How Amazon's NYC HQ might hurt the city's already-struggling ad industry
The tech giant is establishing a sizable new hub near the heart of the marketing and advertising industries. History shows it can be both a powerful partner and a considerable disruptor.
After more than a year running a remarkable, often controversial PR campaign around which city would be awarded its second headquarters, dubbed "HQ2," Amazon confirmed Tuesday that it is actually establishing two new corporate campuses as it plots an expansion heading into 2019: one in Northern Virginia and another in Long Island City, Queens. While both additions are significant, the New York location will likely be the one more closely watched by marketers, if for no other reason than that Long Island City is right next door to Manhattan, the home of Madison Avenue agencies, big brands and media heavyweights.
However, Amazon works with marketers differently than many traditional platform partners do, more frequently eschewing agencies altogether for direct brand relationships. In building out its Long Island City team, the company will also likely draw from the talent pools both ad agencies and marketers are trying to dip into to sharpen their own digital expertise and innovation capabilities. The NYC development then opens obvious collaboration opportunities by proximity but, as is often the case with Amazon, also the potential for serious disruption. It also comes at the same time that Amazon's chief rivals, namely Google, appear to have similar plans in the area that could trim back the role agencies have as middlemen between brands and platforms.
Amazon did not immediately return Marketing Dive's requests for comment on how much its ad business and the marketing industry's centrality in New York City affected the HQ2 decision. Some experts said that the move was doubtful to have been made due to the city's marketing pull, which could still be significant in itself.
"It's sort of an ironic double-whammy," Jason Goldberg, who runs the blog Retailgeek and is an SVP of commerce and strategy at Publicis.Sapient, told Marketing Dive over the phone. "Not only is Amazon not moving there to build a relationship with agencies, but the immediate impact could be that Amazon recruits a bunch of talent that agencies have historically relied upon."
Room to grow
HQ2 landing partially in New York comes at a time when Amazon's ad business is booming. Amazon signed a 15-year lease for a 360,000-square foot advertising office in Manhattan last fall, but the growth of its ad sales have rapidly accelerated since then, surpassing analyst expectations.
The company's "other" category, which largely consists of advertising, jumped 123% to $2.5 billion in revenue in Q3 results reported in October, marking the third consecutive quarter of impressive gains this year. In a note to investors from September, Piper Jaffray analysts forecast that Amazon's ad business will potentially surpass Amazon Web Services, the linchpin that helped the company achieve profitability, in terms of revenue by 2021.
"Advertising has become the biggest new interest and frontier for Amazon, and this is where the buying universe really centralizes in the U.S.," Chris Apostle, EVP and head of performance at Havas Media, told Marketing Dive. "You've got a pool of talent here in New York that's unsurpassed when it comes to advertising and marketing."
Stemming from that, Amazon plans to hire 25,000 new employees to support the Long Island City campus. While it's unclear how many of those will go to its marketing and ad sales divisions, it's safe to assume a decent portion of newcomers will tackle those duties given Amazon's current growth trajectory, per Goldberg.
"If you look at their growth in what's fully staffed versus what's nascent and growing fast, it would be reasonable to speculate that the bulk of the new hiring will be in things like the advertising tech stack, the advertising platform and the continued growth of AWS," along with artificial intelligence offerings like Alexa, Goldberg said. "They probably don't need 10,000 new tech employees to scale the retail business, for example."
Despite there not being any strong indications from Amazon at the moment as to how it will divide hires by department, the 25,000 figure, taken at face value, represents a significant influx of talent that will put some amount of pressure on local ad and marketing businesses.
"Let's say it's even a quarter [of that] — that's going to yank a ton of people out of the agency business to potentially go work for Amazon," Warren Zenna, a former agency vet who currently leads the New York-based consulting practice Zenna Consulting Group, told Marketing Dive.
Company culture considerations are also going to be an important factor, Zenna said. Young New York upstarts, for example, might see Amazon — as they've done for Facebook and Google — as a more appealing option than some of the older guard ad agencies that have struggled to adapt to digital transformation and are grappling with transparency issues and a slow market for growth.
"It's in flux, the role of the ad agency isn't as clear anymore," Zenna said. "I don't think it’s lost but the stability and culture is, in my opinion, not as desirable as it used to be.
