How Amazon is Building the Next Big Ad Platform and Why You Should Care

Business Tech Top November 11, 2018
Amazon Ad Strategy

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How Amazon is Building the Next Big Ad Platform and Why You Should Care

Amazon is already on track to sell $4.6 billion worth of ads this year, and that number is growing quickly, up from $2.2 billion a year ago.

That number however is nothing compared to Google and Facebook who will do close to $100 billion combined in ad revenue this year. Nevertheless, Amazon has tremendous growth potential because of three key factors.

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The first is their main source of ad revenue which will continue to grow which is Amazon Sponsored Products. This is their search offering that’s very much a mirror of Google’s search ads, with one key difference: they have customer purchase data while Google only has customer intent data. Amazon Sponsored Products will continue to grow as Amazon is the largest eCommerce marketplace in the world and there’s no sign of that trend slowing any time soon. So those who sell physical products are going to be willing to spend to get in front of Amazon’s massive customer base.

The other two key growth factors for Amazon’s advertising front are less obvious, but more interesting as they currently are not being tapped into but will in the coming years.

They are Alexa and Amazon Prime video.

Amazon Prime video could be very similar to YouTube’s ad platform and allow Amazon to enter the highly effective video ad space that they do not currently have a stake in. Amazon has over 100 million Prime members all of whom are juicy targets for advertisers. There is potential for robust video ad platform thanks to Amazon’s deep customer data. An ad platform like this would open Amazon up to advertising dollars from outside of the consumer goods space.

As of right now Amazon is not useful for businesses in the travel, services, or B2B industries. That’s because those businesses have no way of selling through an Amazon product listing, but with video ads that link out of Amazon the door for those businesses opens right up. Considering those industries make up for more than half of global ad spend I would certainly expect Amazon to explore this avenue very soon.

The elephant in the advertising room however is Alexa. The dynamics of the advertising space could fundamentally shift as consumers continue to use voice search more and more each day. Amazon is currently the market leader in voice devices with its wide array of Alexa products. Amazon has the opportunity to take a major chunk out of Google’s $60 billion advertising revenue if they play their cards right and continue to position themselves a leader in voice search.

When someone says, “Alexa buy me toothpaste,” companies will bid to make sure it’s their toothpaste that gets ordered. This shift is where opportunity lies for both Amazon and cutting-edge advertisers who get in early.

So, if you’re an advertiser, how do you use this information to benefit you?

One, create voice apps, known as Skills on Alexa, for your customers and potential customers to use a method of direct contact with you. Just like having a website is necessary for any business, soon will be the same for voice apps. It will be your only direct line of communication and interaction with your customers that doesn’t cost anything. Think of this the in the same way as when customers type in your domain directly, it’s free. If you want traffic to your site any other way, it’s probably going to cost you money.

Two, buy voice ads early. It’s not clear when voice ads will for sale on Alexa but like in the early days of any ad platform they will likely be under priced in the beginning. As a company who works with media and campaign budgets on a daily basis, we can tell you first hand that advertisers are slow to adopt new advertising methods. Our guess is the same will be true for voice. So those who get in early could easily be pay 3-5x less per conversion than big advertisers will once the market matures and ad money flows to voice.

And third, focus on continually building your brand. This is the ultimate moat and protection against the ever-changing ad landscape. You don’t want your customers to say, “buy me toothpaste,” which you will have to bid on. You want them to say, “buy me Crest toothpaste.” But the only way to make sure that happens is by having a great product with a great brand.