Ad spending has increased significantly among some of the largest internet players in the last few years. Companies such as Google, Amazon, EBay and Expedia have upped their spend on advertising and promotion.
This may be a surprise to some. Why on earth would Google spend over $1 billion and move to #34 in the ranking of the leading national advertisers? Why did Amazon increase their ad spend 57% in 2011 to $1.4 billion? Doesn’t everyone know and love these companies? Isn’t this just wasted money?
You would think if anyone doesn’t need advertising, it would be Google and Amazon. Look closer and you’ll see that even internet giants need to market on both the online and traditional platforms. It’s odd that Google does place TV commercials or that Amazon turns to direct mail from time to time. These companies wouldn’t be spending ad dollars if they didn’t need to. Though many of the tech giants are accused of having so much money that they sometimes spend it on frivolous initiatives or programs, spending billions on marketing isn’t one of those knee-jerk decisions. Here are a few reasons why great internet brands are being “forced” to spending ad dollars:
• Great competition – Granted, most of Google’s ad dollars are spent on B2B. (I get a ton of direct mail from them.), but they are also increasing their B2C marketing as well. Facebook and Apple are putting extreme pressure on Google’s core business and new business and these are not just ordinary competitors. They are great brands themselves. This forces Google into a position they have not been in since the beginning of their company, they must advertise and compete for our hearts and wallets. Just because you have a great brand now, doesn’t mean you can just coast. By thinking you own a market, opens the door for competitors who are just as smart and know how to leverage the same tools you do.
• Selling instead of giving away – Before, many of these internet companies only had to worry about the digital world. Often, they could give away their products/services for free. So, of course, they win the lions share of the marketplace because it’s hard to beat free. Now that several of the internet giants have moved into the “real” world of stuff and having to actually charge for their services/products, they are finding out just because you have a great brand name doesn’t guarantee success. You have to actually advertise and compete in the marketplace. Free is no longer a competitive advantage. To sell “stuff”, you actually have to go back to the basics of marketing and selling and that takes money.
• Act like a business – With Facebook going public, many of these internet giants now must act like a real business and actually earn money, compete and be concerned with earnings. Google and Amazon have been doing that extremely well over the past decade, but with more aggressive players and reaching into new markets where there is already heavy competition, these companies are having to spend marketing dollars to earn money, just as most businesses do. The time of being able to operate with multi-million dollar losses is over. Now they have to earn a profit.
This is the way of business. Like most internet companies, they can win market share by giving away their services/products and thus have no need to spend marketing dollars. They can also operate at huge losses for many years. (I must admit, that is still kind of odd to me.) But eventually, if they want to compete and stay around for a longer time, they must begin to make money somehow and become profitable. Free can only take you so far.
This is where it comes full circle, back to the basics of marketing and advertising, even for digital companies.