Amazon’s Ad Move Set to Accelerate Winning Streak

Wed, 09/06/2021 - 09:16

Much has been written about the demise of the third-party cookie in recent months. But for all the hand wringing, little attention has been given to who’s best positioned to take advantage of the turmoil and how brands can leverage this.

In one word: marketplaces. Companies like Amazon and our local variant Takealot.

Marketplaces provide two clear opportunities.

Companies can sell product through them and they can advertise on them to extend their reach.

To the first point, a recent report from Feedvisor suggests that 78% of US brands sold on Amazon last year - up from 55% in 2019. The pandemic was a tipping point - consumer demand skyrocketed, stretching the resources and technical capabilities of even the largest ecommerce brands. Realising that they could no longer rely on their own infrastructure to cater for people’s desire to shop online, many adopted a hybrid model where they continued to sell direct while also adding inventory to Amazon’s marketplace.

More significantly, the sharp growth in its sales volumes has helped Amazon gather astonishing amounts of valuable first-party customer data. Those of us who’ve shopped on the platform in recent years have seen how they put this to good use with their recommendation engine - a machine learning algorithm so powerful that even back in 2013 McKinsey calculated it delivered 35% of the company’s retail revenue.  

Leveraging advertising opportunities

But it’s what the company is currently doing with this data to leverage advertising opportunities that’s even more remarkable. By offering ad units on its own marketplace (in search results or sponsored placements on product pages) and also through its off-platform advertising business (on products like Twitch, Fire, IMDb and its own DSP), Amazon is starting to eat into the Facebook / Google duopoly. It grew its US advertising revenue by 53% in 2020 to $15.7 billion, accounting for slightly more than 10% of all digital ad spend in that market.

Brands flocked to the platform last year because it offered value. The Feedvisor report noted that 62% of respondents said that Amazon ads provided the highest ROI of all their digital advertising, delivering returns of between 7 and 10 times spend.

And the appetite to invest more budget with Amazon is likely to accelerate sharply as advertisers look to find ways around privacy regulations that will prevent them from targeting 3rd party data and lookalike audiences. 

In the conventional Google / Facebook model, a customer ‘discovers’ the product they’re after on those platforms before clicking out to the retailer’s site. It’s a disconnected journey leaving the ad platforms with little if any compliant data they can package and sell going forward.

By contrast, in a marketplace environment, the marketplace captures every interaction on the path to purchase and ultimately owns the customer data allowing them to trade it within its closed ecosystem while being in full compliance with new privacy laws.

While Google and Facebook have been incorporating shopping capabilities to capture sales information and build their own 1st party data repositories, Amazon is upping the ante with its own DSP that allows advertisers to buy ad units on its own properties and on 3rd party publishers. 

Amazon's DSP

The beauty of this move is that it supports Amazon’s core bottom-of-the-funnel business model which caters for people who visit the site because they are ‘in market’ to buy a product (eg someone searching for a new printer is in a shopping mindset) while taking it into a new space where it’s able to able to use customer data to flight awareness ads to consumers higher up in the funnel. For example, it knows that someone who’s purchased the same printer ink for the last three years will likely need to upgrade their printer in the coming months, so it can bombard them with on- and off-platform display ads letting them know what the best deals are.

For international brands the message is clear. If you haven’t shifted a substantial chunk of your search and display budget to Amazon, you’re missing out.

For local companies it’s a little more complicated - Takealot does offer on-platform advertising but doesn’t yet have the sophisticated ad ecosystem of its US counterpart and despite Amazon’s recent announcement that it’s opening an African HQ in Cape Town it’s unlikely we’ll have our own local ecommerce site any time soon. But don’t discount the vast numbers of locals who currently shop on Amazon’s international platform - data from the soon to be launched 2021 South African Digital Customer Experience report suggests that as many as 13% of us are shopping on international websites.

*This article originally appeared on MarkLives

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