Amazon is the latest threat to Facebook as ad targeting suffers

For Matthew Hassett’s smart alarm clock company Loftie, the 2022 holiday shopping rush was the busiest in its five-year history despite a lackluster U.S. economy and persistent concerns of a recession.

Hassett, who’s based in New York, attributes the boon to one key decision. He reallocated his marketing budget, decreasing spending on Facebook and, for the first time during a holiday season, committing ad dollars to Amazon.

“So many people start their shopping on Amazon,” Hassett said in an interview. “I do personally for most things. So, we have to be there.”

Loftie is representative of a larger trend taking place in retail that’s having major ripples on Madison Avenue and Wall Street. Amazon’s increased advertising offerings for the millions of brands that sell on the site coupled with Facebook’s diminished targeting capabilities that resulted from Apple’s privacy changes have produced a significant realignment in the digital ad market.

Until a year ago, Amazon didn’t even disclose the size of its advertising business, leaving analysts and investors to guess how much the company was making in allowing sellers and brands to promote their wares on the site and apps. Now, the company’s ad division is a $38 billion annual business, and last week reported 19% year-over-year growth in the fourth quarter to $11.6 billion.

Facebook-parent Meta, meanwhile reported a 4% annual decline in revenue for the quarter to $32.2 billion, shrinking for a third consecutive period. Google has been less impacted by Apple’s iOS update, but the ad business is still being hit by the economic slowdown. Parent company Alphabet posted growth of 1% to $76 billion.

Amazon has catapulted to third in the global digital ad market, with 7.3% share, according to Insider Intelligence. Even as it takes share from Google and Facebook, it’s still well behind the two market leaders, which control 28.8% and 20.5%, respectively, of the industry. The Facebook figure includes Instagram.

Loftie continues to spend more money on Facebook than Amazon, but the equation has changed dramatically. In the days surrounding Black Friday in November, he allocated 10% of his marketing budget to Amazon, up from zero the year before. Facebook and Instagram fell to 40% of his budget from 71%. The rest of the money he pulled out of Meta went to Google, as he increased spending there from 29% over the holidays in 2021 to 50% last year.

Hassett said Facebook ads simply don’t work as well anymore, after the iOS update in 2021 began forcing app developers to ask users if they wanted to be tracked. With more consumers opting out of app tracking, the pool of potential customers has been “hollowed out and so we can no longer reliably target people,” Hassett said.

“Facebook has to serve the audience to a bigger pool of…