Amazon targets $88-bn online ad market
Amazon’s surging revenue in advertising makes it a competitor to Facebook and Google
Verizon doesn’t sell its mobile phones or wireless plans over Amazon. Nor does it offer Fios, its high-speed internet service.
But Verizon does advertise on Amazon.
On Black Friday last year, when millions of online shoppers took to Amazon in search of deals, a Verizon ad for a Google Pixel 2 phone— buy one and get a second one half off—could be seen blazing across Amazon’s home page. And on July 16, what Amazon calls Prime Day, an event with special deals for its Prime customers, Verizon again ran a variety of ads and special offers for Amazon shoppers, like a mix-andmatch unlimited service plan.
Amazon, which has already reshaped and dominated the online retail landscape, is quickly gathering momentum in a new, highly profitable arena: online advertising, where it is rapidly emerging as a major competitor to Google and Facebook.
The push by the giant online retailer means consumers—even Prime customers, who pay $119 a year for access to free shipping as well as streaming music, video and discounts—are likely to be confronted by ads in places where they didn’t exist before.
Amazon derives the bulk of its annual revenue, forecast to be $235 billion this year, from its e- commerce business, selling everything from books to lawn furniture. Amazon is also a leader in the cloud computing business, with Amazon Web Services, which accounts for around 11 percent of its revenue but more than half of its operating income.
But in the company’s most recent financial results, it was a category labelled “other” that caught the attention of many analysts. It mostly consists of revenue from selling banner, display and keyword search-driven ads known as “sponsored products.” That category surged by about 130 percent to $2.2 billion in the first quarter, compared with the same period in 2017.
Those numbers are a pittance for Google and Facebook, which make up more than half of the $88 billion digital ad market. But they come with big and troubling implications for those two giants.
Much of online advertising relies on imprecise algorithms that govern where marketing messages appear, and what impact they have on actual sales. Here, Amazon has a big advantage over its competitors. Thanks to its wealth of data and analytics on consumer shopping habits, it can put ads in front of people when they are more likely to be hunting for specific products and to welcome them as suggestions rather than see them as intrusions.
Amazon is gaining in advertising when the public perception of Google and Facebook has soured.
In addition, some advertisers have yet to return to YouTube, a growing ad channel for Google, after brands like AT&T were found appearing adjacent to videos that promoted racism or terrorism.
“Google and Facebook have been slow to create the standards that advertisers want to see,” said Collin Colburn, an analyst at the research and advisory firm Forrester. “They are concerned about what sort of content their ads are going to be placed next to.”
He added, “Amazon is different because it has a much more controlled environment on its e-commerce site where the products are being sold, and Amazon’s reach into the rest of the World Wide Web is pretty small.”
But some analysts who follow the company closely say Amazon is now focusing more on advertising, rapidly hiring and building out its capabilities in a business with high profit margins for Google and Facebook.
In turn, brands are increasingly recognising Amazon’s vast customer reach, particularly to its more than 100 million Prime subscribers.
In a study conducted last summer by Catalyst, the search and social media marketing company, only 15 percent of the 250 brands marketers polled felt they were making the most out of advertising on Amazon’s platform, and 63 percent of the companies already advertising there said they planned to increase their budget in the coming year.
Many big brands that sell products on Amazon have increased their advertising on the site this year, including General Mills, Hershey and Unilever, according to an analysis of display ads by the research firm Gartner L2.
But the bigger surprise is the increase in advertising on Amazon by companies, like Verizon, AT&T and the insurer Geico, that don’t directly sell any product or service on the site. Verizon said the reason for its increased advertising spending on Amazon was simple: It’s where the shoppers are.
“They have people who are in a shopping mind-set, so that’s valuable for Verizon to be seen as a resource within that mind-set,” said John Nitti, the chief media officer at Verizon.
Thanks to the vast amount of data Amazon collects from its customers, it can target ads not only to basic demographics—say, women over the age of 35—but to a more precise segment of customers who are likely to be shopping for cellphones or barbecue grills.
Amazon is not just selling ads online. For Verizon, the opportunities to advertise over Amazon may increase as the e-commerce giant continues to build its internal media group and opens new advertising spots on various platforms or devices. In many cases, the advertising dollars that are moving to Amazon are being diverted from other digital players.
Last year, the jeans maker Levi Strauss & Company shifted some of its advertising spending away from YouTube to Amazon, where it sharply increased its use of display ads, according to a May report by Gartner L2.
In doing so, Levi’s increased the brand’s visibility in Google searches, driving shoppers to an Amazon page with Levi’s merchandise, the research firm said. In an emailed statement, a spokeswoman for Levi’s said the company had increased its marketing investment across all channels, including television, traditional digital and newer digital platforms, including Amazon.
Brands are increasingly recognising Amazon’s vast customer reach, particularly to its more than 100 million Prime subscribers