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Is Amazon a threat to Google's ad dollars?

August 25, 2014

Looking to leverage the massive amount of data around its numerous site users, Amazon is reportedly developing its own software for placing ads online.

The in-house ad placement platform, called Amazon Sponsored Links, is expected to be tested later this year as Amazon replaces ads on its site that are largely supplied by Google. Amazon does place some product ads on its own site and has a small business supplying ads on other sites, but it has been tentative about using its customer data to expand those efforts.

The bigger opportunity is tapping its shopper insights to supply ads to other sites in a challenge to Google's domination of online sales.

"Amazon could use the data it has about buying behavior to help make these ads much more effective," Karsten Weide, an analyst at researcher IDC told The Wall Street Journal. "Marketers would love to have another viable option beyond Google and Facebook for their advertising."

Amazon's offering is expected to resemble AdWords, Google's engine that places keyword-targeted ads based on search queries and supports its $50 billion-a-year advertising business. But Amazon is also reportedly developing a tool to enable advertising agencies to buy in bulk for numerous advertisers, a path that would support placement on third-party sites.

Amazon faces a major hurdle catching up to Google's capabilities, with AdWords itself 16-years-old. But Amazon's potential advantage is the knowledge of its customer preferences as well as its own inventory — something it already prevents Google from using for enhanced product ads.

JP Mangalindan wrote for Fortune, "Amazon's treasure trove of customer data could be used to make ads more 'click-worthy' to users — even more than Google's efforts — which certainly would be attractive to cash-focused advertisers."

FINANCIALS:     [NASDAQ:AMZN] [ NASDAQ:GOOG]

Discussion Questions:

How valuable would Amazon's knowledge of shoppers' online habits be to the advertisers? What hurdles does Amazon face against Google, Microsoft, Facebook and others in the online ad space?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How much of a potential threat is Amazon to Google's dominance in the online advertising business?

Comments:

Yes, Amazon's growing online display ad business is important for several reasons. For Amazon, it is one of several lines of business that shows promise for massive profitability as yet another revenue stream piggybacking off of the core retail business.

There is no question that Amazon has some unique data and targeting potential driven by clickstream data, past purchases, cart contents, and other datasets Google and others will be challenged to replicate.

But I'm most interested in the metrics and analytics Amazon offers the advertisers. As Amazon Media Group (AMG) has upped the ask of major manufacturers in pursuit of "brand dollars" versus "trade dollars," the chorus of marketers demanding better reporting and ROI measurement has gotten too loud to ignore. Amazon won't attract budgets unless it has reach, superior targeting and the metrics to provide effectiveness.

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Keith Anderson, VP, Strategy & Insight, Profitero

Amazon has a treasure trove of valuable shopper information that it has collected over the years. It will soon put that data to work for advertisers. This is a major threat to Google, Microsoft, Facebook and others, and provides the e-commerce giant with the potential for another significant revenue stream.

The big plus for advertisers is that Amazon can tap into a data source that none of its competitors have: actual shopper data. Google and Facebook may be more well established, but Amazon has the data on its side.

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Max Goldberg, President, Max Goldberg & Associates

This seems like a perfect complement to the paid product placement news discussed here recently. It seems Amazon can develop new revenue by modeling in the online space the type of trade promotion relationships traditional retailers have had with their suppliers. It will probably help Amazon a great deal that this type of marketing will be very measurable as opposed to typical trade promotion.

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Gib Bassett, Global Program Director for Consumer Goods, Teradata Corp.

At some point there is going to be a major privacy backlash on the sharing of personal data and Amazon may be wise to take the consumer's side of the issue. Amalgamate and segment data, sure. Customize offers, definitely. But they need to be very careful about selling personal data to third parties, or even advertisers.

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Ron Margulis, Managing Director, RAM Communications

Clearly Amazon is a real threat to Google ad revenue. Per a recent L2 study, 30 percent of online shoppers start their search on Amazon vs. 13 percent on Google. That's a huge amount of traffic that Google isn't getting in one of the most profitable advertising segments (retail).

Amazon has a far more sophisticated database of SKUs for sale in the world than does Google. By adding consumer data they are able to match search terms to buying intent for specific SKUs much more effectively than Google.

Now imagine what happens if Amazon extends it's reach from the 7 percent who buy online, to all the physical retailers that could use Amazon as a payment gateway with its new credit card reader service?

It's a scary scenario for Google. It's going to be interesting to see how they respond.

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Jason Goldberg, VP Commerce Strategy, Razorfish

In a weird way, this could be a good thing for Google in the long run. No one has seriously challenged them for years, so their innovations in the sponsored search space have slowed down recently. This could be exactly the wake-up call they need to get back on their horse and start zooming ahead once again.

So, while Amazon might chip away at Google's share in a small corner of the Internet, Google may widen its lead everywhere else.

