The Great Disruptor: Is Amazon On Track to Break Up the Google/Facebook Duopoly?

August 15, 2018 Jonathan Katz

Last quarter, Amazon brought in $2.2 billion in advertising revenue (reported as “other” revenue but publicly known to be primarily comprised of advertising revenue). Up 132% from the year prior, Q2 2018 was the second consecutive quarter for Amazon to generate more than $2 billion in advertising revenue.

Advertising is Amazon’s Fastest Growing Segment

Revenues under “Other” unit, in millions ($)

“Advertising is starting to make an impact on gross profit.” – Brian Olsavsky, Amazon CFO, during the Q2 2018 Amazon earnings call

Compared to the combined more than $40 billion in advertising revenue generated by Google and Facebook last quarter, Amazon’s advertising revenue was merely a drop in the bucket at 5% of their combined revenue. Nonetheless, advertisers and industry experts are paying attention and starting to wonder if Amazon can break up the Google/Facebook duopoly.

Amazon Has a Growing, Loyal and Active Audience

An estimated 300 million shoppers visit Amazon.com, and more than 100 million Amazon shoppers are subscribed Prime members, at a current cost of $119 per year. Looking to benefit from their membership investment, Amazon Prime members are more loyal than regular Amazon shoppers.

With a projected $258.2 billion in U.S. ecommerce sales this year, Amazon controls almost half the ecommerce market.

The Amazon Marketplace Is Massive

The Amazon Marketplace Is Massive

Though their product listings are typically combined with Amazon listings, the Amazon Marketplace is comprised exclusively of third-party sellers and accounts for an estimated two-thirds of all Amazon sales this year. Due to Amazon’s focus on expanding third-party provider volume and sales, as of 2018, there are more than 5 million sellers offering their products in the Amazon Marketplace.

In addition to providing Amazon shoppers with a broader selection, third-party sellers provide a significant revenue stream to Amazon. This year, approximately $40 billion will be generated from servicing Amazon Marketplace sellers, including consulting, commissions and fees for fulfillment and shipping.

But that’s not all. Amazon’s third-party sellers are also spending ad dollars with Amazon. With more than 1 million new third-party sellers joining the ranks this year, as Amazon grows marketplace participation, they also increase the number of advertisers and intensify the competition for ad space.

Amazon Offers a Long List of Advertising Options

Promoting performance-based, easily targeted and effortlessly optimized advertising solutions, Amazon encourages their sellers to grow their audiences and sales using Amazon ads in both a self-serve and premium format.

Amazon Marketing Services (AMS)

Amazon Marketing Services (AMS) offers a suite of ad products, all sold on a cost-per-click (CPC) or pay-per-click (PPC) basis and available to advertisers via self-service portals — the AMS dashboard for vendors (companies selling through Amazon) and Seller Central for third-party sellers (companies selling direct to consumers via Amazon). AMS is the only way to purchase ad space on Amazon websites.

Amazon Marketing Services (AMS)

AMS ads are displayed to customers on Amazon.com and Amazon-owned international shopping sites. Ad formats include:

  • Sponsored products: Keyword-targeted, sponsored ads appear within search results
  • Headline search ads: Also keyword-targeted, headline search ads appear above search results
  • Product display ads: Product display ads are targeted by product or interest and appear on related product detail pages

Stylized landing pages, called Amazon Storefronts, are also available to help brands with multiple SKUs merchandise their full line of products

Stylized landing pages, called Amazon Storefronts, are also available to help brands with multiple SKUs merchandise their full line of products. Competitors cannot advertise on branded landing pages.

Amazon automatically targets ads on behalf of advertisers, but settings can also be adjusted manually. Advertisers who set their targeting can specify keywords (broad, exact or phrase match) and negative keywords. Product display advertising campaigns can also target product searches using Amazon standard identification numbers (ASIN).

Amazon Advertising Platform (AAP)

Amazon Advertising Platform (AAP)

The Amazon Advertising Platform (AAP) is a demand-side platform (DSP) that lets advertisers reach Amazon shoppers both inside and outside Amazon-owned websites, through a network that includes hundreds of third-party publishers. Available to advertisers as a managed (by Amazon) service or through accredited agencies, the AAP is the only way advertisers can specifically target Amazon shoppers off Amazon. (Note: There are plenty of other ways to target audiences that index high for Amazon shopping, but there is no way to purchase a list of Amazon shoppers.) AAP ad formats include the usual mix of desktop and mobile banner ads, interstitial ads and video ads.

