DUBLIN â Competition is always good for markets, so Iâm not sad to hear that Amazon is going head-to-head with internet advertising behemoths Facebook and Google. Between them, Facebook and Google completely dominate the online advertising market, capturing about 60% of all online ad revenue. Amazon enters the market with a strong advantage â it has extensive data about the products its users have actually purchased, as well as what they look at and put on their wishlists. One challenge for Amazon will obviously be that itâs a direct competitor of a lot of major advertisers such as grocery stores, retail outlets, and other online markets. Nevertheless, we can at least hope that Amazonâs growing advertising presence will shake up a market that was starting to look a little ossified. This development is also obviously good news for Amazon investors, such as those who invest in the Biznews Global Share Portfolio. In Tuesday’s webinar, Alec Hogg discussed some of the key developments in Amazon’s strategy. You can learn what he had to say here. â Felicity Duncan
Amazon, With Little Fanfare, Emerges as an Advertising Giant
By Lara OâReilly and Laura Stevens
Amazon.com Inc. handles nearly half of all online sales in the US, giving it a popular platform and a wealth of consumer data. Now itâs on track to become the next juggernaut of online advertising, and its rise threatens to upend Silicon Valleyâs ad titans and change the way business is done on Madison Avenue.
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The online retailer has ascended to the No. 3 spot in the US digital ad market behind the dominant players, Alphabet Inc.âs Google and Facebook Inc. Though Amazon has just 4% of the market now, the company is expanding its avenues for marketers and hiring aggressively for its ad unit.
Some marketers eager for a new digital ad alternative are also conflicted about the rise of Amazon â a competing retailer with its own in-house brands to sell â setting up a new potential source of tension.
Amazonâs ad revenue is on pace to double this year, to $5.83 billion, according to eMarketer. Its ad sales are expected to jump $28.4 billion over the next five years, according to Cowen & Co. â more than the combined increases in ad revenue for all television networks globally, according to figures from media-buyer GroupM.
The cumulative effect is an earthquake whose tremors will be felt by anyone selling ads, including digital publishers and TV networks. Retailers like Walmart Inc., Target Corp. and Kroger Co., which get paid by brands to place products in desirable locations within their stores, are already losing business to Amazon, ad executives say.
âI think the giant has been awoken,â said Bill Wise, chief executive of Mediaocean, a software platform that processes over $150 billion of ad spending annually.
While Amazon has rapidly expanded into a number of new businesses in recent years, including groceries, entertainment and pharmaceuticals, its ad business has grown organically into a high-margin business. Its planned headquarters in New York City will give it a new, stronger tie to the traditional center of advertising, one that could lead to Amazon hiring away talent.
Meanwhile, the worldâs biggest ad agencies are racing to become specialists in how Amazon wants to do business, which is unlike anything theyâve seen before.
A big chunk of Amazonâs ad business comes from its retail site, where companies pay to be listed as a âsponsored productâ high up in the search results when a user enters a term like âdiapers.â
In addition, marketers going through Amazon can choose video ads, TV-style spots in live sports telecasts, ads on the companyâs FireTV device and even ads on its cardboard delivery boxes. Amazon also helps brands advertise across the web on sites it doesnât own.
Amazonâs copious data on consumers â from what they buy to what they ask artificial intelligence assistant Alexa to what they watch on Amazonâs video service â holds unique appeal for ad buyers. Unlike Facebook and Google, it has actual purchase data from its retail site.
That enables Amazon to tell brands if their ads have led to purchases on its retail site, and then better target consumers on other sites â for example, showing them ads for a new pair of sneakers they had shopped for but never purchased.
âThey have the data because they have the consumer,â said John Ghiorso, chief executive of Amazon-focused ad agency and consulting firm Orca Pacific.
Amazonâs ad business now contributes to gross profit and is expected to generate more income than its cloud business â which currently provides the bulk of its profits â as soon as 2021, according to Piper Jaffray analysts.
Amazon is expected to collect 15 cents of each new dollar spent on U.S. digital ads in 2020, up from 5 cents last year, according to an analysis of data from research firm eMarketer.
