Forget the threat from Amazon for ad dollars, it’s all about the East versus West ‘duopoly war’

Following last week’s impressive ad revenue results from Amazon, there is a risk that the industry loses sight of what’s really important – namely the duopoly war between Alibaba-Tencent and Google-Facebook – writes James Lewin of Mindshare

There’s been increasing chatter about Amazon’s ‘other’ revenue stream which, as detailed in the company’s recent second quarter financial report, ‘primarily includes sales of advertising services’.

This element grew 139% year on year to reach $2 billion. To be clear, this represents amazing growth and is daunting in it’s sudden scale for the rest of the ad industry.

Marketing pundits gleefully make comparisons to Google’s $31bn in the same period and note Amazon’s 139% year-on-year growth versus Google’s 20%.

What many skirt over, however, is how this impacts our region. For scale isn’t evenly distributed after all. In-fact, Amazon better watch over its own shoulder when it comes to the Asia-Pacific.

We know that Amazon’s e-commerce dominance, and associated advertising business, is concentrated in the United States and Europe. In the APAC region, the story isn’t that simple.

Japan is looking strong, India and Australia are growing, but China’s own duopoly – Alibaba and Tencent – is already extending its influence into the highly fragmented region of South East Asia and is way ahead in that respect.

But this is a region in which Facebook and Google are also incredibly strong, so there is little to be genuinely concerned about when it comes to Amazon’s impact on the ad industry here.

Amazon certainly has a difference in philosophy when it comes to connected commerce. While Google believes in a distributed marketplace of stores, indexed and navigated by search – the ‘intent graph’ – Amazon believes in a consistent store front in a tightly policed and homogenous environment.

The benefit of this is, in North America, as detailed by Mary Meeker’s report, is that Amazon search is the starting point for 49% of purchase journeys. Amazon own discovery and the eventual purchase for 28% of all e-commerce in the US – effectively giving it a ‘purchase graph’.

Where is Facebook in all of this? You might ask. Well, up to 55% of all e-commerce sales are made after social discovery. Therefore, Facebook owns the ‘social graph’.

Does Mark Zuckerberg own the ‘social graph’?

What’s important for us to understand, for APAC, is that the void created by Amazon’s initial lack of commitment to the region – and lack of supported marketing services functions outside of Japan and India – has effectively been filled by myriad local players.

And such sites and services are increasingly staked by Alibaba and Tencent, the other duopoly beyond Goobook. Internal paid search functions, listing ads and recommendation engines all feature as part of the advertising offering.

As with Amazon, the frustration continues for media buyers and e-commerce performance teams that are looking to create opportunities and value for advertisers through marketplaces, but are often precluded from seeing the entire consumer journey – due to the closed data ecosystems.

One factor worth noting is that shopping on the Chinese marketplaces has transcended function, and Taobao alone has 1.5M ‘creators’ who have transformed shopping into a form of entertainment; marrying influencers and social selling, in what is likely to represent the future of affiliate marketing.

In South East Asia, Lazada is probably the closest we have to the relative sophistication of Amazon. It resembles the advertising opportunity that Amazon represents in the US. The issue is that no one player is anywhere close to the scale and ubiquity of Amazon within the APAC region.

Which brings us back to the core issue. Google and Facebook both represent clear value propositions for advertisers in APAC; providing discovery as well as driving customer acquisition to the nascent ‘Amazons of South East Asia’.

Once the aforementioned e-commerce sites, services and marketplaces sharpen their data and self-serve advertising toolsets, they may represent a threat to the absolute dominance of the Goobook duopoly for new ad dollars.

But the threat will be the sum of their parts and not the single colossus, and owner of the purchase graph, which Amazon represents in the US and Europe.

The press loves an opportunity to go after the Facebook and Google, and absolutely Amazon is emerging in Europe and the US as a worthy adversary in the walled garden.

However, with Alibaba and Tencent extending their spheres of influence south – coming with their own cloud offerings, payment ecosystems and having already evolved and blended the function of Amazon into the fun of social – rather than the threat from Amazon, the landscape is instead turning into turning into something else completely.

Namely the duopoly war between Google and Facebook from the West and Alibaba and Tencent from the East. There are certainly interesting times ahead.

Lewin warns of a ‘duopoly war’

James Lewin is the Nike lead for South East Asia and India – and Asia-Pacific head of innovation at Mindshare – he is based in the Singapore office


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