This report is the first of several that will look at the way global platforms are change affecting traditional markets for business and consumer services. This first report provides an overview of their longer-term strategies, and a SWOT analysis of their current position.

In our recent report on Amazon advertising, we noted the global dominance of Google and Facebook in search and display advertising respectively. However, the duopoly is not unchallenged. Amazon is rising as a digital advertising (DA) platform, though this is will also come at the expense of smaller advertisers. The global duopoly is becoming a triopoly.

The long-term ambition of Google and Facebook is to expand along the commerce value chain. Their short-term aim is to improve advertising yields and transparency by reducing friction in buying decisions and better tracking the ROI of advertising by measuring impact at all stages of the e-commerce process. Although it is the weakest in advertising of the three, Amazon has the strongest presence across this process, and is already closest to what the platforms are trying to achieve. The ultimate aim is an integrated consumer commerce offer extending all the way from advertising through distribution and payments to physical delivery. It isn’t just traditional media that is in the firing line – so too are retail and payments provision.

This provides a clue to how incumbents in media, retail and finance should respond. The ANZ media incumbents have maintained their dominance in traditional mass media advertising, but this market is in decline. They are underexposed to digital markets where advertising growth is happening. In response, they are investing in ‘addressable’ media that strengthens the relationship between viewers and the broadcaster to improve digital advertising yield and generate new subscription revenue. Simultaneously, this is positioning them to tackle competition from the global SVOD platform providers.

The media incumbents are also pooling their resources to build shared adtech platforms that can generate scale and efficiency needed to defend their presence in their domestic digital advertising markets. This is a trend overseas as well. However, these efforts need to accelerate to provide a significant challenge to the emerging triopoly in digital advertising. This pooling will ultimately need to include holders of personal data like retailers, telcos (particularly location data) and financial service providers in order to rival the reach and depth of the global DA platform providers.

There are a few clouds on the horizon for the global DA platforms. Apart from the new kinds of competitors represented in Australia by the FTA media industry, their privileged access to personal data is threatened by an increasingly hostile regulatory environment. It remains to be seen exactly how the ACCC will restrain the market power of the global platforms in the Australian advertising market, but it is clear that regulatory pressure will only increase in the coming years.

Contents

Introduction

The digital advertising duopoly is becoming a triopoly

Platforms have big expansion plans

Media industry responses

Global platform provider situation and future threats

List of charts/tables

Figure 1. Amazon revenue segment breakdown (2018 & 2019, US$B)

Figure 2. Duopoly vs Amazon Share of Total US Digital Ad Spending (est.), 2019 & 2020

Figure 3. Google revenue breakdown, $USB

Figure 4. Major platform’s positioning across the buying process and key offers

Figure 5. Sector advertising revenues in Australia, 1996-2018

Figure 6. Australian website traffic by destination, February 2019