Amazon declined to comment for this article.
The companyâs frugal culture has been something of a mismatch for the glitzy sales events and long lunches that grease business deals on Madison Avenue. At the annual Cannes Lions advertising festival on the French Riviera in June, companies like Google and Facebook rent out large beach spaces to meet with clients, while musical acts from Jon Bon Jovi to The Killers perform at parties.
Amazon typically keeps things low-profile. This year, Amazonâs Web Services and Alexa units co-hosted a hackathon focused on poverty, clean water and gender equality.
âI donât think you will ever see the [Amazon] yacht at Cannes, unfortunately,â said Will Margaritis, lead Amazon consultant at advertising group Dentsu Aegis Network.
Amazonâs role as both ad seller and e-commerce retailer can make for an awkward mix. Brand owners âsee Amazon as a key distribution point for their brands, which is irresistible,â said Rob Norman, senior adviser at GroupM, a media-buying agency owned by ad giant WPP. However, those brands are conflicted because itâs âclear Amazon is transferring profit and revenue from brands and retailers to itself.â
Addressing dozens of major brands and sellers at a conference this spring, Amazon ad sales executive Mauricio Guerra Escamez referenced a study that found roughly 92% of shoppers who start their search for a product on Amazon end up purchasing that product there, a statistic that surprised many in the room, according to one of the attendees.
Amazon-branded products get a special space at the top of the search results page. Analysts estimate the company operates dozens of in-house private labels.
Jason Boyce, chief executive of home recreation retailer Dazadi.com, competes with an AmazonBasics brand of bocce ball, which costs roughly $10 less. Still, the site drives most of his sales. In a recent search for âbocce ballâ on Amazon, the Amazon version was listed as a âsponsored itemâ near the top and then appeared three more times under âAmazonâs Choiceâ and âTop Rated from Our Brandsâ before Mr. Boyceâs Harvil brand. He hasnât bought ad space for that keyword. However, he has bought ads for the keywords âbocceâ and âbocce ball set,â and in searches for those terms, Harvil appeared at the top. That typically costs him between about $2 and $4 a click.
âThey get all the prime real estate. Itâs unfair,â Mr. Boyce says, but âwe have to be on Amazon.â
Advertisers badly want another major digital player to emerge to help make the online ad market more competitive. Amazon is still far behind Google and Facebook, the tech duopoly that together receive 61% of U.S. online ad spending, according to eMarketer.
LâOrĂ©al SA says U.S. consumers have 25 to 30 âtouch pointsâ before purchasing a skin-care product, from ads to online searches to product reviews. âWhile Facebook and Google play an important role in the discovery of our products, advertising on Amazonâespecially in the U.S.âgives us in addition the possibility to engage with our consumers at the moment they are likely to purchase,â said Lubomira Rochet, LâOrĂ©alâs chief digital officer.
Facebook and Google declined to comment.
Some advertisers say that Amazon â which has to balance the needs of big brands, ad agencies and smaller sellers â isnât giving them anywhere near the support that Google and Facebook provide in the form of teams of researchers and others who help brands plan and execute ad campaigns.
One ad executive estimated that for every 10 Google employees a large brand has at its disposal, Amazon provides one.
âThe algorithm is not going to answer your phone calls, itâs not going to go out to lunch with you,â said Connor Folley, a former Amazon marketing manager who now runs Downstream, a technology company that helps brands manage their advertising on the platform.
However, Amazon is adding advertising-related jobs at a fast clip: Hundreds of jobs are currently listed for sales, advertising and account managers around the globe, although itâs unclear how many are directly for the advertising department.
Traditional brick-and-mortar retailers are feeling Amazonâs pinch in the sector known as trade marketing, which aims to get products onto shelves and in the best locations in stores to get noticed.
Those budgets, particularly used by packaged-goods manufacturers in stores such as Walmart, Target or Kroger, are increasingly shifting to Amazon, advertising vendors, analysts and brands say. Trade marketing attracts an estimated $178 billion a year in the US and makes up most of Amazonâs ad dollars in the US, Morgan Stanley analysts said in a note earlier this year.
