E-commerce giant Amazon has been on a roll diversifying its services in the past few years. It has launched Amazon Prime, Amazon Prime Air, Amazon Echo, and even acquired Whole Foods, all within the last three years. In an attempt to grow the reach and revenue of Amazon, and to compete with Facebook and Google this year, it plans to dramatically widen the space for its Amazon Sponsored Products. The company will allow brands to run Amazon sponsored ads across the internet, and not just within its own website.
Amazon has been making changes to its marketing and advertising strategies. It is also changing how it collaborates with brands. They encourage smaller advertisers to approach agencies to arrange their ad buying campaign instead of using only Amazon’s in-house service.
Amazon is currently in talks with different companies to pilot test the scope of its sponsored ads. These Amazon sponsored ads would then appear in various websites beyond Amazon.com. When a person checks out a product on Amazon and doesn’t make a purchase, Amazon then targets the potential customer. Soon ads of the product will be visible on different ad spaces online. This essentially brings the ad unit off Amazon and retargets them to return to Amazon for purchase.
Amazon Sponsored Products is one of the company’s main ad formats. These sponsored content bookend a customer’s search. For example, when you search for cameras on Amazon, the results will contain sponsored brands of the same category at the top and the bottom parts of the page. Brands can then run campaigns that adhere to the search keywords of consumers.
Although online users are usually inundated with ads, studies say there is still a better brand recall for targeted ads. These ads are active reminders for potential customers, consequently increasing traffic to the Amazon website.
These ads will also appear on Amazon’s advertising marketplace which leads customers back to the brand’s page on Amazon. This is Amazon’s advantage over Google as the latter is not an e-commerce site—while on Amazon, customers can simply click and purchase.
Revenue Building through Amazon Sponsored Ads
Amazon’s Sponsored Products makes up 88% of their ad revenue earned through search-based advertising. This is according to Merkle, a marketing technology and data firm. The rest of the revenue is generated by headline search ads—those that appear at the top of search results. Amazon also continues to display banner ads and video ads all around the website, as well as through its marketplace for outside publishers.
The company is beginning to grow its ad business and is poised to compete with Facebook and Google. These two are the top ad revenue-generating companies in the US, according to eMarketer.
Amazon generated more than $2 billion in ad revenue during the first quarter of this year. It is also primed to surpass the target of $3.7 billion ad revenue by the end of the year. In two years, experts say Amazon might outshine Microsoft and Verizon’s Oath as ad sellers, ultimately landing as the third best ad seller in the US.
Merkle also reported that Amazon Sponsored Products ads are highly lucrative, and compare favorably -to Google’s shopping ads. Advertisers pay Google on a cost-per-click arrangement. On the other hand, Amazon’s Sponsored Ads and Headline Search ads are three and a half times the rate of Google shopping ads.
Amazon will roll out its Sponsored Products Ads out all over the internet in the coming weeks.
The Amazon Differentiator, Amazon Sponsored Products
What sets Amazon apart from Facebook and Google is that it’s an e-commerce site. While Facebook and Google can track a potential consumer all across the web and show them ads, that is, unfortunately, the extent of their participation. Amazon does the same, but it receives the conversions from ad clicks to purchases.
Currently, Google is at the top of online advertising. It would be difficult to beat a $90 billion ad business, even with Amazon’s ad business valued at about $3 billion. However, this is a transformational era for Amazon.
If 50% of Amazon’s revenue would come from advertising over the next ten years, it could earn a 20-40% margin, and perhaps even give Google a run for its ad money.