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‘E-commerce advertising growth to continue outperforming search and social media’

Elara Capital’s Karan Taurani expects YouTube to claim a large share of Google India’s ad

Advertising on the E-commerce platforms continues to outperform in the digital advertising ecosystem, with Amazon reporting ad revenue growth of 26.3% YoY.

On the other hand, search and social have been under pressure for the past year with 9.1% YoY growth for search and a 1% YoY decline for social in CY22).

But both have started to see growth in the past two quarters with Meta and Alphabet growing 23.5% YoY and 9.5% YoY, respectively, in Q3CY24, led by a favourable base and improved macro environment on ad spend.

Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital, said, “We believe the trend is expected to continue in the medium term, with eCommerce ad revenue likely to grow ~1.8-1.9x of social and search ad revenue growth. The India market too may mirror similar trends wherein search may lose share at the cost of eCommerce gaining traction.”

The growing dominance of YouTube in Indian advertising

YouTube’s contribution to Alphabet’s ad revenue is currently at 13.3% and has been growing consistently from 11.3% in CY19. It is the largest aggregator and one of the most dominant firms in the video ad ecosystem in India with ~65-70% market share.

Taurani said that Elara expects a large share of Google India’s ad revenue to be overtaken by YouTube India in the near term, led by robust growth prospects of the platform.

AI use leading to better ROI for advertisers

Most large tech giants are adopting artificial intelligence (AI)-based models to generate higher efficiency and better conversion, which may drive higher ROI for advertisers.

Meta’s AI tool for advertisers, Advantage+ shopping campaign, has reached a revenue run-rate of USD 10bn (29.7% of total ad revenue of Meta).

Further, costs incurred by advertisers dropped 42% while ad reach jumped 54% based on early tests conducted on ad campaigns using Alphabet’s AI-enabled advertising products.

Amazon is using machine-learning algorithms to drive search ad revenue within its platform.

“Due to global economic uncertainty, advertisers who spend heavily are struggling financially. As a result, they have cut ad spending on top-of-funnel products, such as display and video ads, which in turn has benefitted Amazon’s sponsored (search) ads segment,” said Taurani.

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