Amazon’s unrelenting efficiency, obsession with automation, and brutal pricing strategies have helped it disrupt or dominate industry after industry, which began with books way back in 1997. Over the next year, it is bringing those tactics to bear on the organization’s latest target: the advertising industry.
What tactics to expect?
To thrust its way into a sector that is overwhelmingly controlled by Google and Facebook, Amazon is making brazen new moves into self-serve programmatic advertising. They are planning to spend the next year aggressively expanding their infrastructure that is hoping will get more brands to purchase ad space on its websites (such as IMDb) as well as through its ad platform. To accomplish these goals, it will work with ad-tech companies, digital agencies and media companies to build platforms that make buying Amazon ads as easy as filling up an online shopping cart.
“The biggest game changer is the ability to programmatically buy ads on Amazon,” says Eric Heller, CEO of Marketplace Ignition, which is an agency owned by WPP that focuses on building Amazon sales for its clients. According to Heller, “that’s where the fastest change is happening (in Amazon’s ad business), this is going to move tons of dollars there.”
Even the ad giant Google, is developing for Amazon’s for ad platform, in a sense. Google’s DoubleClick supports buying search ads on Yahoo and Microsoft Bing and it’s building out the same capabilities for Amazon to launch later this year.
Other Amazon expansions.
The network where ads appear on Amazon and through its marketplace is also expanding. For example, Amazon is developing an ad offering through its Fire TV device, where ads will run inside streaming-TV apps similar to how they do on Roku. It Is rumored to be exploring opportunities for ads inside Amazon Channels, the hub in Prime where studios and networks stream their programming and testing the possibility of dropping ads into a free trial period for its main Prime Video.
Despite Amazon’s lofty ambitions, Facebook and Google are not likely to fall victim to the same fate of the brick and mortar bookstores that Amazon disrupted into bankruptcy. Both Facebook and Google are light years ahead of any other corporation in digital advertising, including Amazon.
The advertising “digital duopoly’s” share of U.S. digital ad revenue will possibly tick down to 55.8 percent by 2020 from 56.8 percent this year, according to eMarketer’s data. Amazon’s share will increase to 4.5 percent from 2.7 percent this year. Google and Facebook have never faced an invasion like this before.
Amazon, the fifth-largest digital ad player on eMarketer’s list, is likely to capture 2.7 percent of the U.S. market this year. But by 2020, the firm expects Amazon to jump to third place, surpassing Verizon Communication Inc.’s Oath and Microsoft Corp., with $6.4 billion in digital ad sales in the U.S.
Amazon is already appearing to beat expectation. eMarketers are forecasting that it will generate $3.7 billion in global ad revenue this year. However, the Amazon earning report from April, 26th, suggested that its ad business totaled more than $2.03 billion in sales in the 1st quarter alone. Amazon reports its ad sales inside what it refers to as “other” revenue, but they are the “majority” of that segment, according to the company.
A bright spot.
Brian Olsavsky, Amazon’s Chief Financial Officer, noted in the earnings call that “Advertising continues to be a bright spot both from a product standpoint and also a financial one,” he went on to say that advertising was a “strong contributor to profitability.” Monica Peart, eMarketer’s senior forecasting director states, “So far, it’s been conservative in its ad load. It remains an open question as to when Amazon will take advantage of its significant reach and dominance in shopper data to ramp up the placement of ads in other areas.”
Another aspect that benefits them, is that they own a 40 percent market share of the e-commerce industry, according to eMarketer, while Google and Facebook do not have nearly as a significant reach there.
This grip provides Amazon’s not-so-secret weapon in digital advertising. “Amazon is putting the screws to Google,” said John Rampton a well-known Pay Per Click (PPC) advertising expert. “I have several eCommerce clients I advise -- that have asked why are we spending money on Google search -- if we can go allocate that budget to Amazon and get a better return and know they are driving sales?”
A new ad platform and data.
Advertising agencies are now taking notice of Amazon’s ad platform and the data it provides compared to Google. According to Collin Colburn, a researcher at Forrester -- "Amazon is richer than any other player out there in terms of purchase and behavioral data.”
Amazon is more ingrained or plugged into what consumers buy, than any other platform. There advantage lies in the fact that, it doesn’t need to close the loop from ad sale by reading uncertain attribution data about when a person saw an online ad and when that led to an actual purchase. Amazon is the full loop.
No other major platform is so plugged into what consumers buy. Amazon doesn’t need to close the loop from ad to sale by reading uncertain data about when a person saw an online ad and when that led to an actual purchase. Amazon is the loop.
Testing new retargeting ad tools.
The e-commerce giant is developing a “retargeting” ad type that will recommend products based on consumers' purchase or search histories," Bloomberg reports. Such ads will appear on several different sites visited by consumers, effectively retargeting and following them around. This will also link them back to Amazon if they click.
