In an email to advertisers, Amazon announced yesterday that they will be discontinuing Amazon Product Ads on October 31st. This was a disappointing announcement for many retailers because not only were Amazon Product Ads one of the largest revenue producers among feed-based ads, they were also growing faster than all other comparison shopping engines (CSEs).
Most CSEs have seen declines since Google Shopping became a fully paid entity powered by Google Product Listing Ads (PLAs). Amazon had bucked that trend by continuing to grow and even offer lower CPCs than Google. This growth is particularly impressive considering that Amazon limited the categories eligible for advertisement on Product Ads. Amazon’s success can be attributed to a few key reasons.
- Amazon was not reliant on free clicks from Google Shopping as many of the CSEs were in the past.
- Amazon has millions of customers, which is a much larger set than that of the traditional CSEs.
- Because of Amazon’s marketplace, they were able to use a rate card system successfully to force retailers to only advertise on the best performing products.
Why is Amazon Making this Move?
With all of the success that retailers have had on Amazon and the continued growth of the channel, why is Amazon making this move? Well, from Amazon’s perspective it makes sense. Amazon Products Ads offer customers an avenue to leave Amazon and make a purchase versus staying on Amazon to complete their purchase.
On its marketplace, Amazon earns a percentage of the revenue made on an order, which could be significantly higher than the click costs they earn from Product Ads.
Last year, we reported how Amazon Product Ads were appearing next to marketplace seller products in the Seller Box or even receiving their own product page if nobody else sold the product. This was great for the Product Ads, but created more competition for the marketplace products, and even the products that Amazon sold and fulfilled itself. Removing these Product Ads will take away that competition and help marketplace sellers, including Amazon.
Are Amazon Text Ads the Future?
If you are currently an advertiser on Amazon Product Ads, what does the future hold for you? Well, you have just under three months to produce as much revenue and as many new customers as you can until Product Ads are discontinued.
Importantly, Amazon also announced their Amazon Text Ads beta yesterday. This had been a closed beta until yesterday when all account holders were opted in. This new program will be very similar to Google AdWords and it will likely replace the Google-provided ads that you currently see at the bottom of Amazon searches. This development was originally reported about a year ago by the Wall Street Journal.
Amazon’s text ad program will use the same Seller Central that is being used for Amazon Product Ads. The setup will be the same as Google/Bing with campaigns, ad groups and keywords. Amazon has also provided the capability to import your Google account structure into your Seller Central account to make getting started even easier.
Amazon has long been one of Google’s largest search partners in the retail vertical. Retailers generated about 1% of their Google search ad clicks on Amazon in Q2 2015. All Google search partners combined, including Amazon, produced 8% of retailers’ Google search ad clicks in Q2 2015.
Amazon would generate even more Google search ad traffic, but it has excluded ads from individual retailers from showing entirely. It is unclear why, but Amazon may see these sites as particularly strong competitive threats. It is common to see retailers generate 5 or 10% of their Google search ad clicks from Amazon traffic and the average retailer generated 2.5% of their Google search ad clicks from Amazon in Q2.
Amazon Sponsored Products Remain a Win-Win for Amazon
Although the email Amazon sent to advertisers yesterday only referenced Amazon Product Ads and Text Ads, there is another Amazon program that should benefit from the absence of Amazon Product Ads: Amazon Sponsored Products.
Amazon Sponsored Products is a program that allows sellers to promote products that they are selling through the Amazon marketplace. They look just like a Product Ad, but instead of sending a customer away to the advertiser’s site, these ads take a customer to an Amazon marketplace product page. This ad unit is a win-win for Amazon as they get both a CPC from the ad click and a revenue share from any orders that take place.
A Sponsored Products account is also managed using campaigns and ad groups. In the ad groups, retailers choose the products they want to promote and can either choose the keywords they want to target or allow Amazon to pick the keywords based on the product information. If you are a marketplace seller, you should explore adding Sponsored Products to your program to help promote your top products.
The loss of Amazon Product Ads is a significant blow to the feed and CSE industry as a whole, but feed-based marketing remains strong, with the focus shifting to Product Listing Ads, social platforms, and marketplaces.
Advertisers should reassess the resources they are devoting to each space to ensure that they are prepared to adapt to these changes in the landscape. There is a huge opportunity with newer feed-based initiatives and a smart strategy to capitalize on those potential new sources of revenue will be crucial in adjusting to the decline of traditional CSEs.
Retailers will also need to adopt Amazon Text Ads to ensure that they maintain traffic volume if or when Amazon replaces Google’s search ads with its own.