Will Amazon conquer digital advertising platforms next?

Discussion
Source: Amazon.com
Oct 26, 2017
Kiri Masters

Brands and retailers are shifting major advertising budgets to the Amazon platform at the expense of incumbents like Google and Facebook. Relative to other advertising channels, brands can reach customers at a low cost via Amazon, and the path to purchase is very short. Gold Eagle Company, an automotive aftermarket manufacturer, sees a $5 return on every $1 spent on Amazon Sponsored Products compared to a break-even result with Google Adwords.

One equity analyst predicts Amazon will quadruple its advertising revenue by 2020. This would take Amazon’s estimated share of the digital advertising industry spend from around 3.5 percent in 2016 to over 10 percent by 2020 based on eMarketer estimates.

Who will be the winners and losers in Amazon’s pursuit of digital advertising wallets?

Winner #1: Amazon will generate more high-margin advertising revenue, pleasing investors and subsidizing thin retail margins. Further, a heightened ability to affordably reach consumers through paid search may finally coax big brands who have eschewed Amazon in the past to finally develop an active presence on the site.

Winner #2: Advertisers will benefit from Amazon’s continued investment in the platform. While the interface and reporting currently lags behind other platforms, given a huge increase in potential revenue from its advertising products, Amazon will make it easier and more compelling for advertisers to spend their ad budgets. The tangible outcome will be better reporting, more tools, more ad types, advanced targeting, etc.

Loser #1: Google and Facebook, the two incumbent digital advertising giants, stand to lose some share of the digital advertising market. Amazon’s investment will create pressure for these incumbents at the very least.

Loser #2: Brands, retailers, and digital advertising agencies who are late to the game. Advertisers typically gain momentum from mature campaigns and extensive historical data. Also, Amazon’s paid search ads come relatively cheap right now, but the platform will become more competitive as new brands enter and increase their spend.

DISCUSSION QUESTIONS: How will Amazon fit into the broader digital advertising ecosystem, both as a competitor to incumbents and as a platform for brands? What other winners and losers will emerge as a result of Amazon’s gain in the digital advertising space? Will Amazon finally begin to share more consumer data to help advertisers measure advertising performance?

Braintrust
"Effectively every headline-grabbing concept the press eats up is subterfuge while they stealthily move the big gun of Amazon advertising into place."
"A subtle approach to advertising would be wise, as the Amazon brand virtually sells itself these days with the seemingly daily PR activity."
"Amazon will over time provide consumer data to help advertisers measure performance vs. the cost of advertising."

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16 Comments on "Will Amazon conquer digital advertising platforms next?"

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Kim Garretson
BrainTrust

With the serious issues Google and Facebook have around political campaigns and Russia, Amazon has the opportunity to accelerate its position in the digital ad marketplace. And this stunning investigative piece by BuzzFeed demonstrates just how rotten the whole ad ecosystem is today.

Tom Brown
Guest
1 month 16 days ago

Some bad actors do not make the whole ad ecosystem rotten.

Phil Masiello
BrainTrust
Amazon is a marketplace to search for products. Therefore Amazon’s search engine is focused on connecting the correct product for the users’ search. Google is a search engine for answering a question. Facebook is a highly-targeted social platform. So if you are a brand selling a product, then Amazon is the correct place to spend your ad dollars to drive sales. There are several different components to the ad platform. Some are self-managed and others are managed by AMS. Because Amazon is highly directed at brands and products, the spend is efficient. And as the marketplace grows in importance, ad… Read more »
Ben Ball
BrainTrust

Nailed it Phil.

Different platforms with different purposes for the consumer require different brand-building strategies and spends. Amazon to buy stuff = paid ads. Google to find stuff = SEO spending and Facebook to tell friends about stuff = what I call “digital word of mouth.” I also second your opinion that Google and Facebook are doing just fine with building their own ad streams. The ad spend numbers, their profitability and their stock price all bear that out.

Kiri Masters
BrainTrust

Great points, Phil!

