The prospect of Amazon emerging as the main rival to Google and Facebook’s duopoly over digital media seems increasingly plausible, now that some of the world’s biggest brands are starting to consider it for their budgets.
Interest has built since the turn of the year, with RBS Group chief marketing officer David Wheldon and WPP boss Martin Sorrell almost willing the online retailer to break Google and Facebook’s stranglehold on online media by speculating that its advertising business could make the market more competitive. Amazon has stoked that enthusiasm, pledging to become an “ad platform leader” for advertisers that’s capable of “best-in-class service” and “strategic consultation,” according to several marketing and agency executives who have heard its pitch.
What was once a search and programmatic proposition now includes Amazon’s Echo personal assistant and its Prime Video service, said Sam Fenton-Elstone, VCCP’s chief digital officer. Conversations between the agency and Amazon’s sales teams are much bigger than they were 12 months ago, when the focus was on trying to shift money from Google through programmatic and search, he said.
And yet, search budgets are where the most immediate aftershocks of Amazon’s sales pitches are being felt. VCCP has seen advertisers switch paid search dollars from Google to the online retailer over the past nine months, which “have delivered strong ROI.” Furthermore, GroupM, which handles budgets for NBCUniversal and Unilever, said clients are spending 10 to 15 times more on paid Amazon search ads each month in 2017 than a year ago, Bloomberg reported.
But the migration of search budgets is still just a trickle in the grand scheme of things. Amazon doesn’t break out ad sales, but researcher eMarketer predicts they will rise by a third to $1.5 billion this year and top $2.4 billion by 2019. Google, by contrast, posted more than $79 billion in ad revenue in 2016, while Facebook reported $27 billion.
There’s a sense among brands and agencies alike that Amazon is set to go all-in on advertising. Its retail business can only grow so much. And advertising brings with it the possibility of 20-30 percent profit margins versus around 5 percent for retail goods, according to financial analyst Steven Mallas.
Amazon, for its part, has courted high-level marketers at the world’s biggest brands. Senior marketers from Unilever met with the online behemoth last year to get a grip on the advertiser’s concerns. This resulted in Amazon letting the packaged-goods maker use Moat to verify the display and video ads it bought on the site during the last quarter of 2016 were 100 percent in-view.
The trial was part of a wider beta test Amazon ran in the U.K. with other advertisers. The trial now looks almost prophetic, given just months later, viewability would be at the heart of an industrywide debate leading Google and Facebook to let brands independently verify their ad metrics. Unlike those rivals, though, Amazon let advertisers pick third-party vendors to measure and optimize their campaign. A current list of approved vendors is here.
With advertising shifting to safer platforms, Amazon is well-positioned because it can offer advertisers an environment devoid of content that brands would deem risky. The issue, however, will be what happens to ads Amazon buys from the open exchange, outside of its walled garden. That’s still risky, said one agency source, which has bought ads on Amazon on behalf of clients for several years. “When Amazon run ads on your behalf on their site, they do a really good job, but when those ads appear off the site, it should be treated with as much suspicion like you would with any other ad network.”
The threat to publishers
James Bourner, svp of global head of display at Jellyfish, expanded on that point, wondering if Amazon’s push into off-site advertising will take ad share from publishers. “Will Amazon reignite the arbitrage model in a massive way? I would have zero doubt that they would be amazing at putting their computing and data might to work at being able to buy impressions through their bidder at the cheapest possible price. Is the real threat to traditional publishers?”
In a mark of its faith in Amazon, spirits and beer producer Diageo has included the online retailer’s inventory in what it calls its “trusted marketplace.” Like other big advertisers, the Smirnoff owner has pushed media owners to introduce independent verification. As part of that, it’s briefed Amazon and several other partners on nine requirements it wants from them in exchange for its media budget.
To really grow its ad revenue, Amazon will need to move from lower-funnel media buys toward the upper end, where the larger brand budgets are, said Fenton-Elstone. With search and display opportunities on Amazon’s site and app, which also provides cross-device matching, Amazon’s sweet spot is in the mid- to lower-funnel, though, said Bourner. However, the retailer’s past purchase data is a strong proxy for shoppers’ interests and, to a certain degree, income, which can be useful to brand advertisers, he said.
The data factor
Regardless, data will be Amazon’s trump card if it presses forward into advertising, particularly after it revealed last year that 55 percent of online shoppers in the U.S. start their product searches on the site. Facebook knows who people are and what they are interested in, and Google knows what people are actively looking for. But only Amazon has data on what people buy.
It means advertisers prioritizing ROI on online purchases should be able to get better performance from Amazon’s range of media offerings than from Facebook and Google, although in practice, results from campaigns bought from the retailer have been mixed, said Gareth Owen, the managing director of Roast, an agency that has internal specialists for the different parts of Amazon’s ad products. He added that more feedback from Amazon’s account teams would help.
Other things holding Amazon back from growing its ad business are the complexity of its display and paid search inventory as well as issues with account management and its slow response time, Owen said.
“If there was more proactivity here, Amazon would be growing this area more quickly,” he said.
Amazon’s recruitment drive for digital and programmatic specialists would suggest it’s wise to Owen’s observation. The number of salespeople joining the company’s advertising and Amazon Web Services units is growing at a rate faster than the 42 percent average across the entire company, Amazon CFO Brian Olsavsky said on the company’s earnings call on July 27. And the Amazon Media Group in the U.K. has several senior advertising openings posted.