Chris Carmichael, who used to be responsible for phone maker Nokia âs trade marketing in the UK and later had a top role at HSBC , said trade marketing relationships with retailers have been âbased on legacyâ and renewed each year despite little visibility on consumer impact.
Amazon, however, can use its insights on shopping habits to help brands create messages that resonate the most with consumers, putting it âlight years ahead of anyone else,â he said.
A Walmart Inc. spokeswoman said the companyâs supplier advertising is up overall. The company has recently said that it sees its own digital advertising business as an avenue for growth. A Target spokeswoman said its partners have increased their year-over-year investment in product promotions, including through weekly ads and in-store signage. A Kroger spokeswoman declined to comment.
Amazon has been selling ad space in product-search results on its marketplace for roughly a decade. A big early barrier for advertisers using Amazonâs self-serve ad buying tools was that it accepted payments only by credit card for all but its biggest clients, ad industry consultants say. As a result, some brands and marketing agencies were maxing out their corporate credit cards, spending $20,000 multiple times a month, according to Mr. Ghiorso of Orca Pacific.
In 2015, Amazon switched to a traditional invoicing process for those types of search ads for more of its self-serve clients. Brands that had been sitting on the sidelines began to ramp up their spending, and the cost of search ads on Amazon âwent through the roof,â Mr. Folley said.
Ads promoting specific products â either within Amazonâs search results or on product detail pages â are the biggest draw, accounting for roughly 29% of advertisersâ spending, according to a survey of senior US ad buyers by Cowen & Co.
Traditional web display ads account for another 13% of ad budgets. They can appear on Amazon.com as well as on third-party sites. For example, an airline can run ads on non-Amazon sites aimed at travel enthusiasts, including Amazon shoppers who have bought suitcases or travel books.
Amazon is eyeing a deeper push into video ads on its mobile site, according to people familiar with its plans, and is planning a new advertising-funded video platform, named âFree Diveâ internally, through its movie and TV database brand IMDb. Digital video is an on-ramp to winning a piece of the roughly $210 billion global TV ad market. The website The Information earlier reported on plans for the ad-supported video offering.
Amazon has entered its second season of streaming NFL âThursday Night Footballâ for its Prime members. Last seasonâs advertisers included Sling TV, Gillette and Hyundai. An Under Armour campaign aired during this seasonâs NFL telecasts on Amazon, showcasing athletes going through gritty training sessions, followed viewers elsewhere on Amazonâs platforms once the games had finished.
Amazonâs Alexa voice assistant has tremendous potential as a marketing platform, though users shouldnât expect to hear ads there in the near term, according to people familiar with the situation. Brands are starting to use it to gain visibility. Consumers can say, âAlexa, tell Budweiser âWhassupâ â to have a conversation with the cast of the memorable â90s TV commercial. Amazon has said it has no plans to bring ads to Alexa.
Amazon is also exploring the idea of ad placements in the Echo Show, its smart speaker with a built-in screen, according to people familiar with the companyâs strategy.
Beyond traditional ads, the movie franchise âMinionsâ and musical film âThe Greatest Showmanâ have bought ad space on the cardboard boxes and bags Amazon uses for delivery.
In September, Verizon Communications Inc.offered a $5 Amazon gift-card credit to users who scanned a bar code on their Amazon Prime Now delivery bags to check the availability of its Fios fibre-optic service at their address. John Nitti, Verizon chief media officer, called it a ânext-gen approach to direct mail.â
This summer, General Mills Inc.âs Petits Filous kids yogurt brand paid to add instructions on Amazon Pantry boxes for kids to craft them into rockets, airplanes and ships. The instructions went on more than 200,000 orders in the UK.
âWe could have chosen anyone that does traditional deliveries,â said Rahul Gursahani, a Northern Europe marketing manager at General Mills. âThe credibility Amazon brings today: You canât beat that.â
Write to Lara OâReilly at lara.o’[email protected] and Laura Stevens at [email protected]