To some investors, Amazon.com Inc.’s push into advertising looks like another headache for traditional marketing companies still coming to terms with Google and Facebook.

One top ad executive says it’s just another false alarm.

Dentsu Aegis Network Chief Executive Officer Jerry Buhlmann says it’s wrong to assume the digital giants will steal big clients from the old ad groups. In fact, he says their rise makes the impartial advice offered by companies from Dentsu Inc. to WPP Plc, Publicis Groupe SA and Omnicom Group Inc. more valuable than ever.

“Clients say, ‘How much Google? How much Facebook? How much Amazon? Do I need TV? What do I do?’ That’s where we come in,” Buhlmann said in an interview at Bloomberg’s London office. “The agency model is absolutely robust. The whole idea of an existential threat to advertising agency groups is a fallacy.”

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For more on Amazon’s growing advertising business, read this.

Facebook Inc. and Alphabet Inc.’s Google already get income from direct advertising deals with small and medium-sized businesses. A next logical step may be to go after the bigger brands that always relied on ad companies for their marketing strategy. Amazon arguably has even more of an edge with consumers because it can see who is buying what on its platform.

Beach Parties

The tech giants have been building sales teams that meet directly with chief marketing officers, pitching their ad products and seeking to sway brands to spend more ad dollars on their platforms.

They’re even showing up at ad industry events like the Cannes Lions conference on the French Riviera, holding lavish beach parties and taking up space from the major ad groups -- although Amazon has been more low-key.

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The ad networks have hit back by beefing up their know-how in data and technology, seeking to mirror the sophistication of ad targeting offered by Facebook and Google.

Interpublic Group of Cos. recently acquired data specialist Acxiom for $2.3 billion, Dentsu bought a majority stake in Merkle in 2016, and WPP, Publicis and Omnicom have also been making a string of digital-focused acquisitions.

Buhlmann, who oversees business for Japan-based Dentsu outside its home market, said the ad groups had to adapt to brands having a multitude of online advertising options alongside traditional media like TV, billboards and newspapers. He said Dentsu has been buying agencies that specialize in marketing on Amazon, and plans to buy more.

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“You can lose relevance if you don’t evolve,” said Buhlmann. “We need to make sure we have the right expertise and capability.”

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Read about an ex-Amazon executive and his marketing startup.

New Rival?

Companies are set to spend $4.61 billion advertising on Amazon this year -- more than double the amount in 2017 -- and that could rise to $11 billion by 2020, according to a forecast from EMarketer Inc.

The rise comes as Amazon’s shopping marketplace starts to give more prominent placement to sponsored products in search results, rather than those offering the lowest prices. Amazon’s swelling ad sales have boosted its stock, as investors see the area as even more profitable than its main e-commerce business.

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Google and Facebook remain the top destinations for digital advertising, with a combined 58 percent of the $111 billion market, slipping from 59 percent in 2017, according to EMarketer.

Buhlmann says the ad agencies still have an edge over the tech giants in the amount of data they share with advertisers, offering more insight into who is seeing a brand’s marketing and verifying independently how the ads are performing.

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“In the end they’re not going to rule the world,” he said of Google, Facebook and Amazon. “Innovation will come in, there’ll be fragmentation of some of their services and we will continue to thrive.”

The new threat from Amazon hasn’t sent most ad industry stocks into a tailspin for now. While WPP has lost a third of its value this year amid poor performance in North America, shares in IPG and Dentsu are up 15 percent and 11 percent respectively following steady sales growth.

To contact the reporter on this story: Joe Mayes in London at jmayes9@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Thomas Pfeiffer

©2018 Bloomberg L.P.

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