Alphabet looks to consolidate lead in online advertising
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Alphabet looks to consolidate lead in online advertising

There are really only three big names in online advertising: Google, Facebook, and Amazon. The first of those is undoubtedly the industry’s dominant force – and it plans to stay on top. This week, Alphabet’s Google looked to consolidate its lead on rivals with the debut of a significant amount of new digital real estate. The company has added new promotional formats to online search, YouTube, and Discovery (by far the smallest money maker, but also the fastest growing). This will be welcome news for some investors, who were beginning to worry that Google’s ad business was running out of room to expand.

Mixed earnings at the end of April sent Alphabet’s share price down – but it’s still up by 8% year to date

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Source: Yahoo Finance

The graph above demonstrates just how skittish investors are when it comes to Google’s ad business. Despite dominating online ads last year, and bringing in $116 billion in sales, a slowdown in the fourth quarter hit sentiment hard. The reason for this sensitivity in the market is simple: Facebook and Amazon have, between them, a serious set of tools and data that mean Alphabet can’t rest on its laurels.

The answer is to offer advertisers more options, and viewers more options to buy. To do this, Google will insert targeted ads in a variety of places and services that it thinks will offer traction. But, perhaps surprisingly, user data is not a crucial part of Alphabet’s ad targeting mechanism. Could that give it the edge over competitors in a world that is increasingly driven by privacy concerns and ethical data management?

Speaking at the unveiling of a new data centre in Munich this Tuesday, Google’s chief legal officer, Kent Walker, told journalists that search ads rely overwhelmingly more on the search terms used than any user data “because it provides such a strong signal.” According to Walker, as much as 90% of the value in search ads is driven this way, with a further 5% coming from location data, which users must opt-in to enable.


Dominion holds Alphabet in its Global Trends Managed Fund.

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