According to a recent article in the Wall Street Journal, Amazon is getting ready for a production launch of its new advertising platform. The news coincided closely with Amazon’s purchase of the video streaming network Twitch. Both developments signal the emergence of Amazon as a major advertising contender.
From a positioning perspective, Amazon is extremely well equipped to enable addressable, high performing ad programs. While advertising already represents $1 billion of Amazon’s ad revenue, it is a small percentage of its overall revenue of $75 billion/year (2013). Here are reasons why I believe the Amazon advertising platform will prove successful to advertisers and ultimately, to Amazon’s bottom line.
First-party data ... lots of it!
At Merkle, we believe that first-party data is essential to creating long-lasting customer relationships. Amazon has one of the richest first-party data sets in existence. While Facebook has user-provided email, geography, demographics, and interest info, Amazon’s data set goes further and includes extremely valuable past purchase and intent data. In particular, Amazon’s data includes every stage of the purchaser funnel: from awareness to transaction. Being able to layer this data on top of programmatic ads will create next generation addressable advertising — both relevant and highly cost-effective. Including this data as a standard feature in Amazon advertising will be a significant competitive differentiator of Amazon over incumbent ad tech platforms.
Amazon was arguably one of the first technology companies to target users with product-level remarketing. Though not strictly ads, Amazon’s "customers who viewed this item also viewed" product suggestions have proven extremely powerful in providing relevant messages to users. Amazon will be able to use its knowledge of behavioral targeting and affinity modeling to roll out compelling remarketing ad programs. Coupled with Amazon’s deep knowledge and capabilities of big data and distributed systems, Amazon is expected to be able to develop innovative advertising products.
By having a highly loyal user base across both browser and app spaces, Amazon should be able to properly attribute users even across device (desktop, mobile, tablet, etc). By being able to properly attribute conversions cross-device, Amazon will be able to address a key challenge with advertising fragmentation today. It remains to be seen whether it will use the deterministic approach of Facebook or the probabilistic approach of Google to tackle the question of user identity, but in either case, it is well positioned via its popular sites as well as top 100 apps. While Amazon’s reach of 250 million users is much smaller than the 1 billion user footprint of Facebook, it should be able to augment its reach with a network of sites outside Amazon.
Buy side and sell side opportunities.
According to Alexa, Amazon is the #5 site in the US and #8 in the world; Amazon’s O&O inventory includes compelling inventory especially for direct response advertisers. The acquisition of Twitch likely makes Amazon inventory more attractive to brand advertising dollars as well. Today, Amazon properties (which include Zappos, IMDB, and Goodreads) monetize their inventory largely via the Google Display Network, and the announcement implies a transition to an in-house, automated system for selling O&O ads. In addition to being able to sell its own inventory, Amazon is also positioning its ad platform as a buying tool across ad exchanges and a select network of sites outside Amazon. In industry terms, Amazon will offer both an O&O exchange and a DSP, allowing buyers the opportunity to layer on Amazon’s rich first-party data, and closely mirror Google as well as the emerging Facebook and Twitter ad ecosystems.
In conclusion, we are very excited about the production rollout of the Amazon advertising platform. Amazon’s key advantage will be in its data, which should offer an invaluable targeting lever especially for direct response advertisers. It will also be interesting to observe how Amazon advertising performs relative to incumbent ad tech platforms; for example, whether response rate differs in a shopping environment versus a social one. In parallel, Amazon’s foray into programmatic data-driven advertising should provide a welcome boost to its revenue and profit margin, as it continues to diversify its low-margin ecommerce business with a high-margin advertising one.