Facebook's ad targeting is under threat from Amazon

Despite a lackluster U.S. economy and persistent worries about a recession, Matthew Hassett's Loftie smart alarm clock company reported its busiest holiday shopping season ever in 2022.

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New York-based Hassett credits one key decision for the boon. During the holiday season, he shifted his marketing budget to Amazon advertising for the first time, decreasing Facebook spending.

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In an interview, Hassett said that so many people start their shopping on Amazon. 

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Madison Avenue and Wall Street are being affected by the Loftie trend taking place in retail. Digital advertising market realignment has been sparked by Amazon's increased ad offerings and Facebook's diminished targeting capabilities following Apple's privacy changes.

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Analysts and investors had no idea how much Amazon was making from allowing sellers to advertise on the site and its apps until a year ago. The company's ad business now generates $38 billion a year, and the company reported $11.6 billion in revenue last week, up 19% from the previous quarter.

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Meta, the parent company of Facebook, reported a 4% decline in quarterly revenue to $32.2 billion, its third consecutive decline. The economic slowdown is still affecting Google's ad business despite Apple's iOS update. A 1% growth in revenue was reported by Alphabet's parent company to $76 billion.

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According to Trade Algo, Amazon now holds 7.3% of the global digital ad market. However, it is still well behind Google and Facebook, which control 28.8% and 20.5% of the industry, respectively. Instagram is included in the Facebook figure.

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However, Loftie still spends more on Facebook than Amazon. He increased his marketing budget by 10% for Black Friday in November from zero a year earlier. He spent 40% of his budget on Facebook and Instagram instead of 71%. After pulling out the money from Meta, he spent 50% of it on Google, up from 29% in 2021.

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After the iOS update of 2021 forced app developers to ask users if they wanted to be tracked, Hassett said Facebook ads no longer work as well. Because more consumers are opting out of app tracking, Hassett said that the pool of potential customers is "hollow out."

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It's just more expensive to reach the same people you've always reached, and a lot of that is due to Apple's privacy changes. It's just more expensive to reach the same people you did a year ago.

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According to Meta finance chief Susan Li, growth in the company's biggest verticals - online commerce and consumer packaged goods - stayed negative during the quarter. It is unclear whether online commerce will significantly rebound anytime soon, however, as the pace of the decline has slowed since last quarter.

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Hassett purchased keywords including "white noise" and "Loftie" to make sure that customers who wanted to shop for Loftie would be able to find it. As a result, Amazon and Google offer more value since a shopper is showing intent by searching for a specific item.

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According to a recent survey of ad buyers by Cowen Investment bank, “Survey respondents most often mentioned Amazon as an alternative ad platform to Google and Facebook properties. Amazon came in first, followed by TikTok.”

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As indicated by the survey, 54% of surveyed Amazon advertisers plan to spend more this year than last, indicating "broad interest among advertisers" to grow their Amazon budgets.

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Cowen noted that Facebook will take a few years to make a significant financial impact on brands, despite the fact that the social network remains an important part of a brand's budget.

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Asked for comment on this story, a Meta spokesperson provided Trade Algo with examples of brands that increased their Facebook and Instagram budgets and are seeing better results.

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It is not a good idea to rely solely on Amazon. Based on the performance of a brand on the site, the company is a dominant force in online retail. It's especially risky since Amazon's private label business has ballooned, regularly launching products that compete with sellers on its platform.

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Advertising on Amazon comes with the option to list products on the platform, plus a host of other services that brands often purchase, including warehouse space, unlike Meta, where you can only buy ads through Facebook's business manager. Advertising on premium sites is like paying for shelf space in retail stores.

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Brands will continue to spend more on Amazon's advertising offerings as long as Amazon keeps its ad offerings attractive. Despite the challenges with Facebook, companies like Loftie are satisfied with Amazon's returns.

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Amazon provides enough value to justify the headaches, even with the rising expenses and associated risks.