When it comes to tech titans, Facebook, Amazon and Google are among some of the most recognizable names in the industry. These companies are revolutionizing the way we buy goods, search for data and interact with our friends.

However, as these tech behemoths increase in size, one has to ask the question: will they take each other on?

After all, Facebook now has search functionality on its platform and Amazon is offering cloud based technology with Amazon Web Services.

Yet, one of the most interesting developments of late has been the announcement by Facebook and Amazon that they will be teaming up to offer header bidding advertising.

Header bidding is in direct competition with Google’s Adsense which generated an impressive $5.2B last year. Given that Facebook’s ad revenue has been constrained to its own network, this is an important step for the social network.

What is a Header Bidding?

Header bidding is the practice of a publisher populating his / her site’s header with an advertisement that was bid for from a number of different ad networks. This allowed the publisher to get the most money from the ads that are placed on their site.

Previously, publishers had to rely on Adsense as the dominant advert network online. Hence, when there are more publishers out there, it is better for the publisher.

What have Facebook & Amazon done?

Facebook decided to do some initial tests on the revenue that could be generated from header bidding. They found that the publishers who made a use of its platform saw revenue increases of 10-30%.

However, Facebook wanted to take advantage of some technology that was already in the market for header bidding. This was where Amazon comes into the fold.

Amazon recently developed a header bidding solution last year in order to expand its online advertising business. This was seen as a relatively easy transition to make because of the integration that Amazon has with a number of websites and servers with AWS.

Facebook has partnered with Amazon to bring this header bidding functionality to a larger number of networks worldwide. This could also be positive for Facebook’s traditional revenue model as advertisers may be more inclined to purchase ads that expose them to the Audience Network.

How will this Impact Google?

Given that Facebook requires that advertisers are to bid the same amount on its audience network as on its own ads, these external publishers could get the same or even higher rates than offered on the Facebook platform.

This could impact on Google if the average bid that is being given on the Facebook network is below that of Google’s bids. This could drive down revenue for Google and force it to be more competitive.

Hence, in the long run the entrance of Facebook into the header bidding market will increase the revenues that publishers and bloggers will be able to attain while simultaneously allowing marketers to reach more consumers with their ads.

How Should You Trade?

There have been a flurry of earnings recently and both Google and Amazon had very impressive numbers. However, the response from the markets to the two different stocks has been quite different.

Google appears to have been overbought on the release of its latest earnings. On the other hand, Amazon appears to have remained relatively flat on the announcement of its earnings. An entry level on Amazon below $940 would be an attractive trade.

You could also combine a long position in Amazon with short position in google for an attractive equity pair trade.

Although Facebook is expanding its Revenue model by eating into the market share of Snap with Instagram and that of Google with the headline adds, the stock is still quite risky.

Trading at a price earnings (P/E) ratio of 30 is quite punchy even with expected revenue growth. Indeed, volatility implied by the option pricing is indeed pointing to increased uncertainty over the next year.

This is mainly because of concerns with regards to the ageing user base at Facebook which does not bode well for youth engagement. Hence, one would be wise to hold off of Facebook stock for the next few months.