Friday, March 31, 2023

Amazon’s advertising business is booming during pandemic

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The surge in online shopping triggered by the Covid-19 pandemic has put Amazon on track for its very first quarter of $ 100 billion, but it has also boosted a neglected part of the company’s business: the publicity.

As more merchants cram into Amazon’s vast marketplace, brands that want to stand out are spending a lot on advertising.

As a result, Amazon’s “other” business unit, which is made up almost entirely of its advertising businesses, is growing faster than its retail, cloud computing and Prime subscription divisions.

According to FactSet, a financial data company, Amazon’s “other” unit will generate $ 21 billion in revenue in 2020, a jump of 47% from last year. Its rapid growth is also helping Amazon shed the dominant player in online advertising, Google.

“I don’t think there is sufficient recognition of the size of an advertising business that Amazon is building,” said Andrew Lipsman, senior analyst at eMarketer.

“We still expect solid, if not strong, growth by traditional Google standards in 2020 and 2021 – but more and more Amazon is eating that growth.”

Amazon offers advertisers compelling data: a closed loop that shows them the effectiveness of every dollar spent and over two decades of information about consumers’ actual buying habits, rather than their web browsing habits.

“I can better understand the value of a dollar spent on Amazon because I can literally see the transaction,” said Eric Heller, who heads the Amazon Center of Excellence at WPP, the world’s largest advertising agency, who advises on the best way to use the Amazon platform.

Mr Heller noted that several studies have now shown that people are increasingly looking for things to buy directly from Amazon, rather than Google. For marketers, Heller said, it’s the difference of reaching the person looking for “athlete’s foot cream” rather than “why is my foot hurting?”

The vast majority of Amazon’s ad revenue is driven by this behavior, with advertisers seeking to earn top spots as ‘sponsored’ listings at the top of product search results, attracting the attention of over 200 million unique visitors to Amazon sites every month.

According to JungleScout, which provides management software to third-party sellers, the most coveted searches, such as “noise-canceling headphones,” can sometimes sell for more than $ 7 per click – a fee paid regardless of whether the customer is buying. the product.

Just over 1 in 10 clicks will result in an average purchase, according to Marketplace Pulse, an ecommerce research company.

Some critics have argued that Amazon’s sponsored results were in fact a listing tax, an additional cost to do business on top of the commission already taken by the group – which was itself over $ 20 billion. during the last quarter only.

“Amazon is increasingly becoming a paid platform,” said Mitchell Bailey, of Kaspien, a company that provides e-commerce brand advertising services. “Unless you are prepared to invest in their advertising platforms, it is much harder to compete.”

Sponsored posts are a source of continual friction between Amazon and big brands because they allow competitors to pay to appear above their rivals, even if a customer has searched for a specific brand name. A recent query on “Sennheiser headphones”, for example, featured an unknown Chinese headphone brand, a drum kit, and a competing Japanese brand – Audio-Technica – primarily a Sennheiser product.

Despite this – or perhaps because of it – more brands than ever are willing to pay, especially during the pandemic. A survey of 1,000 top brands conducted by Feedvisor suggested that the number of ads on Amazon jumped to 73% this year, up from 57% in 2019.

$ 21 billion

the amount of revenue of the “other” Amazon unit in 2020

Amazon is also attracting advertising from brands that don’t sell their products on its website, such as automakers and insurance companies, who want to use Amazon’s purchase data to target the right people. A buyer of baby clothes, for example, may also want a new family car.

The company told investors 2021 will see it increase its display ad sales outside of Amazon’s main website, on its Twitch game streaming platform, or through devices such as Fire tablets and the TV Stick. , or the Kindle e-reader.

Further expanding its footprint, the group also offers placements on specialty websites such as the IMDb movie site or the Goodreads Book Review Center. Amazon Publisher Services, on the other hand, is a small competitor to Google’s AdSense, which places targeted ads on partner websites.

US Net Advertising Revenue on Amazon

It all comes down to the foundations to finally turn the Facebook-Google duopoly into a three-way fight. In just over two years, Amazon has gone from languishing behind Microsoft and Verizon in digital marketing to a comfortable third party.

This year, Amazon is on track to generate 10.2% of digital ad spend in the United States, compared to 23.5% for Facebook and 29.8% for Google. By 2022, Amazon’s share is expected to reach nearly 13% – a slow but significant encroachment in a high-margin industry.

“They were late,” said Joe Zawadzki, managing director of adtech MediaMath group. “This is their third case. But they’ve come from a standing start four, five, or six years ago to being a staple on most marketers’ media plans.


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