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Peter Fader, Professor of Marketing, The Wharton School of the Univ. of Pennsylvania

Amazon can be a monster player in competing for ad dollars. The behavioral data it has that reveal shopping intentions, the accumulation of interests about a user over time, and the persistent log-in that connects behaviors across screens all make Amazon a very big player. Are they a threat to Google or will online ad dollars grow faster? That part is unclear. It will reinforce the fact that retailers are also publishers and ALL retailers will get more aggressive at selling ad impressions. It really is going to start a snowballing effect. Sure, there will be some cannibalization, but there will also be a transformation in thinking, where marketers and retailers will get the idea that shopper marketing begins online, regardless of where the purchase is made.

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Joel Rubinson, President, Rubinson Partners, Inc.

Quite valuable as it relates to products consumers purchase on Amazon, but they will be playing catch up to Google, Facebook, etc. and others who have been doing this for quite sometime.

And it should also benefit the brands that have formed partnerships with Amazon, as well as put a dent in Google's business because every product search on Amazon is one less search on Google.

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Bill Davis, Director, MB&G Consulting

As Jason pointed out, more people start their product search at Amazon, so we know they have the data for effective online marketing. Perhaps Amazon's intent for processing payments (competing with Square) is to collect more data that better targets these ads.

The trick here is that Amazon has to manage its conflicts of interest. They are a technology company, a retailer, an entertainment distributor and now a marketing company. When you compete with everyone, why would anyone buy your services?

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David Dorf, Sr. Director of Technology Strategy, Oracle Retail

A couple months ago we discussed how Google is trying to move into the purchase space with local retailers because they feel Amazon is stealing their product search and advertising business. Now we are discussing how Amazon is working to move into Google's advertising business. The truth is, as more and more business models become virtual there are fewer obstacles for companies who want to move into another's turf. With tepid growth and a declining middle class it almost seems the only way to increase revenue.

Amazon's treasure trove of data on what actions consumers have actually taken is probably more certain that any number of product searches or inquiries. To put this data to work for manufacturers and service providers would be a great offering that no one else can duplicate.

The thing I really don't understand in all this is why Amazon and brick-and-mortar retailers don't do more to create a win/win environment. Instead of Amazon fighting so hard to speed up delivery and try to displace the local retailer, why don't they team up? Why don't independent retailers become outlets for Amazon with fulfillment for customers who don't want to carry purchases out of the store coming from the Amazon fulfillment center? Why doesn't Amazon provide its customer insight to shoppers and retailers so they can improve the onsite experience? Both sides could be winners.

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Bill Bittner, Principal, BWH Consulting

Advertisers will clamor for the ability to align their efforts with Amazon's vast knowledge of shopper habits, preferences and intentions. This initiative could quickly become a formidable challenger to Google's ad placement offerings on third-party sites, and Amazon could likely command a premium for its ability to deliver more relevant ads to site visitors.

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Jeff Hall, President, Second To None

Amazon has customer data that is real and relevant to its advertisers' decisions to advertise. It allows for a more informed and targeted approach based on past buying patterns. Compared to Google, MSFT, etc., the big difference is posting an ad in the store where the shopper is currently shopping versus posting an ad to a demographic group.

If I knew my customer had bought my product in the past, and I happened to notice him/her in the store (Amazon) shopping at that very moment, that might be a very advantageous place to advertise.

Key words, demographics, past buying patterns—they all go to supporting the way advertisers choose where they advertise. I don't have the answers now, but I'm sure there will be some excellent reports that will come out comparing the different advantages and disadvantages to all of the options.

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Shep Hyken, Chief Amazement Officer, Shepard Presentations, LLC

On this day of discussing the potential monopolistic issues around the Family Dollar/Dollar General merger, it is appropriate to take a closer look at a company that has a true monopoly in the online ad space: Google, with its Adwords product. If Amazon were to create a competitive offering, it would be a welcome competitor and provide an alternative to a certain segment of advertisers.

Amazon's consumer data could give it a shot at creating a competitive product in certain areas for select advertisers. However, I don't see an Amazon product being as robust in data or with the reach of Adwords so I would not expect it to take a substantial share of online advertising.

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Larry Negrich, Vice President, Marketing, nGage Labs

Google's Adsense is not a good source of income for many website owners unless the website has thousands of visitors a day.

Amazon already has over 2 million affiliates who would be glad to show the ads in place of Adsense.

'ToolBoxHero'

Is Amazon a threat to Google's ad dollars? Yes! Next question.

Seriously the digital world is knit together in ways not apparent to the casual observer. Putting humans at the center of the universe is helpful as an organizing principle—for humans! You can't go far in this direction before realizing that each individual human might be totipotent (capable of all,) but we are far more effective, as a group, when each does what they are best at, and we exchange our production for mutual benefit—it is the division of labor at work.

