Amazon sets its sights on $88b online ad space
E-COMMERCE GIANT WON’T LET HEADSTART HELD BY GOOGLE AND FACEBOOK HOLD IT BACK
Verizon does not sell its mobile phones or wireless plans over Amazon. Nor does it offer FiOS, its highspeed internet service.
But Verizon does advertise on Amazon.
On Black Friday in 2017, 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, such as a mix-and-match 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 (Dh437.08) 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 did not exist before.
In late August, some gamers were angered when Twitch, a video game streaming service acquired by Amazon in 2014, said it would soon no longer be ad-free for Prime members unless consumers paid an additional $8.99 a month for a premium service called Twitch Turbo.
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. 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 per cent 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 the $88 billion digital ad market. But they come with big and troubling implications for those two giants. Much online advertising relies on imprecise algorithms that govern where marketing messages appear, and what effect they have on actual sales.
Big advantage
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 see them as intrusions.
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 in summer 2017 by Catalyst, the search and social media marketing company, only 15 per cent of the 250 brands marketers polled felt they were making the most out of advertising on Amazon’s platform, and 63 per cent of the companies already advertising there said they planned to increase their budget in the coming year.
But the bigger surprise is the increase in advertising on Amazon by companies, like Verizon, AT&T and the insurer Geico, that do not directly sell any product or service on the site.
“They have people who are in a shopping mindset, so that’s valuable for Verizon to be seen as a resource within that mindset,” 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 35 and older — but to a more precise segment of customers who are likely to be shopping for cellphones or barbecue grills.
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 & Co 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.