The most fundamental construct in marketing is ‘the funnel,’ which stipulates that consumers go through four decision phases when interacting with a brand: They learn about your brand (awareness), they decide they want to explore/ buy your product (intent), they buy the product (purchase), and they return to repurchase it in the future (loyalty).
Amazon, Facebook, and Google executives built three of the five largest companies in the world by centering their business models around this funnel, initially focusing on one part, but rapidly expanding to cover other areas. These actions generated 470% (Google), 710% (Facebook), and 1,130% (Amazon) in capital returns to shareholders over the past eight years.
As a result, Amazon, Facebook, and Google today are direct competitors.
Amazon = Full Funnel Leadership
What started as an online bookstore, quickly turned into a national marketplace, capturing 1 out of 3 products bought online. Investments in customer experience (e.g., one-click purchase), transparency (e.g., customer reviews), and fulfillment (same-day delivery in some cities) allowed Amazon to control the purchase part of the funnel for commodity products.
But things didn’t stop there: Jeff Bezos and his management team used the cheap capital investors put at their disposal (P/E at 80x) to build the most formidable stronghold across the entire funnel. Today, PrimeVideo gets half the viewership time of Netflix and will be the next frontier for product placement and marketing (awareness). Amazon.com also controls 45% share product searches vs. 33% for google (intent), and Amazon Prime is available in 80% of US households (loyalty)
Google = Top funnel heavy
Google focused on the intent, becoming the global go-to search engine across the globe. Again, things didn’t stop there: YouTube and Doubleclick were acquired to gain a foothold at the top of the funnel (Awareness), allowing the tech giant to attract 44% of US digital ad spend in 2018, leaving 22% to Facebook and 34% to all other platforms combined!
Similar to Amazon, Google has also been trying to expand its Shop offerings, but it hasn’t worked out well yet: Google Express was a failure in 2013, and although Google Shopping showed potential early on, brands have not adopted the platform… yet.
Facebook = Awareness++
Facebook focused on awareness, aiming to monetize their ~2.9bn users across their platforms (Facebook, Instagram, WhatsApp) by serving them digital ads.
Instagram Shops, announced last month, is the company’s latest strategic move to establish itself in the intent and purchase parts of the funnel. Brands can now sell directly through facebook’s platforms, and users can buy their products in one tap.
This is a tremendous move, which will boost Facebook’s earnings and their multiple (as the company increases its moat). Eventually, we will see Facebook’s market cap hit a Trillion dollars by 2021 (which will be equivalent to a stock price of $350. For reference, the stock price is $228 today)
Unfortunately, the partnership between Facebook and brands/ creators will benefit one party eventually: the one that owns distribution (Facebook), as history has repeatedly proven that outsourcing distribution is a recipe for disaster.