Solid info! A comprehensive interpretation of Amazon’s advertising model!

Through the analysis and summary of this article, we can see that Amazon is transforming its advertising business into a future source of revenue. For example, sponsored ads, DSP ads, and other types of ads on Amazon have achieved good results and revenue.

During Amazon Prime Day in 2019, almost every user browsing Amazon’s website saw an ad: given how well Amazon already knows about consumer buying habits, these “insights” can make ads more targeted.

When an e-commerce platform knows when you last bought shampoo and your preferred brands, then when all of this is added to the advertisement, the brand can accurately target you and try to push ads to you at the time when you most need to buy shampoo.

Other advertisers can use Amazon to target their ads even if they sell products you wouldn’t buy on Amazon, like insurance or cars.

Essentially, they tap into Amazon’s vast trove of customer data to figure out who is likely to buy their products, then reach those users with Amazon ads — either directly on Amazon or through a network of third-party sites.

This rich trove of data has made Amazon the third largest digital advertising platform in the United States, and it is becoming increasingly powerful, even beginning to challenge Google and Facebook's monopoly in digital advertising.

Earlier this year, eMarketer projected that Amazon advertising would account for 8.8% of all U.S. digital ad spending in 2019, up from 6.8% the year before; at the same time, eMarketer predicted that Google’s share would drop from 38.2% to 37.2%. Facebook's is 22.1%, slightly higher than 21.8% in 2018.

▲Amazon advertising revenue forecast in the United States

Last September, Amazon simplified its product line by integrating Amazon Media Group, Amazon Marketing Services and Amazon Advertising Platform into one new product called Amazon Advertising.

Paul Kotas, head of Amazon's advertising division, said the move was intended to make Amazon advertising "more simple and intuitive for the hundreds of thousands of advertisers who use our products."

Even so, Amazon's advertising business remains complex and can be difficult for outsiders to understand. How exactly does Amazon do it? Let's take a look.

1. Sponsored Ads

When you search for content or products abroad, you will often see a small box with "Sponsored" written in it. On Amazon, this is no exception. These products are the so-called "sponsored products", that is, when you enter specific keywords, these are the products that are being promoted.

At this time, the bidding ranking begins. Products with higher advertising prices are more likely to appear at the top of the page. These ads can appear above, near, or inside the search results, or even on the product details page.

Brands only need to pay when these products (ads) are clicked, and they can also set a total amount - all of this is the same as the bidding ranking system of Baidu and Google.

That’s why when you search for a product from Brand A, Brand B might pop up. This picture is an example. The search result is "Clinique Lipstick", but Maybelline and Dior lipsticks appear before Clinique, but they are marked with the words "sponsored promotion".

Some advertisers call this behavior "conquesting," which means buying ads for search terms for competitors' products, which is a bit like trying to snatch users away from competitors' doorsteps.

▲Sponsored advertising

Advertisers can also purchase "sponsored brand listings," which appear in search results and help consumers discover specific brands.

For example, if you search for the word "water bottle" on Amazon, the Perrier brand logo and related products will appear at the top of the results page. At this time, if the consumer clicks, they can go to Perrier's brand page.

Such ads are charged on a cost-per-click (CPC) basis and are priced on an auction basis - the higher the bid, the more likely its ad will be displayed.

▲Sponsor brand list

The biggest advantage of this type of advertisement is that it doesn’t look like an advertisement.

Goat Consulting, a consulting firm focused on serving Amazon merchants, recently conducted a survey of more than 2,000 Amazon users to see if they were aware of the difference between spontaneous product display and paid advertising product display. The result was that about half said they were not aware.

Many people even said that they didn't realize that they were advertised by Amazon.

Another benefit of Amazon advertising is that with massive and accurate product purchase data, advertisers do not need to advertise to consumers who have just purchased a product and will not buy again in the short term, thus saving unnecessary advertising expenses.

Amazon DSP and other types of advertising

Amazon also sells display ads, which are image ads that you can see when you shop on Amazon, Kindle, or read articles on some third-party websites.

Of course, there are video ads, which everyone has seen. They usually appear on Amazon's website (even on IMDB) and on some of Amazon's devices (such as Fire TV).

▲Display ads

Generally speaking, display ads do not have to be for products sold on Amazon; they can appear on both Amazon and third-party websites and apps.

For example, if you are a bathroom repairman, you may like the advertising services provided by Amazon. After all, its target customers are those who buy related tools (such as hammers, etc.). However, you may not provide your repair services on Amazon. However, the power of Amazon lies in that it allows you to use its data to target the same type of customers and help you find this group of people on Amazon's website and third-party websites.

In order to reach potential customers on third-party websites, advertisers can use DSP advertising, which is a "demand-side platform". Amazon has this service called "Amazon DSP".

Simply put, advertisers first identify their target audience, and then use DSP to automatically reach these customers on numerous platforms. According to Amazon, this product is "best suited for advertisers who want to purchase display and video ads on a large scale programmatically."

To this end, Amazon allows advertisers to clearly see how much of their marketing advertising expenses are converted into actual sales. Other DSP providers — like Walmart and Target — don’t offer this service.

The future of Amazon advertising

Amazon’s advertising business is still growing at a healthy clip, but the breakneck growth seen in recent quarters has begun to cool as advertisers appear to be looking more carefully at their Amazon advertising spend.

▲Amazon advertising revenue growth forecast in the United States

Despite this, most research institutions and investment bank analysts remain optimistic.

Pivotal senior analyst said in the Q3 outlook: Amazon is "currently the most prominent" in the field, and analysts "believe that Amazon's advertising business is related to GMV growth and can drive the company's revenue growth."

Analysts at Goat Consulting said: Amazon's advantage is that consumers bind their credit cards to the platform, and Amazon also provides "one-click ordering", "which is the dream of advertisers."

At the same time, Amazon’s conversion rate is also very good, about 20%-30%, while Facebook’s conversion rate is only 1%-10%. Because consumers come to Amazon to buy things and come with the intention, while Facebook's ads are "more aggressive and less trustworthy."

Next, Amazon will integrate Sizmek's advertising services and dynamic creative departments - Amazon announced the acquisition of these two departments of Sizmek at the end of May this year.

The acquisition of Sizmek's dynamic creative division may mean that consumers will see more customized ads, all of which will be based on consumers' shopping behavior, geographic location, etc.; and the acquisition of Sizmek's advertising service will help advertisers place ads and monitor the effectiveness of ads, ultimately allowing Amazon advertising to better compete with Google advertising.

In summary, judging from Amazon's layout in the advertising field, it is making up for its lack of capabilities in the eyes of advertisers in order to compete with Facebook and Google - it should be noted that the advertising business is the core source of income for Facebook and Google.

Author: Wang Ziwei

Source: Retail Wei Observation