It’s all-too-clear that Amazon is on an unprecedented roll. And if anyone is still thinking of the company as simply a big online retailer, think again, and fast.
We’ll put it this way: Amazon doesn’t only have its finger in every pie. Rather, the now trillion-dollar conglomerate is creating new pies, from space venture to The Washington Post – and now digital advertising.
But let’s take a step back and get a healthily terrifying taste of the numbers. Amazon’s growth is astounding, set for a 39% yearly increase. In a recent interview with CNBC, Analyst Michael Pachter made a prediction that is as startling as it is, ironically, entirely believable:
“In my estimation, Amazon has 1.5% of global retail. It can easily reach 5%, and probably 10% over our lifetimes.”
Now, in a move that almost seems too neat to be real, Amazon is capitalising on a service capability that it originally used to build its own growth and offering it to other companies: digital marketing.
Amazon is primely – excuse the pun – positioned to hugely disrupt online advertising. How? Brands simply cannot ignore the ever-growing melting pot of Amazon’s customers and their demand. And the reality is that more and more customers are beginning their purchase journey there. Because of this, Amazon is able to record and catalogue data that is a whole lot more valuable than data captured earlier on in customer purchase journeys, and offer it to advertisers. This data’s insight into customer buying patterns is what makes it gold.
And digital advertisers are catching on fast. According to Marin’s recent report, State of Digital Advertising 2018, 33% of digital advertisers believe Amazon’s rise is the trend that will impact their business the most.
With Amazon’s swift rise in this area, the obvious elephants in the room are Google and Facebook – the two mammoths that have, up until now, blazed to the forefront of digital advertising.
Dania, our Head of Paid Media Strategy, agrees that Google, in particular, is losing speed, saying, “For now, Google remains the leading digital ad platform. But its share has gone down by -10% since 2016 in the US. That share keeps waning as the overall digital advertising market grows.”
The writing’s on the wall: Amazon has what Google and Facebook don’t: late-stage buyer intent and data capturing it.
It’s important to holistically understand the omnipresent digital marketing power Amazon has. Amazon Marketplace Advertising has three main lynchpins: it sells sponsored product ads, headline service ads and product display ads on a cost-per-click basis to its partners.
Essentially, at the risk of any more baked goods metaphors, Amazon is having its cake and eating it too. The company has effectively cut out the middleman when it comes to online advertising. Think about it: Unlike Facebook or Google, Amazon makes money through both the front end – selling advertising to other brands – and the back-end, when those advertised products are then sold on Amazon.
“This puts them at a huge advantage to Google and Facebook,” Ben Tregoe, SVP at Nanigans, says, noting that in 2018’s first quarter, Amazon made $2 billion in advertising alone. “The advantage is Amazon’s ability to win those customers cost-effectively.”
It’s worth backtracking for a second and considering that first lynchpin – sponsored product ads – in regard to social media advertising, too. Whereas before, Amazon’s price and customer reviews were likely the chief factors taken into account by customers when choosing what to buy on Amazon, the company’s sponsored product ads are changing that. The key thing to bear in mind here is the difference between this sponsored content and that of Google’s or Facebook’s is that it appears more organically to the user.
This is partly because of the unique environment these ads exist in: a hub in the lower-funnel of customer demand. Because of this, Amazon’s ads are a whole lot less distracting than you might think. And when both targeting and relevance are leveraged correctly, these ads can appear almost as organically as their organic counterparts. Neither Google or Facebook have this power, simply because their consumers are nowhere near this level of the customer-intent funnel.
Tregoe sums it up well, saying, “Amazon gets to cherry pick the best customers and all the other advertisers get the leftovers . . . [They] can’t make the math work. They’re at a structural disadvantage to Amazon in the bidding for the customers’ eyes.”
The key question is, what does this really mean? Whether Amazon will successfully monopolise the digital advertising space is unclear. Either way, Amazon’s ability to garner growth in one market, and then leverage that to gain dominance in another (the advertising space, in this case) is quite remarkable.
What’s true is this: the future’s looking interesting. Advertising’s evolving fast, and so are are we.