Retargeting also called re-marketing is popular with apparel brands in particular, and Amazon's move into this area could prove attractive to apparel marketers as their numbers continue to swell on the e-commerce platform.
This could be a useful alternative to its typical ad offering.
The ad offering has helped companies pay for an improved position in Amazon's search results. The new ads will be tested later this month by merchants selected by Amazon, according to Bloomberg.
This move comes as part of Amazon's effort to flesh out its ad business. Amazon's proprietary ad business has rapidly been gaining traction, bringing in $1.7 billion last year and reflecting 60 percent year-over-year (YoY) growth, according to Digiday. Amazon also stopped buying Google's product listing ads this past April, and this new ad type suggests it may be looking to more directly compete with Google and other companies in the retail advertising space.
Withdrawing bids for Google ads and introducing its own ads will also allow Amazon to become less dependent on paid search; now, it'll be making money from product search rather than paying Google for the best-paid search placement.
This new ad style may allow Amazon to further tighten its overall grip on the online shopping process:
Product search: Though the e-commerce process very often ends with customers making their purchases on Amazon, 50 percent of the time, the product search phase starts on a search engine rather than the Amazon website in many cases.
If the e-commerce titan can more consistently preempt the search process with widely offered, targeted ads, it could establish a stronger presence at all points in the online shopping process by becoming the go-to starting point for even more customers, as well as the ending point.
Price comparison: Ads that follow the customer around could also give Amazon an edge while the customer is hunting for the best deal. If a customer goes to another site to look at the same product or a similar one, that they viewed on Amazon -- the Amazon's ad remains present on the screen. This will keep Amazon fresh in the customer's mind and can inspire one final consideration of Amazon's deal before a purchase is made from a competitor.
Over the past, there has been a huge rush to develop Amazon ad services by the large advertising agencies, such 360i, Resolution Media, Iprospect, VML and WPP. If you visit any big digital agency and you are bound to encounter a specific team or unit that promising to guide brands through Amazon’s ever expanding ad offerings.
George Manas, president of Resolution Media, noted that “We noticed elevated levels of service from Amazon and a willingness to develop more meaningful partnerships on the level of a Facebook and Google.” Manas went on to say “It has been very obvious Amazon is going to be the Third Estate.
Google has AdWords, launched in 2000, then Facebook got serious about advertising in 2011, both through APIs, and now it’s obvious Amazon is heading that same direction.”
These established agencies and media holding companies are using Amazon’s ads API (application programming interface) to build ad-buying technology they can offer to their clients. They partner with marketing tech firms such as Kenshoo and Marin Software.
They are also building technology to mesh with Amazon’s API. Amazon is taking a different path by often steering new business from brands instead to working with agencies instead of working the brands directly.
Amazon is trying to move to deeply into the programmatic model. By pushing programmatic as the primary investment model as part of these retail relationships that Amazon. This a bold move, you don’t see this kind of thing from a company, such as Walmart.
Amazon will also start running premium services for Fortune 500 brands and vendors, that sell hundreds of millions of dollars in products through the e-commerce platform. They are expanding their advertising teams. Last September 2017, Amazon announced it is moving its ad operations headquarters to New York City’s Hudson Yards in 2018. And they will hire and create 2,000 new jobs over the next three years.
Seth Dallaire, VP of Global Ad Sales and marketing for Amazon Media Group (AMG), is the face of Amazon’s ad business, the liaison to the agencies and holding companies. He is the first point of contact for many agencies that want to their deepen the level of service offerings within the Amazon ecosystem.
Some major advertising companies, including WPP, Publicis, and Omnicom, have said they plan to up their spend to more than $800 million combined across the companies, according to The Wall Street Journal.
If you look at the broader move to more automation, this is taken straight from the Google and Facebook playbooks. Both of these companies recruited developers, agencies as well as ad-tech marketing partners to plug into their advertising platforms and help build the next generation of ad-buying tools. Amazon is opening up the API and letting other people do the work.
“We are continuing to hire and grow our managed service teams,” an Amazon spokeswoman said in a statement. “We are also continuing to build and improve our products and tools, which includes self-service and our API program, to better support agencies and all of our advertisers as our business scales. We aim to serve our advertising customers in a number of ways, based on their needs and goals.”
A new pixel.
Amazon is running a beta test with select brands and their agencies, by offering a pixel to tag and track ads to prove when they lead or contribute to a sale on Amazon. This is not a complex technology but it is the first time Amazon is going to start using it.
The gist of how it works is: companies will put the pixel on ads that run outside of Amazon web properties, such as YouTube and other sites. The pixel then can detect the computers or devices that view an ad and can record the attribution of when that leads to a sale on Amazon.
The pixel can also show companies that ads running outside of Amazon’s platform are not as effective as ads served on its platform. The companies that use Amazon’s platform are also able to leverage its consumer data, targeting people who have shown interest in a product or recently bought a product similar.
