportedly developing its own search engine, which could compete with Google.
If Google's forced to relinquish its hold on Safari's default search engine in one way or another, it's not like Google's share of search traffic goes to zero on the iPhone. Google still has many popular services on the iPhone despite competing default services from Apple.
But the default Safari browser will only grow more important over time. The vast majority of search ad spending in the U.S. will go toward mobile devices. Mobile search ad spend in the U.S. is expected to grow by nearly $30 billion from 2020 to 2024, according to eMarketer. Desktop search ad spend will grow just $10 billion in the same period.
Google currently dominates mobile search, thanks in part to its partnership with Apple. If that relationship changes for any reason, it could put a damper on Google's ability to take the majority of search ad growth on mobile as it has in the past.
It's not all bad news for Google
It's worth reiterating the accelerating shift to e-commerce will benefit Google at least some, even if it's not as much as it benefits Amazon. Furthermore, Google and other digital advertisers will see benefits from accelerations in cord-cutting, leading to more marketers seeking digital advertising. In fact, eMarketer now expects search advertising to grow faster long-term than it forecast pre-pandemic.
Importantly, Google remains a primary option for digital advertisers thanks to its huge user base and differentiated ability to target advertisements and measure their effectiveness. Smaller competitors won't be able to gain share from Google, merely leading to greater consolidation of a bigger market between the tech giants.
Google still has a lot of growth ahead, but it has a few hurdles in its way. Meanwhile, Amazon's runway is clear for accelerating advertising revenue.