Retail is the nexus of that exchange. Hence my comment that "Retail is at the cutting edge of social evolution. Always has been, and always will be!" You can read more about this at: "Retailing: the Trojan Horse of Global Freedom and Prosperity."

Retailing has three basic components: Mind, Movement and Money. The mind is the coming together of the seller and the buyer, with the buyer agreeing to take what the retailer is selling. It is a mental process, the focus of my lifework. See: "Inside the Mind of the Shopper." But of course, the movement of the merchandise from producer to consumer, delivery, is the logistics of the process, and the money is medium that drives the engine forward. All three of these components are seriously impacted by the digital world, and each is undergoing earthquakes.

The mind part is receiving assistance from the internet, but what we have today will seem primitive within 20 years. Google is in the catbird seat with regards to the resources needed for the mental part. See: "'Googling' the Store," for one small peek into that world. But Amazon is in the catbird seat for the whole retail enchilada. See: "Selling Like Amazon... in Bricks & Mortar Stores!"

As a matter of fact, I consider the struggle for global retail dominance to be largely an Amazon/Google battle. And this is not to ignore the other major players, first and foremost of which is Costco. It's shocking, to me, the silence of the business press and commentariat, on the role of Costco. A couple years ago Costco pushed Tesco out of the number 3 slot in the global retail rankings. This year they pushed Carrefour out of the number 2 slot, and for retailers, the major players are now Walmart, Costco and Amazon.

Walmart still has a wide margin, and may or may not continue to hold the pole position. But will not own the retail world with their giant rat-maze stores. Once again we are seeing a front runner trapped by the trillions of invested capital, and such a massive mindset that they struggle with a world that keeps moving on. However, neither Costco or Amazon have the winning hand—yet!

In the end, Amazon's long tail, the "Everything Store," can win - but not without moving into bricks-and-mortar store operations, directly or indirectly. Indirectly is already in place with the Amazon Marketplace, and building "ideal" 10,000 sqft neighborhood stores has to at least be under consideration at Amazon. Costco inadequately addresses the long tail, and is hardly a neighborhood store.

Neighborhood stores - the communal pantry - are NOT going away. As long as shoppers live in bricks-and-mortar houses, they WILL BE shopping in bricks-and-mortar stores. You can count on it!

But this brings us back to Amazon's "ad dollars." Remember, the mental process of shopping is the most important, and whether done virtually, or in a bricks store, the process is very similar. Amazon actually appears to have the very best understanding of this process, among the top players. Which means they can be a formidable challenge to Google's "mind" dollars. Facebook is a paper tiger player. Apple is within striking of this huge pot of money.

And there are literally trillions of dollars of cash floating around the world economy, looking for a place to help businesses grow—in the mind space. Presently, "advertising" gets a large share of that invested cash, in the hopes of growing businesses. But, to this day, Wanamaker's lament that "half of his advertising money is wasted, he's just not sure which half," continues to govern the world of advertising. This means that all the parties mentioned in this discussion have the possibility of dipping into that rich source of cash. Predicting success of doing so isn't that different than predicting the success of this or that individual advertisement!

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Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Shopper Scientist LLC

Yes, all these players will compete over the same pool of dollars. Their value propositions are not identical, however.

Amazon knows an incredible amount about what its shoppers do on its platform. It knows much less about what those same shoppers do elsewhere. Google and Facebook have different views of those shoppers based on other facets of their behavior.

When it comes to delivering targeted ad messages or promotions, the strengths and weaknesses will vary across these platforms. Media buyers will need to attain deep understanding of these differences and select the channels that match up with their objectives.

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James Tenser, Principal, VSN Strategies

This strikes me as mainly about re-targeting. I cannot imagine Amazon will develop an Adwords product. I could see them growing their content ad network similar to Google's Adsense product. And then using that footprint to re-target back to Amazon. And then sell the clicks for categories they don't cover, like services, travel etc.

Amazon see's the conversion data on their own re-targeting campaigns. Some quick math and they see that the click revenue share they give Google Adsense and other re-targeters can be used to mature their own network to support 3P ads. The same model that grew Amazon's cloud business.

To another posters point, a content site with 100,000 monthly visitors *might* make 2k a month in adsense revenue, which is about a 1/3rd of the Adsense take. But Google demands the highest CPC prices in the land and Amazon would would need to either get a higher CPC or take less of share to earn the web real estate it would need to attract budgets.

Also, its not generic Content that really drives adsense conversion rates its product review sites, comparison shopping engines and similar. And those sites earn millions in adsense revenue so when Amazon calls on them, it better be something with meat.

I'd expect Amazon to do what it always does, it would buy the space at a loss and figure it out later.

Michael Dudley, manager, CommonWealth Diamond

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