Within ten years, Amazon has succeeded in leading several industries. In 2017 it had 28% share of e-commerce revenue. However, acquisitions like Whole Food, PillPAck, and Zappos, are just as significant. Amazon is dominating the sales of books, toys, consumer electronics and many others, and with these acquisitions it is threating to do the same in grocery, dugs, and shoes. We should note that Amazon has been much quieter on dozens of failed projects, like the Fire Phone and Destinations.
Now we have Amazon Advertising, an ambitious venture into online advertising. But, how does this align with their real long-term strategy?
We at Scopus ventures put this question to our portfolio companies to determine the value of this service, while being wary of potential exposure. Here is why Amazon wants to be your next one-stop for advertising campaigns – and where you should be careful.
Amazon Advertising Promises More Visibility
Launched in January 2018, Amazon’s advertising business has been showing exponential growth with over 139% on a year-over-year basis, reaching two billion U.S dollars.
The most popular feature is an integrated search bar ad that shows up as “Amazon’s Choice”. But, is “Amazon’s Choice” really what users are looking for?
It is crucial to better understand the average shopper’s journey online, as he/she will switch from passive to active from a platform to another.
Facebook And Google Come First
The mindset of a Facebook user is to socialize, therefore, the user is not here to buy, however people are often interested in what their friends buy. Although the right ad on Facebook can inform the user and may be able to drive spontaneous buying,
the intent to buy is generally not there and as a result the return on investment is relatively low, and so is the ad price.
While Facebook is comparable to socializing in a restaurant, Google is like doing window shopping in a mall. On Google, someone is looking for something in particular.
As Google is built on search keyword structure, the keyword ads are sharper, too.
Therefore, Google ads are more expensive because shoppers know what they want and are unsure on where to get it. Their intent is to find the best bargain – which is why Google has been – so far – the best place to reach a new clientele.
Who Benefits From Amazon Advertising
The key question is where the average Amazon user is on his/her shopping journey.
If the user is trying to find an item they know something about, then the ad could help them find the right item and therefore this will compete directly with Google’s. In this case the ad will drive incremental revenue for the advertiser.
If the user is there to buy the wanted item, then it has a high risk of disrupting the user’s purpose. The question becomes who would benefit most from advertising on Amazon, as this shopper has already made up her/his mind? Clearly these types of Ads will be disrupting someone’s else opportunity to sell and could risk annoying the consumer. You don’t want your brand to look like that!
There is one exception to these which occurs when Amazon is Advertising their own products indicating that Amazon’s long term goal is more than just selling advertising.
Amazon’s Double Play
It is not the first time that Amazon has been showing a proactive type of business. As it owns all the data of users and vendors, Amazon knows when a vendor sells well and will not hesitate to start competing or offer to acquire them – just like it did with PillPack.
Is Amazon going to promote its own products to take away business from competitors? Is it going to allow vendors to compete on a level field?
Is Amazon trying to increase revenue by forcing vendors to compete harder with each other… Or is Amazon going to advertise its own products to take competitors’ business away?
Options are all open – and vendors have to keep an eye on their way or advertising on Amazon. While it might cause a business disruption, it might just give more data money to the powerhouse.