In part one we saw how the ecommerce companies are entering the media market differently and with a relatively unique set of relationships. Here we look at some of the strengths and weaknesses they’ll bring to the table, looking at everything from data right through to content. It’s worth noting that some of the weaknesses could equally be applied to other online competitors.
The Strengths of the Ecommerce-Media Model
The main reason we’re seeing ecommerce companies investing in ad tech and media is of course that they’re sitting on mountains of valuable data. And it’s not the wishy washy ‘possible female Firefox user’ kind either. It’s hard data, the ‘Sally Brown from 12 London Street buys coffee every Monday morning at 8.45am’ kind.
So if you’re a major ecommerce player and you know Billy had a games console delivered to his home address, it makes sense for you to use that data to offer advertising to your games suppliers who are already spending money trying to reach Billy elsewhere online.
And if you’re offering advertising services, you might decide you need to acquire some proprietary ad tech and perhaps build out your own media business. Then, if you’re big enough and brave enough, you might also build CE products and the operating systems required to run them, all of which can – in theory at least – be neatly integrated with your ecommerce, media and advertising products.
The end point, if indeed there is one, is that large retailers and ecommerce platforms will be providing multiple services to their suppliers, offering to distribute, promote and sell their products, with data oiling the wheels of the advertising, CRM and on-site sales (it is worth noting that companies like Dunnhumby have been doing this for years on Tesco’s behalf via Tesco vouchers and coupons). The fun doesn’t stop there either, as you can use your data to build out an ad network/exchange featuring third party sites.
The relationship between retailers and suppliers tends to be one-sided, usually in the retailer/ecommerce company’s favour. Whether it’s through direct negotiations or the competition within an online marketplace, everyone from cottage industries to heavyweight corporations find themselves pressured into giving the retail and ecommerce giants the best possible price.
It seems likely that that same leverage will be brought to bear on advertising deals, i.e. we’ll buy X amount of product Y, if you spend £Z with us on advertising. Or, for marketplace sellers, a company like Amazon could discount or waive seller fees if Amazon advertising was used to deliver the conversion.
Then there are also opportunities to integrate unique ecommerce-specific features into creatives, whether it’s making it easy for people to buy the product directly from the ad, or by including online reviews in the ad themselves, as Amazon does today with its display ads:
Finally, there are also integration opportunities at the consumer level, where various services can be packaged together. For example, Amazon (yes, we’ve had to lean heavily on them for the examples in this piece) has its own version of the triple-play. Alongside access to 15,000 TV shows and movies, Amazon Prime comes with ‘free’ one day delivery for Amazon orders, plus the opportunity to borrow over 500,000 ebooks.
The ecommerce companies are also entering the media market with an established set of direct relationships with their suppliers. Not only that, but their existing business models have always been built based on efficiency, automation and self-service.
So it seems reasonable to conclude they’ll be well-placed to bypass agencies and work directly with advertiser/suppliers. It’s going to be interesting to see whether the bulk of advertising spend comes from agencies or from direct relationships.
Potential Weak Spots
Privacy could the Achilles heel for the ecommerce media players, partly because their data might be regarded as being a little too accurate for some people’s liking. Taken in isolation, a consumer mightn’t have too much trouble with an ecommerce company knowing, for example, that they’re interested in buying a new camera. But when that data is combined with data on what you watch, where you live, where you go, it seems likely that ecommerce giants will receive just as much attention from privacy regulators as the likes of Google and Facebook do.
The Mid to Upper Funnel
While there’s plenty of evidence that people frequently use ecommerce sites for product research and reviews, there are also many other places where they can be introduced to new products or find information about ones they intend to buy, whether it’s search engines, social networks, their favourite newspaper or review sites. While the ecommerce companies have excellent data, it’s often of the bottom of the funnel variety, so let’s not pretend these companies will be all powerful any time soon. However, certain product categories, particularly for things like FMCG products that people buy regularly, will be easy pickings for advertisers.
If the ecommerce giants are successful in building out their media and advertising businesses, regulators might also start to feel uneasy with a small pool of players controlling so many parts of the B2C value chain. The traditional media companies, unable to match the ecommerce giants when it comes to data, will undoubtedly kick up a fuss, just as they have when it comes to companies like Google.
Content and Consumer Adoption
There’s a reason Tesco’s Blinkbox is crammed full of Hollywood blockbusters, while Clubcard TV is forced to make do with TV’s leftovers and ‘straight to video’ movies. The reason is that it’s difficult to license quality content if you don’t have sufficient scale, or if your model conflicts with the interests of the content owner, who may be a direct competitor such as a broadcaster or Pay TV provider. However, if you’ve got a strong brand with a reasonably large user base, and are asking users to pay on an on-demand basis, you’ve a much higher chance of being able to do strike content deals.
That said, it’s still a messy business and if you’re sharing the content with the rest of the market you won’t have a USP, which is why all of the leading tech and ecommerce players have been investing in quality original content of their own.
But investing in content doesn’t mean it will be successful. Just ask YouTube. And content apps and websites need a continuous flow of fresh content in order to keep people coming back. While Amazon appears to be getting it right, with 20 million people using its service which provides access to 15,000 TV shows and movies, it remains to be seen whether Amazon’s own content will be successful, and if other ecommerce players will be capable of following suit.