How Amazon is taking on online advertising

It's been a record year for Amazon's advertising wing, and it's just getting started.

by Arun Kakar
Last Updated: 21 Dec 2017

Amazon is often referred to as an ecommerce giant, but it’s got its fingers in many pies. One of these is advertising, the traditional domain of two of its major rivals, Google and Facebook.

Last year, revenues for Amazon’s advertising business rose 50% to $1.7bn. Most firms would consider that something to shout about, but when you’re part of a $135bn (and counting) operation, it’s easy to go unnoticed.

The advertising and media world doesn’t have that luxury, however. This year, Amazon’s market share for ads was higher than Twitter’s or Snapchat’s. In a survey of 250 US businesses, 63% said they were planning to increase their spend with the tech giant next year. Given Amazon’s record of entering markets and then crushing all competition, it’s not surprising that Martin Sorrell says the prospect keeps him up at night.

Yet Amazon isn’t really after a sector-shaking death match with Google. It’s simply exploiting its latent potential as a go-to site with oodles of data. Here are the three big ways in which it plans to grow. 

Amazon Marketing Services (AMS) - the core

AMS is Amazon’s main service for advertisers, both third party and vendors hosted on Amazon marketplace.  Ads can appear in headline search, specified by keywords, and also in listings, where a item can appear on select pages or even next to a competitor's product.

Amazon has the benefit of being uniquely able to connect ecommerce and advertising (no one knows like Amazon what people are actually buying). By using traffic and purchase data it can segment and target searches. Ads will stop showing on Amazon if a product is sold out, and factors like speed and live listings have just launched, with options like pay per click proving attractive. Many buyers have complained that the service has been difficult to navigate, and it’s widely expected to be in line for an overhaul.

Amazon Media Group (AMG) - the extra dimension

This is the traditional advertising space offering video, sponsorship and display across the native platforms like Prime video and Kindle, but also on Amazon’s other sites like IMDB and Twitch. It’s opened up a self service platform so advertisers don’t need to go through the site to book ads, and there is plenty more room for development.

Take Twitch for example, a video-game streaming network with over 100 million users. Amazon’s approach has been relatively hands off, but if Amazon were to unite it with fellow video offerings IMDB and Prime, it would create a formidable platform. Think back to when Google integrated ads on YouTube into its Adwords interface.

Alexa, how are you going to advertise?

Voice advertising is in its infancy. While no one wants Alexa interrupting conversations with random ads, there is great potential here. A recent study found that most users of the Amazon echo use it for the same handful of menial tasks daily and not much more - setting a timer or a reminder for instance - but it is being adapted for new purposes. The new Alexa for work platform is attempting to bring voice assistance into the office, and it’s starting to integrate third party services. This is where advertisers are starting to come in. Alexa has been used to order Domino’s pizza for instance, and users can now book an Uber.

The echo dominates the voice assistant market with over 20 million units sold, more than three times the second placed Google Home, and Amazon wants this user base to interact with its ads, through video and voice in a way intertwined with user habits and services.

Take Amazon Spark for instance, an influencer marketing platform launched this summer that functions as a sort of social network geared towards product discovery. The invitation only Amazon echo look (equipped with a camera) is being worked into the platform so users can take full body selfies to use ‘machine learning algorithms with advice from fashion specialists,’ which help users decide on an outfit.

It all points to the construction of that tech-world holy grail, an ecosystem built on Amazon’s ecommerce foundations, which would make it a very different kind of advertising player to Google or Facebook.  

‘There’s an expectation from people who visit Amazon [that] they’re going to find anything they want,’ Seth Dallaire, VP of global ad sales at Amazon Media Group, said at a conference in January. ‘If you have the confidence that we’re going to meet that expectation, you might just come to Amazon to start that search.’

It’s Amazon, not Google, that plays the central role in the online shopping process, with 56% of 3,100 shoppers surveyed saying they used the site as the starting point for product research online, and 51% saying they would use it to check prices before making a purchase. For advertisers looking to sell their products, that’s a powerful platform. No wonder Sorrell’s got the heebie jeebies.

Image Credit: Steve Jurvetson/Wikimedia commons 

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