Two Advertising Giants Unshaken by the Pandemic

Marketers are facing a severe challenge as consumer behaviour has changed completely overnight, with people practising social distancing and spending more time at home. With supply or demand restricted in various ways, products are now simply hard to sell.

Digital advertising giants such as Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB) have already been hit by the current pandemic. Twitter has withdrawn its original first-quarter guidance and warned that revenue may fall year on year, while Facebook said its advertising business was quite weak in late March.

Although all advertising-related businesses are bound to take a hit, two digital advertising giants already hold an advantage that should allow them to rise to the challenge: Amazon (NASDAQ:AMZN) and Google, part of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL).

The Advertising Media Least Affected

In the short term, digital advertising will be hit harder than traditional media, because it is easier for marketers to cut advertising spending on digital platforms, requiring only a few clicks online.

However, display advertising and social media are hit harder than search advertising. According to the latest Advertiser Perceptions survey published by eMarketer, nearly twice as many marketers said they were cutting display advertising as said they were cutting search advertising.

In fact, advertisers have cut spending on search advertising the least compared with social media, digital video and live TV, and by a much smaller margin. Moreover, many marketers said that not only have they not cut search advertising spending, they have maintained or even increased it. Compared with other advertising formats, a growing number of marketers are increasing their spending on search advertising.

Amazon's Advertising Business Set for Significant Market Share Growth

Most of Amazon's advertising sales come from search advertising. Although the company has display and video advertising businesses, most of its advertising sales are concentrated on its hugely popular online retail platform, which relies on the search terms customers enter at the top of the site. Product searches are highly valuable, and Amazon is taking more of the product search market share from Google and other search engines.

Because of social distancing restrictions, large numbers of physical stores have closed and more people have turned to online shopping. Amazon is the main beneficiary of this trend, as the company is already the leader in the e-commerce market. Amazon benefits not only from rising merchandise sales but should also benefit from strong advertising sales, as marketers all want to place their products higher in search results.

In fact, 24% of marketers said they would maintain or increase search advertising spending, and Amazon looks set to enjoy most of the gains. The company's market share is expected to grow significantly, and with its advertising business only $11 billion in scale, the hit to its sales will be far smaller than that to social media companies and businesses that rely more on digital video advertising.

Google Can Help Marketers Reach Specific Consumer Groups

Google's advertising business is far more diverse than Amazon's. However, travel advertising makes up a large share of it, and unfortunately the coronavirus pandemic has hit the travel industry hard. In addition, the company's advertising business is concentrated on YouTube, and digital video advertising has been hit far harder than search advertising.

That said, Google lets marketers reach a broad audience with an unrivalled platform advantage, and it also serves targeted ads in real time based on what consumers search for. This is especially valuable to marketers, as they all want the best results from their marketing spending.

Facebook and Twitter offer greater brand advertising opportunities than Google, and some marketers almost certainly need this advantage most, as it can limit actual sales. For some businesses, brand advertising delivers the best return on the marketing budget. However, because existing brand advertising on traditional media is locked in by contracts, and overall marketing spending must be cut, marketers may at any time cut unnecessary advertising spending at Facebook, Twitter and other social media companies. Google, on the other hand, gives advertisers the opportunity to place ads when consumers are close to making a purchase decision, getting their clients' products noticed.

Advertising is the lifeblood of Google's business. With the coronavirus pandemic raging, the company's platform has been able to retain advertisers, so its share price is naturally expected to outperform the market. Likewise, advertising makes up only a small part of Amazon's overall business, but if its market share increases, it will contribute significantly to profits.