AAP Targeting is based on assumed future intent to make purchases on Amazon with audience segments built by Amazon based on behavioral, contextual and demographic data. Audience segments include:

  • In-market audiences: Currently showing signals they will purchase within a specific category soon
  • Lifestyle audiences: Habitual buyers from within a particular category
  • Contextual audiences: Based on real-time search and browse data
  • Remarketing audiences: Shoppers who have searched for specific brands or viewed product pages but have not completed a purchase

Amazon Is Merging Their Ad Platforms to Make Advertising Easier

Amazon Is Merging Their Ad Platforms to Make Advertising Easier

Advertising on Amazon to date has been clunky with use of different platforms required for Amazon sellers (people who sell to Amazon to sell to consumers) versus Amazon vendors (people who sell directly to consumers on Amazon). For advertisers who are both sellers and vendors, the two-platform system is time-consuming and inefficient, especially because campaign data is not shared across the advertising platforms.

Recently, Amazon leaked details on its initiative to create a single advertising platform. It is expected that Amazon Marketing Services (AMS) and Amazon Advertising Products (AAP) will be merged into the new, all-encompassing Amazon advertising platform allowing all advertisers (vendors and sellers) to manage campaigns in one place.

Amazon Is Working Directly with Advertisers

There are clear signs that the Amazon Media Group (AMG), a business team that supports Amazon advertisers, is broadening their reach and helping advertisers set up and manage their campaigns directly through Amazon instead of going through advertising agencies. Amazon has always provided support for smaller advertisers, but their ad sales team has recently begun reaching out to more prominent brands with bigger media budgets. According to one report, Amazon ad revenue from national advertisers is up 36% since 2017; clearly Amazon is hoping to continue this growth story.

Amazon Is Also a Big Advertiser… But They’ve Retreated

In addition to generating billions in advertising revenue, Amazon is a significant spender of media dollars. Amazon is currently the top programmatic advertiser in the U.S. and, during the first half of 2018, Amazon invested $171 million in TV advertising, including $5.4 million during the two-week ramp up to Prime Day.

Amazon Is Also a Big Advertiser… But They’ve Retreated

Amazon used to be a big spender with Google, clocking up as much as $50 million per year in Google media spend. But in April, Amazon abruptly stopped purchasing Google product listing ads (PLAs), the ads that appear in Google shopping results. Though some of Amazon’s subsidiary companies are still investing in PLAs, the general assumption is Amazon is gearing up to disrupt the Google/Facebook power hold on digital advertising.

Can Amazon Break Up the Google/Facebook Duopoly?

With hundreds of millions of customers as their audience, millions of sellers positioned as potential advertisers and unrivaled customer data, it’s easy to believe Amazon’s impact on the advertising industry will grow.

Amazon’s First-Party Data Is Unparalleled

Amazon collects cross-platform shopper data from their hundreds of millions of Amazon customers. In addition to their namesake website and app, Amazon collects data from brands they own, including:

  • AbeBooks
  • Audible
  • Box Office Mojo
  • Double Helix Games
  • Goodreads
  • IMDB
  • Quidsi (Wag.com, Soap.com, Diapers.com and BeautyBar.com)
  • Shopbop
  • Twitch
  • Zappos

Amazon’s Ad Platform Needs Enhancements

The Amazon ad platforms are clunky right now and cannot compete with Google or Facebook on ease of use. The single platform they’re developing may resolve this issue.

Brands Are Weary to Give Money to Their Competitor

Brands Are Weary to Give Money to Their Competitor

Amazon is an ad platform and a retail company with a growing list of private-label brands and businesses. Many marketers fear advertising with Amazon is giving Amazon a leg up in the race to win customers and sales. In fact, Amazon does not provide data to third-party sellers or advertisers. And many suspect Amazon has used data it collects from other sellers to improve private-label brands.

Amazon’s Ad Formats Are Limited

Amazon provides a defined set of ad formats across their sites and their advertising network that many advertisers feel falls short. Advertisers are asking Amazon to offer video space on their sites. Amazon has noted this to be a possibility in the short term.

Amazon’s Algorithms Fall Short Compared to Google

Compared to Google, Amazon is not as reliable at connecting the right advertisers with the right audience. The Amazon artificial intelligence (AI) algorithms are just not as sophisticated as Google’s. However, Facebook is behind Amazon in their AI algorithm development.

Amazon Advertising Drives Purchases Making It Easy to Calculate ROI

For many advertising campaigns on Amazon, calculating ROI is simple since the ad impressions and purchase activity all occur within Amazon-owned real estate. For this reason, and because Amazon shoppers are typically a high-intent audience, AMS ads are known to convert better than most other digital advertising, including Google shopping ads.

AAP campaigns, with ads targeting Amazon audiences across the internet, are being deployed differently with marketing objectives that include brand awareness and product discovery. As a result, AAP ads should perform more comparatively with other digital advertising.

