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Straight Talk Consumer and Entertainment

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Now that all the major online ad players have reported their results for the first half of 2020, we are able to gauge how much COVID-19 has impacted different players across the space. Google remains the undisputed global leader in terms of ad revenue, most closely followed by Facebook, but Google’s ad revenue fell into year-on-year (YoY) decline for the first time ever during 2Q20, with the company pointing the finger almost exclusively at COVID-19 as justification.
And, while Google’s 8% YoY decline is very much below par (and the 2% decline in overall online advertising revenue that Omdia is forecasting for the whole of 2020), others—like Microsoft’s search advertising business and Twitter—have seen even sharper falls in advertising revenue. This comes as many brand advertisers have cut advertising spend and shied away from content related to the pandemic (which has dominated news headlines and Twitter feeds in recent months), and consumer search activity has turned away from commercial applications towards COVID-19 and health and safety related queries.
But, as always, there is one clear exception: Amazon’s enigmatically-named “Other” segment (which is mainly composed of advertising revenue) has performed extremely well during the pandemic, experiencing dynamic YoY growth of 41% during 2Q20—down just three percentage points on 2Q20.

Figure 1 Major digital advertising companies’ YoY growth, by quarter, 1Q19–2Q20

This is no doubt a reflection of the strength of Amazon’s e-commerce business during the global lockdown, with many consumers having no choice but to go online for their shopping. Amazon has capitalized significantly on this movement, not just in terms of virtual foot traffic, but also brands’ eagerness to reach consumers with advertising towards the bottom of the marketing funnel. Amazon’s retail media advertising business was already doing well before COVID-19, but the crisis has certainly bolstered its importance not just for Amazon and its advertisers, but also for Amazon’s biggest competitors in the online ad space. Indeed, taking a more detailed look under the hood of Google’s latest financial statements makes this even clearer.
While most of Google’s ad revenue declined in 2Q20, one part of Google’s advertising business that did experience some growth was YouTube, which saw advertising revenue increase by 6% on a YoY basis. Even so, it’s worth noting that YouTube has not come off unscathed during the pandemic—far from it, in fact. The platform has experienced a substantial decline in brand advertiser demand this year, which has led to quite drastic falls in cost per mille (CPM) rates. This comes even as viewing activity has exploded on YouTube, especially within more premium, connected-TV environments (which also tend to command higher CPMs).
In fact, Google even points out that brand advertising revenue on YouTube has declined during the pandemic in its latest financial release, and that all growth in the platform’s ad revenue can be attributed to its direct response ad products, which have experienced increased advertiser engagement, alongside improvements in ad formats and delivery during the past half year. Notably, these formats—such as the new shoppable video ad formats Google announced during June 2020—are a key aspect of Google’s strategy in competing with Amazon. With Facebook also experimenting and bringing more shoppability to its flagship platform as well as Instagram, combining advertising with commerce is only going to grow in importance, especially as more product advertisers will be keen to drive direct results and get more bang for their buck as ad budgets continue to be slashed. However, incoming economic headwinds are just as likely to affect consumers as they are ad budgets, so it remains to be seen how sustainable growth in this segment will remain over the coming months and—potentially—years.
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