"Companies like Amazon have great appeal and they seem incredibly stable," he added. "People don't think [Amazon's] going anywhere. If anything, this feels like the beginning of its trajectory … you can't say that about the ad business right now."
Amazon snapping up potentially thousands of employees specializing in marketing technology and data analytics would also impact agencies in the fields where they're specifically trying to grow their expertise as they face bigger competition from outside threats like consultancies. Most smaller marketing firms could feel a pinch as well.
"That's like a 10-year supply of tech graduates," Goldberg said of the 25,000 hires. "In terms of what that means for the region, suddenly the job market is much more competitive and it very likely takes the air out of a lot of smaller companies that are dependent on smaller but high quality technical staff. They're now having to compete on salaries and projects with Amazon."
There's still something to be said about having Amazon as a nextdoor neighbor. Many marketers and agencies have developed specific teams and products focused on Amazon to try and capitalize on its platforms' popularity with consumers.
"I think that's going to be good for the agencies. All of these cottage industries get built around these platforms, like Facebook created an entire ecosystem," Zenna said. "Amazon may do the same ... but they seem to want to be more independent. “
Even agencies' proprietary tools, such as APIs that interface with Amazon's ad platform, often require close collaboration with Amazon to develop. That could've been a limiting factor in the past for the many marketers based in the New York metropolitan area who had to fly out to Seattle, according to Goldberg.
"In the short run, there is going to be an extra convenience," Goldberg said.
Similarly, if Amazon were to host an advertising showcase, as many competitor platforms do, it could draw far larger crowds of marketers in New York than it would at its original Seattle headquarters. That, in turn, could open up new veins of collaboration and help to guide how Amazon evolves its ad business in New York going forward.
"[Agencies] can have ongoing face-to-face conversations and collaborations to further the opportunity to drive performance for advertisers in the Amazon ecosystem," Apostle said.
A new tech battleground
With the New York push, Amazon also isn't only disrupting legacy marketing players. A recent report by CNBC found that some marketers, particularly in the CPG category, are shifting greater portions of their search budgets to Amazon while growth for Google's platform is slowing down. HQ2 could help Amazon capitalize on that momentum, but Google also appears to be planning to grow its presence in the city.
The Wall Street Journal reported earlier this month that the Alphabet-owned tech giant is aiming to hire up to 12,000 new staffers for its New York offices, nearly doubling its current roster. While that doesn't match HQ2 numbers, it's a considerable amount of hiring and suggests that a new competitive battleground could be forming between the two historically West Coast-focused enterprises.
"Even if Google wasn't clever or evil enough to run an HQ2 contest, it's been expanding its footprint in New York for a lot of the same reasons," Goldberg said. "I would argue that, much like Amazon, in the long run Google is looking to disintermediate the agencies."
Google's own plans for expansion, if verified, could signal that the company is attempting differentiate in areas outside of its search business. It could push harder on video, according to Apostle, including through ad formats like TrueView for Action, which acts as a form of direct response marketing.
“It could be a defensive measure to make sure that they're staving off the competition from Amazon in a better way by revisiting in things like Google Shopping," Apostle added.
Amazon won't rival Google's stake in the digital advertising market in the near future, but it wields certain strategic advantages that a sturdier New York base could support over the long term. Broader retail trends away from in-store and trade advertising are ultimately being funneled into channels that are Amazon's specialty, like e-commerce. Given the number of CPG marketers with U.S. bases in or near New York, such as Unilever and Church & Dwight, Amazon has the ability to work more closely with those heavy hitters on two fronts.
"The CMO that's doing brand awareness advertising and was buying terms on Google search is shifting some of those dollars to Amazon," Goldberg said. He added that that shift is crucially also being reflected in marketers' account teams that are responsible for things like Walmart, Amazon or Kroger sales.
"They used to spend a bunch of money on in-store or trade advertising ... a disproportionate amount of those dollars are now shifting from in-store tactics to online tactic," Goldberg said. "Amazon's getting trade dollars from these CPGs and they're getting marketing awareness dollars, whereas Google's only really competing on the marketing awareness dollars."
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