Advertisers Still Consider Amazon Media an Experiment

More and more advertisers are spending with Amazon, including vendors, sellers, authors and third parties. But most advertisers still consider their Amazon advertising campaigns to be experiments. They’re putting test budgets into Amazon and not yet scaling their Amazon-based media spend.

Many Advertising Experts Predict Tremendous Growth for Amazon Ads

Many Advertising Experts Predict Tremendous Growth for Amazon Ads

Martin Sorrell, when he was CEO of WPP earlier this year, said WPP was planning to boost Amazon ad spend by 50% this year (from $200 million in 2017 to $300 million in 2018). Industry analysts are also forecasting growth for Amazon advertising, up to $25 billion per year in ad revenue by 2022 and $50.6 billion by 2028 according to predictions from RBC Capital and Citi Research.

According to Marin data for brands with active Amazon campaigns, approximately one-fifth of media budgets are being allocated to Amazon campaigns. “While Google and Facebook continue to be the most prominent channels for digital ad spend, we’re now seeing more and more early adopters experimenting with Amazon’s ad offerings,” noted Wes MacLaggan, SVP of Marketing at Marin Software. “Amazon has essentially become a massive search engine for consumers far down the purchase funnel.”

Amazon Is Just the Latest Example of Media Evolution

Advertising media is never stagnant. Although it is hard to imagine a time when Google and Facebook stop dominating digital media inventory, the prominence of these two companies is still relatively new. Google introduced their ad product in 2000, and Facebook ads launched seven years later.

Whether it’s Amazon, an unexpected newcomer or the growth of a media niche, like affiliate marketing, the Google/Facebook duopoly will be fractured in time.

Do you need help staying up to date with media evolution? Digital Media Solutions (DMS) is always here for you. Our digital media experts manage millions upon millions in media dollars, giving us the opportunity to see what works now and predict the media MVPs of the future. Click here to contact DMS and learn how you can diversify your media mix to drive current and future campaign ROI.


Sources:

https://www.forbes.com/sites/richardwindsoreurope/2018/07/09/amazon-mad-man-ai-is-the-weakness-in-amazons-push-to-take-on-google-and-facebook/#76d9ff2675ed

https://www.digitalcommerce360.com/2018/07/23/amazons-search-ad-business-soars-in-q2/

https://www.forbes.com/sites/kirimasters/2018/06/08/a-simple-guide-to-amazons-complicated-advertising-business/#11483b963910

https://martechseries.com/analytics/marin-software-research-reveals-amazons-rapid-rise-increased-q2-2018-search-spend/

https://www.mediapost.com/publications/article/323148/amazon-tops-list-for-spending-most-on-programmatic.html

https://www.digitalcommerce360.com/2018/07/18/amazon-doesnt-spend-much-to-market-prime-day/

https://www.businessinsider.com/what-you-need-to-know-in-advertising-today-7-31-2018

https://www.marketingdive.com/news/amazon-posts-second-2b-quarter-for-ad-sales-as-explosive-growth-continues/528787/

https://digiday.com/marketing/amazon-advertising-working-directly-brands-now-cutting-ad-agencies/

https://digiday.com/marketing/amazon-advertisers-want-video-ads-theyre-spend/

http://adage.com/article/digital/amazon-ad-sales-top-2-billion-fastest-growing-segment/314402/

https://adexchanger.com/ecommerce-2/advertising-helps-push-amazons-profit-to-2-5-billion/

https://performancein.com/news/2018/08/06/amazon-streamlines-ad-business-single-platform/

https://www.cnbc.com/2018/07/12/amazon-to-take-almost-50-percent-of-us-e-commerce-market-by-years-end.html

About the Author

Jonathan Katz

Jonathan Katz is the Chief Media and Product Officer at Digital Media Solutions (DMS), the fastest growing independent agency focused on performance marketing. In this role, Jonathan provides technical direction across the company in areas of marketing automation, machine language learning, architectures and software technology. He leads the team that works across the firm’s diverse set of divisions to drive new product innovation and strategic positioning. Jonathan also leads customer acquisition teams across all media channels. Since its inception, DMS has evolved into an award-winning, full-service performance marketing company demonstrating incredible year-over-year growth which has earned recognition on the Inc. 5000 list in 2014, 2015, 2016 and 2017. An experienced serial entrepreneur in mobile and digital marketing, Jonathan’s expertise consists of an extremely proven track record in search, social and programmatic media. With his 20+ year career scaling start-ups and brands across health insurance, government services, automotive, careers, education, consumer finance and politics, Jonathan is now charting a new path via artificial intelligence marketing in performance media that will revolutionize the industry. Jonathan studied computer science at Florida State University and lives in Clearwater Beach, FL.

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