Amazon is biggest ad threat to Google: Sir Martin Sorrell
Sir Martin Sorrell, CEO of advertising group, WPP, has admitted Amazon is the company that causes him to lose sleep as nobody else in the online ad business has more data about how people shop. He said Amazon was a "huge threat" to Google when it came to search, as people using it were more likely to make a purchase straightaway. The retail giant saw its "other" revenue from north America, thought to be ad revenue, rise 60% to $1.3bn in 2016 and e-Marketer predicts it will generate $1bn from the US in 2017, compared with $34bn and $15bn for Google and Facebook respectively.
The CEO of the world's biggest ad company says Amazon — not his 3-month-old daughter — is what keeps him up worrying at night

martin sorrell

As the CEO of the world's largest advertising group, WPP's Sir Martin Sorrell has been interviewed an awful lot during his long career. And he often gets asked the same question: "What keeps you up at night?"

Speaking on WPP's fourth-quarter earnings call, 72-year-old Sorrell — whose wife recently gave birth to a daughter — shared his response.

"The answer to the question, 'What worries you when you go to bed at night and wake up in the morning?' isn't a 3-month-old child," Sorrell said. "It's Amazon — which is a child but not three months."

Sorrell has good reason to be worried.

Right now, Amazon's advertising business pales in comparison to the likes of Google and Facebook. Amazon doesn't strip out its advertising unit specifically in its financials, but the company's "other" revenue in North America — believed to consist mostly of ad revenue — grew 60% to $1.3 billion in 2016. eMarketer predicts that Amazon will generate $1 billion in ad revenue in the US in 2017. That compares to estimates of $34 billion in revenue for Google and $15 billion for Facebook.

Sorrell often refers to Facebook and Google as "frenemies." WPP works with them as a partner when it spends its clients' marketing budgets on search or social-media ads (WPP spent just under $5 billion of its clients' budgets with Google last year and $1.7 billion with Facebook), but Google and Facebook also threaten advertising agencies because they have the ability to work with clients directly, cutting out the middle man.

Amazon's nascent ad business has the ability to do the same. Nobody in the online ad business has more data about the way we shop, how often we shop, and what items we look at and decide not to buy.

Sorrell thinks Amazon is a huge threat to Google when it comes to search. If you're a sneaker brand, the most valuable place to advertise is when someone is actively searching to buy a pair of sneakers. On Google the person might just be researching, but with Amazon the consumer is most likely in the market to make a purchase right away.

Sorrell described Google as the "friendlier frenemy" of the three online ad giants (as he has done before). He placed Facebook in the middle and Amazon at the unfriendly end of the scale.

"It's early days with Amazon, you never know what's going to happen," Sorrell said. "We put together an agency in Seattle," the location of Amazon's headquarters, "specifically to deal with Amazon and cater to Amazon."

Advertising agencies are also increasingly facing competition from consultancy firms. Firms including Accenture and Deloitte have been busy acquiring independent ad agencies in recent months.

But Sorrell brushed off concerns that consulting firms presented an immediate threat to WPP. He mentioned one pitch, in which WPP's agency VML was up against firms including Deloitte and Accenture as well as traditional agencies for a $300 million account. (VML won.) But he said there hadn't been many other occasions in which WPP needed to compete against consultancies for big pieces of business, adding: "I don't think it's that significant."

WPP's share price was down 7.75% at the time of writing after the ad group warned 2017 had gotten off to a slow start and its projected 2% full-year 2017 organic revenue growth came in below analysts' expectations. WPP usually forecasts annual organic growth of 3%. Sorrell attributed much of the drop-off to the loss of two big accounts: Volkswagen, which was worth $2.8 billion in bookings, and AT&T, which was worth $1.8 billion.

2016, however, was a good year for WPP. The company reported a 7.4% lift (in constant currency) in net sales to $12.4 billion, while profit after tax increased 7.2% year-on-year to $1.5 billion.

As usual in the quarterly earnings call, WPP also shared its useful slide on all the macro and micro trends affecting the ad business right now:

wpp market environment

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