Once upon a not very long time ago, the conventional wisdom was that advertising revenue on the web is mostly generated by a stable duopoly controlled by Google and Facebook. But as of the latest round of earnings releases, it is seeming increasingly like that configuration may become a triopoly someday in the future — Amazon is consistently stealing away larger and larger bits of advertising.
And investors have clearly started to notice.
J.P. Morgan analyst Doug Anmuth notes that apart from privacy concerns and regulatory issues, Google’s recent slump can also be blamed on “increasing concerns of direct competition with Amazon’s fast-growing advertising business.” The changeover, according to reports, is most notable in the consumer packaged goods segment, as advertisers have in some cases moved more than half of the budget they normally spend with Google search to Amazon ads instead.
Which is not to say Google is hurting for ad revenue. Far from it. The company posted revenue of $33.7 billion for the quarter yesterday, up 21 percent year over year, with a profit of $9.2 billion, or earnings per share of $13.02. Most of its revenue — 86 percent — came care of that ad business.
Alphabet also had a profitable quarter — $9.19 billion in profit, to be exact — with earnings that came in well over expectations. Combined, the Google unit of Alphabet reported $27.01 billion in revenue, up from $21.97 billion in the year-earlier period, after accounting for traffic-acquisition costs. And while that is growth, it is slower growth than has been seen in recent months — a reality many watchers are attributing to the specter of Amazon’s growing ad business.
“We’re seeing a larger-than-expected slowdown in Google properties’ revenue, representing its core search business,” eMarketer analyst Monica Peart wrote in an email. “This is likely related to the ramp-up in competition from Amazon, as consumers increasingly turn to the eCommerce giant for their product searches.”
Outside of ad, the Google Other segment got a bit of attention this time around — the catch-all category includes its cloud-computing platform, hardware sales such as the Pixel phones and Google Home speakers, as well as revenue from its Play Store. Collectively, Other brought in $4.64 billion, up from $3.59 billion a year ago, though still below analysts’ expectations of $4.81 billion.
Google also touched on the European Commission ruling that fined Google $5 billion and ordered the firm to stop bundling certain services into Android phones — specifically Google Chrome and Google's play store. The EC found the practice anti-competitive.
Google CEO Sundar Pichai addressed the company’s ongoing compliance efforts and their likely effects.
“On Europe, it’s early to say. We’re working on implementing the remedy in the next few weeks,” he said. “We’re focused on complying with the commission’s directive and we want to make sure that the transition for both our users and our OEM partners is as smooth as possible.” Pichai went on to say that Google is “focused on doing the right thing.”