(Reuters) - Alphabet Inc’s Google, the largest U.S. digital advertising platform, is facing increased competition from sites where people purchase products and places thought to be safe from potentially offensive content, advertising buyers say.
Alphabet’s shares fell 7.5 percent on Tuesday, a day after the company reported its slowest quarterly revenue growth in three years. About 85 percent of the company’s revenue comes from Google’s ad business.
“One word: Amazon,” said Mat Baxter, global chief executive of Initiative, an ad buying agency owned by IPG Mediabrands whose clients include Amazon.
Baxter said in an interview that clients are starting to pivot and move ad dollars from platforms where people search for products to places like Amazon Inc, where they are making the purchase, in order to be closer to the moment of transaction.
Monica Peart, forecasting director at research firm eMarketer, offered a different take, however. “Amazon is of course a growing part of advertisers’ ad budgets and some of its growth is indeed coming at the expense of what would have gone to Google. But this is not a major impact to Google’s ad revenue growth at this time,” she said.
Google’s massive size, which still had revenue of $36.3 billion in the first quarter, means that growth must slow as global digital ad budgets and international economies have also slowed, said Peart.
Amazon’s ad business, which is combined in an “advertising and other sales” segment, brought in $2.7 billion in the first quarter, less than one-tenth of Google’s ad sales.
Google’s streaming video platform YouTube has also struggled to stop the spread of disturbing or adult content on the site, prompting some major advertisers including AT&T Inc to remove its ads for fear they could appear next to offensive content.
“Some clients have made the decision to pull back a bit,” said Jon Stimmel, chief investment officer at Universal McCann, an ad buying agency and a unit of IPG Mediabrands, referring to YouTube. Those clients have repositioned to streaming platforms considered more brand safe, such as Hulu and Roku, he said.
Given that search engine marketing, or promoting websites in search results, has not become less expensive on Google, YouTube must be the main reason for the revenue decline, said Barry Lowenthal, chief executive of ad agency The Media Kitchen, adding that his clients still spend more money on Google than many other ad platforms.
Reporting by Sheila Dang; Additional reporting by Paresh Dave in San Francisco and Angela Moon in New York; Editing by Steve Orlofsky
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