Compared to some of the other tech giants, Amazon is still a relatively small player in the advertising world. Google’s total ad revenues in their most recent quarterly financial results were ten times larger than Amazon’s ($2.5 billion). While Amazon is included in pretty much every acronym used to group the multinational tech companies; FAANG, GAFA, FATBANG and the like, it is still not afforded the same status as the ‘duopoly’ of Google and Facebook.
But for many, Amazon is the ‘sleeping giant’ of the advertising industry, and represents Silicon Valley’s biggest challenge to the media industry. Ex-WPP CEO Martin Sorrell has said that of all the threats facing ad agencies, Amazon is the one that keeps him up at night. Scott Galloway, who explored the growth of Amazon, Google, Facebook and Apple in his book ‘The Four’, last week said at the Brandemonium conference that Amazon should be feared by the rest of the four.
With each of these companies continuing to grow revenues at an extraordinary rate, it’s easy to forget why some consider Amazon in particular to be the most threatening. Below, we’ve broken down the key areas Amazon is operating in, and why it may be poised to knock the duopoly off their advertising pedestal.
Amazon’s advertising business is far from best-in-class today. As a recent Digiday report claimed, some advertisers are frustrated with what they describe as clunky dashboards and limited functionality.
But the company has been taking steps to simplify its ad offering, bringing its four separate marketing divisions together earlier this year under the ‘Amazon Advertising’ banner.
Amazon runs sponsored ads, which promote an advertisers’ product within search listings, as well as display and video ads. While sponsored ads only appear on Amazon, display and video ads are run across Amazon’s properties (which include the likes of IMDb and Twitch), as well as other sites partnered with Amazon. These ads can only be bought through Amazon’s owned and operated DSP.
Obviously the key appeal here is Amazon’s user data, and its ability to serve ads to users who are primed to buy – in the case of ads served on Amazon.com, the user is actively looking to make a purchase. Amazon’s DSP allows marketers to target audience segments based on buying behaviour – for example, an advertiser can target users currently in market for their product, or who are habitual buyers of their product, and can retarget on third party sites those who’ve previously searched for the product.
“Advertisers know the Amazon audience is huge and primed to buy, and that Amazon’s platform will allow them to target based on real shopping and buying data—not just demographics and interests,” said an eMarketer report released earlier this year.
These benefits seem to be overriding concerns about clunky interfaces. A report released by Advertising Perceptions last week claimed that Amazon’s DSP is now the most-used by advertisers (in terms of the percentage of marketers using it), jumping ahead of Google Marketing Platform (formerly Doubleclick Bid Manager or DBM).
And ad revenue is soaring as Amazon ramps up the ad business. The company’s ad revenues sat at around $600 million in 2013, while at their current pace Amazon are pulling in $10 billion per year and rising.
Eroding the Agency Model
Amazon’s increased focus on advertising at a glance looks like good news for agencies, offering them an attractive new avenue to funnel their clients’ ad spend into.
But many fear that increased advertising on Amazon could reduce the need for agencies. as marketers look to cut out the middleman and plan their campaigns directly with Amazon. Reports surfaced earlier this year that Amazon has begun working with brands including Lego and HP directly.
“Amazon are creating products, similar to Facebook and Google, which are exceptionally easy to operate plus they already have direct to brand conversations as they have major brands selling through the platform,” said Wayne Blodwell, CEO of the Programmatic Advisory.
Blodwell says it’s unlikely that Amazon will cut out agencies completely. “If you bring those two together it’s clear that agencies could easily be disintermediated, but much like Facebook and Google I think advertisers need specialisms to help navigate wider marketing options and to best understand where to deploy budget, as well as the operational excellence in operating the platforms themselves. It’s like anyone can learn to drive, but very few become Lewis Hamilton.”
We have also seen specialist Amazon agencies emerge designed to provide an end-to-end for all of Amazon’s ad products. But while not all brands will work with Amazon directly, any loss of business during what is already a precarious time for agencies is bad news.
One of the notable themes at this year’s CES was the battle between Google and Amazon connected home devices, an important component of which is these devices’ voice search capabilities.
Opinion is split on if and when voice search will overtake typing – CSS Insight analyst Ben Wood believes voice will be the primary search input by 2021, though this prediction is seen as wildly optimistic by some.
If voice search does take off though, Amazon could be well placed to soften Google’s iron grip over search ad revenues. Amazon’s smart speakers currently make up 75 percent of the UK market, compared to 16 percent for Google. Google’s shareholders have begun to question how Google will fare as voice search grows.
Amazon is continuing to invest at a frightening pace too. Scott Galloway claims that “Amazon has more job openings in their voice group than Google has in the entire company right now.”
Voice search at the moment remains much harder to monetise than typed search, since audio ads are more intrusive than ads on a screen. This means fewer can be delivered in any given search without destroying the user experience.
But this is a much bigger problem for Google than it is for Amazon. Google has much more search ad revenue to lose, and Amazon leads users straight from voice searches into purchases via its ecommerce platform.
If Amazon establishes a firm lead in voice search, this data would act as an invaluable enhancement to Amazon’s DSP. Amazon’s shopping data already makes its DSP very attractive to advertisers – adding a bank of wider search data to rival Google’s would make it even more formidable.
Premium Video and UGC
At the moment Amazon’s primary video platform, Amazon Prime Video, is built to hook customers into Prime membership and onto the ecommerce platform, rather than generate money itself.
While this means it isn’t currently competing for TV ad dollars, it is competing for eyeballs, and has the sheer spending power necessary to fund a huge library of premium content.
One of the clearest examples of this is Amazon’s move into sports broadcasting. Live sports has been viewed as something of a crutch for linear television, and if Amazon snatches away expensive broadcasting rights it would be very bad news for the likes of Sky and BT.
When it comes to spending power, there’s no competition – Amazon’s market cap currently sits at $803 billion, while BT’s is $32 billion. In the most recent auction for Premier League broadcasting rights Amazon dipped its toes in the water for the first time, seen by many as a precursor to a bid for a much larger package later down the line.
The growth of subscription video services like Amazon Prime Video is already squeezing revenues for traditional broadcasters, with Ofcom finding earlier this year that subscriptions to Netflix, Amazon and NOW TV in the UK have overtaken subscriptions to pay TV services.
This pressure could ramp up further if Amazon makes a long anticipated move into ad-funded premium video. The Information reported earlier this year that the company is working on an ad-supported video service for Fire TV device owners, which would have a reach of around 48 million.
While Amazon is using Prime to target the premium video market, its simultaneously hoping its live-streaming platform Twitch can knock YouTube off its perch in the user-generated content market.
Twitch, initially a platform focussed exclusively on gaming, has diversified its content over the past year or so, while also ramping up the amount of video advertising it serves – Twitch Prime subscriptions no longer give users ad-free viewing.
Bloomberg reported earlier this year that Amazon has been negotiating lucrative deals with YouTube-based content creators in an effort to attract them and their audiences on to its platform. Twitch CEO Emmett Shear has reportedly set the company a target of $1 billion in annual ad sales. This will be easier to achieve as the platform breaks more and more into the mainstream consciousness – celebrities from Drake to Mesut Özil to Snoop Dogg have streamed on Twitch over the past year.
GroupM’s most recent State of Video report marked out Twitch as a viable competitor for YouTube, saying as expands beyond its gaming origins it may “at last provide a challenger – not to TV, but to the short-form dominance of YouTube.”