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December 20, 2018

Tech Giants Turn to Madison Avenue to Burnish Image

Big tech is better known for eroding the traditional ad business than contributing to it. But that’s changing. Alphabet, Amazon and Facebook each ramped up U.S. advertising sharply in the first half of this year, looking to promote individual products and trust in their services.

In many cases, the companies are spending a greater percentage of revenue on advertising than even carmakers and phone carriers that are known for their splashy multimillion-dollar marketing campaigns.

Alphabet, for instance, boosted its U.S. ad spending about 90% to $255 million in the first half of the year, estimates research firm Kantar Media, which tracks advertising spending. Alphabet spent heavily on TV and billboards in the period to promote YouTube, which has rolled out a YouTube TV subscription video service. It also ran a spot during the Super Bowl, where ad spots are the priciest on all of TV, and during the NBA finals. Alphabet says it also spent more to promote its Google Cloud offerings and its Google virtual assistant.

Similarly, Amazon, already a relatively big advertiser, has been spending more to promote its Alexa virtual assistant. Its U.S. ad spending rose 81% to $723.8 million in the first half, according to Kantar. Amazon says it spent more on “online marketing channels.” But TV commercials were also likely a factor. It ran an extra-long, 90-second spot during the Super Bowl to promote its Alexa virtual assistant and another 60-second ad promoting the Amazon Studios Jack Ryan drama that runs on its Prime Video service.

The biggest percentage increase in ad spending, though, was at Facebook, which tripled U.S. ad spending in the first half to $109 million from $35 million, according to the Kantar data. (See above chart.) The spending was aimed, at least in part, at countering negative news coverage of a series of controversies engulfing the company this year over misuse of user data. In April, for instance, shortly after a New York Times and The Observer of London report on how political consulting firm Cambridge Analytica got access to user data, Facebook launched a TV and billboard campaign with the tagline “Here Together.”

Apology Tour

The TV ads, which shows clips of why people first chose to join Facebook, acknowledges the spread of “spam, clickbait, fake news and data misuse." Then it shows videos from Facebook of friends sledding and dancing, and babies trying to play guitar as it made pledges to invest in privacy to "get back to what made Facebook good in the first place.”

The campaign was an expanded version of one that had been under testing in Chicago, in response to reports about Russian use of the social network to interfere in the 2016 U.S. elections. Facebook has continued the ad push, even as negative news coverage of the company has ramped up. Last week, for instance, it hosted a pop-up event in New York City’s Bryant Park, where it served hot chocolate with marshmallows and talked to passersby about its privacy efforts. The company has also purchased ads and sponsored content in news outlets like the New York Times.

Apple, which has long spent aggressively to promote its devices, also increased its U.S. spending but by a much smaller proportion—to $411.9 million from $381 million a year earlier, according to Kantar.

Kantar's figures don’t include spending on social media, or any ads placed on the companies’ own media. Facebook, for instance, used News Feed to promote a discount on the Oculus Rift on Black Friday.

The companies are likely to have continued spending more in the second half of 2018. Google, for instance, has become much more aggressive at promoting its Pixel phones, which first came out in 2016. To promote the Pixel 3 phones, which were announced in October, Google has aired TV commercials and bought space on billboards and magazines. For instance, it struck a deal with Conde Nast, publisher of magazines like GQ and Glamour, to promote the Pixel phone. Under the partnership, the November cover photos of magazines like Allure, Glamour and GQ were shot with Pixel 3 phone cameras, which was highlighted in the table of contents.

Also in the second half, Facebook has been running ads on TV and on billboards for its new Portal device, while Amazon has been promoting its Alexa device and its overall marketplace for holiday shopping.

Even before this year, Amazon and Alphabet, in particular, had been ramping up their ad spending. Alphabet raised its spending by 31% to $5.1 billion in 2017, the equivalent of 4.6% of its total revenue, while Amazon lifted its spending by 26% to $6.3 billion, or 3.5% of revenues, according to securities filings. (These figures are global, and cover all forms of ad and promotional spending, unlike Kantar’s data.) In comparison, Ford Motor spent $4.1 billion on advertising last year, equivalent to 2.6% of its revenue, while AT&T spent $3.8 billion, or 2.4% of its revenue, filings by those companies show.

Outdoor Push

Kantar doesn’t break out spending on individual media, so it’s hard to know how much the companies are spending on TV compared with print, radio or online. But other data shows that one category where tech companies have become a major advertiser is billboards. Apple has long been one of the 10 biggest billboard advertisers, according to the Outdoor Advertising Association of America, promoting its iPhone and iPad. But now other tech companies are following suit.

In the second quarter, for instance, Facebook was one of the 10 biggest advertisers on billboards, according to the OAAA. That was the period it launched its campaign around user trust. Similarly, in the first quarter, the OAAA said that YouTube was among companies that doubled their spending on billboards.

And the growth has continued. The trade group said that 14 technology “brands” increased their billboard spending by “double digit” percentages in the third quarter, including Amazon, Facebook, YouTube and Oculus. The billboard push is ironic, given that tech companies like Google built their ad business by arguing that advertising on traditional media wasn’t effective.

Consumer electronics products, like the Google Home or Amazon’s Echo, are particularly suitable for billboards and other more traditional forms of advertising because those media are good at increasing broad consumer awareness for products, according to Vincent Letang, executive vice president of global market intelligence at Magna Global, a company that studies global media.

Lawrence Chan, SVP of Strategic Partnerships & Innovation at Cuebiq, a location data company, said digital advertising and billboard advertising are starting to collide more and more. Firms can use location data to better track what users are seeing out of home advertising, a cumbersome task that previously had to be done through surveying. “We expect OOH to play a larger role in the media mix,” he said.