Amazon CEO Jeff Bezos, founder of space venture Blue Origin and owner of The Washington Post, participates in an event hosted by the Air Force Association September 19, 2018 in National Harbor, Maryland. Alex Wong | Getty Images

Amazon's ad business is booming. Some advertisers are moving more than half of the budget they normally spend with Google search to Amazon ads instead, amounting to hundreds of millions of dollars, according to execs at multiple media agencies. Some of these execs requested anonymity as they are not authorized to discuss their clients' expenditures in public. Amazon's growing success could pose a rare threat to Google parent company Alphabet, which generated $95.4 billion in ad revenues last year, 86 percent of its total revenue. Google is the dominant digital advertising platform in the U.S., and will take in an estimated 37 percent of digital ad budgets in 2018. Although Alphabet does not disclose the breakdown of its ad revenue, most estimates believe the vast majority comes from search ads — approximately 83 percent in the year to date, according to research from eMarketer. Alphabet has remained somewhat insulated from the threat so far, and its overall ad revenue growth actually accelerated in the first half of 2018 compared with last year. Not all categories of brands are shifting money to Amazon — most of the movement is coming in consumer packaged goods, while huge and lucrative advertising categories such as automotive and travel are not yet moving to Amazon. Also, while Google search may be flattening, advertisers are moving parts of their ad spend from other media to different Google properties, particularly YouTube. Nonetheless, Amazon appears to be emerging as the most credible threat to Google's cash cow advertising business since Facebook conquered mobile advertising beginning shortly after its 2012 IPO. Amazon and Google did not respond to requests for comment. However, a manager in Google's ad sales organization, speaking on condition of anonymity, said that he's not seeing clients shift search budgets to Amazon, but is increasingly seeing clients come up with separate brands to sell exclusively on Amazon. "Leadership is definitely concerned, but [it's] not a huge threat right now," this person said.

Google search ads are almost "quaint"

Executives at six media agencies confirmed Amazon is making huge inroads in advertising, supporting the recent eMarketer report that the tech giant has become the third-largest U.S. digital advertising platform behind Google and Facebook. One exec from a large agency said some brands find Google search ads "quaint" and want their budgets moved to Amazon because it directly correlates to sales. About 49 percent of product searches begin on Amazon, according to Survata. Another said clients appreciate Amazon is a seamless shopping experience. Using a Google search ad to lead to a purchase may require a person to set up an account and input their credit card information with a separate website. Especially for smaller brands, there's not really an advantage between selling direct to the consumer versus selling through Amazon. Those budgets have to come from somewhere. While some of the dollars are being siphoned from print, TV and programmatic display advertising, one executive at a large agency said some clients who sell products on Amazon are moving between 50 and 60 percent of their allocated Google search ad dollars specifically to Amazon. The shift amounts to hundreds of millions of dollars a year, he noted.

Another exec at a different large agency said some brands that they handle are shifting 50 percent of their Google search budgets to Amazon in certain worldwide regions. These moves also amounted to hundreds of millions of dollars a year. Mark Douglas, CEO at ad tech firm Steelhouse, said some of its clients have discussed moving large portions of their ad budgets directly from Google Search to Amazon. For all of these advertising firms, the brands in question mostly fall in the consumer product goods category. Chris Apostle, executive vice president and head of performance for North America at Havas Media, said his agency is seeing 20 to 30 percent of its clients shift 50 to 70 percent of their total search budgets to Amazon. Companies are realizing the more they spend with Amazon, the more they can add other bells and whistles such as content or reviews that can help encourage more sales. In general, Apostle's clients have increased their Amazon budgets by 300 percent since last year, and he expects them to increase an additional 200 to 300 percent next year. "Over 90 percent of searches for products that start on Amazon end with a purchase, even though that user may end up on social channels," agreed Apostle from Havas. "The bang for your buck is where people are ultimately going to buy." An exec from a third large ad agency, who requested anonymity, said Amazon budgets among its clients had grown 300 to 400 percent from last year. "Every company I know that sells on Amazon is basically moving budget to Amazon because they have no choice," Douglas said. According to IPG Mediabrand's Reprise, the majority of the new Amazon budget is coming from a mix of sources, including programmatic display ads such as banner ads, or ads bought directly from media companies — not Google specifically. Still, Amazon is growing overall, while Google budgets have remained "flat," according to Joseph McConellouge, who leads e-retail ad buying for Reprise. "In many cases we see Amazon is the better performer and by a significant margin," he said. "If those numbers are true, we will recommend for a specific client."

"Google's challenge is they have to find more money every year"