Brandon Rael
BrainTrust
Amazon, with its already omnipresent position in our daily lives, would be wise to explore additional opportunities to promote the brand and potentially drive incremental members to the Amazon Prime membership pool, as well as push consumers to purchase Alexa. A subtle approach to advertising would be wise, as the Amazon brand virtually sells itself these days with the seemingly daily public relations activity. A focus on social responsibility will resonate with not only the Millennial generation but with all generations. A recent Burger King advertisement covered the controversial topic of bullying. The spot had subtle product references but focused… Read more »
Lyle Bunn (Ph.D. Hon)
BrainTrust

Integrating the elements of consumer commerce that include advertising, product promotion/display and fulfillment with the strong foundation of analytics that can tie these all together, makes Amazon the retail force that it is. The eyes of marketers are always on the finish line of lifetime customer revenue at the lowest cost of acquisition and retention, and the most marketers start how they plan to finish with advertising driving sales. Advertising is essential to commerce and is the natural business for Amazon which has an ongoing contribution to make to the economies of commerce.

Ken Lonyai
BrainTrust
The big advantage Amazon has over competitors is the round-trip aspect of advertising and fulfillment under one roof. Everywhere else, an ad is seen and if it generates interest, the shopper is transported to another place to complete the transaction. Amazon removes some of the friction between the offer and the fulfillment saving consumers effort and time. Effectively every headline-grabbing concept the press eats up is subterfuge while they stealthily are moving the big gun of Amazon advertising into place. Brands and retailers needn’t fear drones, Amazon Key, and the like. This is where the real future impact is going… Read more »
Cynthia Holcomb
BrainTrust

Excellent comment!

Mohamed Amer
BrainTrust
Thank you Kiri for this timely article. Through their marketing services, Amazon operates as a digital advertising platform (supply side) for merchants selling on its website and mobile app. Compared to Google and Facebook, Amazon has an absolute cost advantage as well as being more tuned to the purchasing moment for consumers; together these generate a lower keyword cost of sale for merchants. On the downside, usability issues of the Amazon marketing platform are cumbersome and manually intensive, but I expect that will change as Amazon moves further into digital advertising. For Amazon, this is a new and fast-growing revenue… Read more »
Ryan Mathews
BrainTrust
I think the time frame is critical here. While Phil and Ben are right in the near term, I think we have to consider that Amazon’s game may change over time. Their pattern is to experiment first, gain a toehold, maximize opportunity and then move to what I’m sure some of their competitors see as predation, but what I’ll call hyper-competition. So today they have a clearly differentiated goal and approach. But tomorrow, who can say that they won’t try to out-Google Google? After all, if your mission is to surround a consumer and filter out competition, why stop at… Read more »
Camille P. Schuster, PhD.
BrainTrust

I agree. Long-term strategy also depends upon how consumer behavior changes. Now consumers search on Google when a broad search is required and search on Amazon to see what is available there. That may change with more advertising on Google or Alexa, or some new technology may change consumer behavior.

Harley Feldman
BrainTrust
Amazon has a huge lead in attracting consumers to their platform. It has been the nature of their platform and extensive investment since early in the company’s existence. Their move to a mobile platform was early and is paying off with many consumers picking Amazon as their first website to scan for any purchase. Therefore, it is natural for any brand or retailer to want to advertise on Amazon as a priority. The short-term losers of this movement to advertising on Amazon are Google and brand-specific sites. Having said that, I do not see Google sitting still while this happens.… Read more »
Michael La Kier
BrainTrust

Another win for Amazon beyond the advertising revenue — and a win for brands (assuming good ROI) in an increased sales rate of products. With an endless shelf, products can get lost unless there is a way to promote.

Cynthia Holcomb
BrainTrust

Wolf in sheep’s clothing. Entice with low rates, dominate, conquer brands.

Sarah Nochimowski
Guest

Among our ecommerce clients, we see an interesting edge from Facebook over Google when doing video retargeting, but we also tend to see better results when we run ads in both platforms, and not just in one. I believe that adding Amazon will be adding to the ad efficiency and I really don’t see it as “cannibalizing” the other ones. Purpose is so much different. Facebook and Google will just do well and this is exciting to have another player in the game.

wpDiscuz
Braintrust
"Effectively every headline-grabbing concept the press eats up is subterfuge while they stealthily move the big gun of Amazon advertising into place."
"A subtle approach to advertising would be wise, as the Amazon brand virtually sells itself these days with the seemingly daily PR activity."
"Amazon will over time provide consumer data to help advertisers measure performance vs. the cost of advertising."

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