MORGAN STANLEY: Amazon’s ad business is red hot but not a threat to Facebook and Google

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  • Amazon could pull in nearly $8 billion in ad revenue by 2019, Morgan Stanley expects. But that doesn’t mean Amazon is much of a threat to Google and Facebook.
  • Instead of digital media spending, it is focused on promotions and couponing, effectively expanding the advertising market significantly.
  • Meanwhile, Morgan Stanley has lowered its spending growth estimates for web video, as companies like YouTube wrestle with brand-safety challenges.

Amazon’s advertising business is growing fast. It’s so fast that some people in the advertising world have wondered whether it will emerge as a serious threat to the Facebook-Google duopoly that dominates internet advertising.

Morgan Stanley says those hoping for this shouldn’t hold their breath because Amazon is competing in a different space. The e-commerce giant is fueling its ad-revenue surge from the world of trade promotion – like in-store promotions, coupons, and samples – rather than from pulling money from traditional media spending or from digital ad budgets that are commanded by the duopoly.

The financial-services giant has upped its previous estimate for Amazon’s ad business, betting that the e-commerce giant will pull in $8 billion from ads globally by 2019, according to a Morgan Stanley report on the state of advertising in 2018.

Interestingly, Morgan Stanley said the massive uptick in Amazon spending wasn’t going to come from TV ads or even from targeted banner ads – seemingly a huge opportunity for Amazon, given the rich consumer data it possesses.

Instead, based on Morgan Stanley’s research, Amazon is set to steal budgets from trade promotion, a lower-profile but surprisingly large slice of the marketing world. Nielsen reported in 2015 that globally $500 billion was spent on trade promotion.

The report says Morgan Stanley has found the trade spend market to be a whopping $178 billion category in the US.

Essentially, as more people shop on the web, and increasingly from mobile devices, product ads on Amazon.com are replacing all the levers consumer product companies have traditionally used to try to close the deal with shoppers – such as coupons in the mail, in-store kiosks, and promotional signs on store shelves.

The effect of that shift has the potential to radically broaden the advertising market. Here are a few nuggets from the report:

Instead of stealing share from existing players, Amazon could essentially increase the digital advertising spending pie by 50%.

Amazon's ad business is surging.

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Amazon’s ad business is surging.
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Morgan Stanley

TV’s ad spending is holding strong, but there are signs of vulnerability.

Particularly, ratings for the National Football League – once seen as nearly invulnerable – are slipping.

Morgan Stanley has reduced its previous forecasts for TV and video ad growth.

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Morgan Stanley has reduced its previous forecasts for TV and video ad growth.
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Morgan Stanley

At the same time, ad spending for web video continues to grow, though Morgan Stanley has reduced its previous growth estimates for the category. The overall challenge of brand safety seems to have prevented platforms like YouTube from garnering bigger chunks of budgets.

Facebook Watch is seen as a wild card for 2018. If successful, it could snag more TV budgets.

Facebook and Google are only becoming more powerful

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Morgan Stanley