Of course there are a few internet advertising rivals to Amazon that have similar media attribution and measurement programs, and Amazon provides similar traffic analytics in areas such as its web stores, the e-commerce pages brands run on its site.
The Amazon Ad Platform is comparable to the other leading platforms in the marketplace with some advantages. Advertisers can leverage Amazon’s specific data for targeting, there is unique access to inventory through Amazon’s properties and there is also unique analytics by virtue of its sales data.
The new Amazon pixel will not only help measure sales conversion but could also give a data lift to the company, because it will see how brands are mixing their ad dollars on other platforms, providing a rare peek into the buying that happens outside of its walls.
Amazon also has plans to grow its advertising base by opening access to the Amazon Ad Platform that connects to display and video inventory outside of its own.
Before this had been reserved for wholesale retailers and vendors that have Amazon handle sales with actual consumers, later this year, the platform will start allowing brands "ad buys" from brands and sellers that retail on Amazon. The sellers will also gain the ability to tap into the same Amazon data that other brands use for targeting.
What does this mean? They will be opening up the ad platform to everyone that has a product on Amazon. It’s not going to matter if you are selling it to Amazon or selling it through Amazon, which will most likely increase the amount of ads you going to see.
Amazon is taking steps to expand its pool of outside ad inventory.
To accomplish this they will undercutting Google on ad-tech fees as it recruits for Amazon Publisher Services. This is a division offering ad marketplace services that will compete directly with DoubleClick for Publishers.
Currently, Google offers similar ad-bidding technology for publishers, but it takes up to five percent from deal. Amazon is planning not taking any percentage at the moment for people to buy in. Amazon is privy to a ton of bid data and you can bet they are smartening themselves with information on inventory and audiences.
Amazon also dangles its own ad spending in front of publishers, making promises to spend its marketing dollars on their sites, with the caveat, that they must participate in its ad marketplace first.
Held hostage or just hard-nosed sales tactics?
This might seem like a hard-nosed sales tactic, albeit it's an effective one. When Amazon is spending millions to promote Prime shows from the Amazon Studios -- this will make a noticeable difference. According to a programmatic publishing executive “There are marketing budgets Amazon will only run through [its ad platform], and that carries a lot of weight for smaller publishers especially.”
Amazon is now looking for more places to serve video ads.
Ads usually command the most expensive ad rates in digital. Agencies and brands are talking with Amazon about creating video ads to be placed in their video content, although they have not fully figured out where they run all of them.
Chief contenders include Fire TV, the streaming TV device which is similar to Roku, and Prime, which is the Netflix competitor with original programming and video on demand from outside studios.
As of now, Fire TV displays ads on its home screen that can be purchased through Amazon Ad Platform. Apps on Fire manage their own sales through their video-tech platforms. Currently Amazon is in talks with top digital and traditional studios -- which includes AMC and Fox. By developing an ad platform that could compete with Roku, the digital video app channels could possibly plug into the broader ad marketplace Amazon runs through Publisher Services.
According to data from eMarketer, Roku is expected to do $300 million in ads in the US in 2018. Currently, it makes most its ad money through apps that show run commercials during the content as well as having its own channel with ad-supported movies and shows.
Other rumored ideas include running ads inside some channels that are available through Amazon’s video-on-demand platform. These vids are accessed through Amazon Prime -- but considered separate video offerings. They are also considering a teaser version of Prime, offering an ad-supported free trial.
On the last earnings call, Brian Olsavsky, the Amazon chief financial officer, mentioned: “There may be opportunities over time to have more advertising in our videos but we choose not do that now.”
If Amazon pushes ads on video inventory, it would open up an even richer batch of inventory, particularly as Amazon plans to invest more in premium TV productions in the coming year. That content spend likely includes buying up more sports streaming rights, including from the big kahuna in American sports--the NFL.
Amazon renewed its deal to stream NFL "Thursday Night Football" games for the next two years starting in the 2018-19 season – with commercials, of course.
In addition to streaming the games in Prime Video, Amazon also plans to make them available for free to users on its recently acquired live streaming platform, Twitch. Expanded viewership on NFL games could boost its leverage to seek higher rates on ad packages.
Last year, Amazon sold ad packages valued at $2.8 million. Cash influx from video ads could drive up Amazon's fledgling ad business at a clip more rapid than expected, which wouldn't be such an unexpected thing for a company like Amazon.
Amazon’s pitch to brands and agencies is that it is able to create a “total wallet” perspective — actually figure out what people are searching for with what they’re buying.
Amazon is in a privileged position because it sits at the intersection of media and retail, which excites the hell out of advertisers. It presents a clear opportunity where they have a “Third Estate” that has the ability to entirely collapse the funnel and deliver on total attribution.