“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Ramsey McGrory, chief revenue officer at Mediaocean.
Major internet service providers (ISPs) will be intently watching Amazon’s corporate facilities in Sunnyvale, Calif., for the next four-plus months as it tests a trial broadband service. Marketers and advertisers should also pay close attention.
Amazon has for some time considered the possibility of becoming a high-speed internet provider. The Sunnyvale pilot program, which began Aug. 19, is the latest phase in an effort that also includes an application from the Federal Communications Commission (FCC) to launch 3,236 low earth orbit satellites to service a global broadband network. Two other companies, SpaceX and OneWeb, also have FCC permission and are in the process of launching.
A successful trial for Amazon could have major implications for ISPs. That’s no surprise. When Amazon launches a product or enters a market or vertical, it immediately becomes an 800-pound gorilla in the room. (Jason Del Rey’s Land of the Giants podcast digs into Amazon.) While its focus will be on delivering better, faster and cheaper internet service, it is likely keenly aware of the byproducts.
Growing market share
Depending on how Amazon plans to generate revenue from its ISP, this could have major implications for the advertising industry. Amazon may simply charge a fee for its internet service and call it a day, or it may offer terms of service (ToS) that allow Amazon access to data about its users and their activity. Amazon could also treat its ISP like its cloud computing service, Amazon Web Services, which would give the company limited rights to leverage the data flowing through the network.
If Amazon chooses to offer a ToS where users give Amazon rights to use data related to their activity, Amazon could offer its ISP service at discounted price and economically make it more available to more users. In doing so, the ecommerce giant would collect a wealth of data.
Amazon has a strong advertising business based on its data. While Facebook’s and Google’s data sets are based on demographics, interests, searches and connections, Amazon’s data set is built on content engagement, product searches and purchase history (not to mention everything Alexa hears). The additional data would provide a more holistic view of users that would aid in predicting behavior, recommending products and developing new services. Plus, the recent news that Amazon is developing data clean room technology, which enables marketers to measure their campaigns leveraging Amazon’s data in a privacy-compliant way, means Amazon’s platform will be even more attractive.
This is holy grail stuff for advertisers. This data stream would aid Amazon in growing its slice of the total digital marketing and advertising pie – a long-held company goal that Amazon is already well on its way toward achieving. Its US ad business is estimated to grow 50% this year and its market share will grow to 8.8%, according to eMarketer. It still has a long way to go before catching Facebook and Google in market share. But with virtually unlimited resources and a stock that attracts public investment, even when the company posts little or no profit, Amazon has the opportunity to invest and grow significantly.
Implications for Prime
Launching and scaling an ISP could benefit consumers, enable Amazon to grow its ad business and create new products and revenue streams, including Amazon Prime. Prime is already used by 62% of the US population. I haven’t seen the geographic distribution of members, but it seems logical that it would be concentrated in urban areas. Outside urban areas, connectivity and average income are lower, so Amazon could theoretically grow Prime membership by providing satellite-based connectivity at lower cost if users agree to allow Amazon to use their data, in turn offering Amazon a clearer road map to attracting more rural subscribers.
Not every Amazon product or service has been successful. (Remember its phone or mobile OS?) And like its competitors, Amazon tests many products and services that never make it out of the beta phase.
Given the complexity, cost and competition of building an ISP or satellite network, Amazon may not move forward beyond a pilot. Google has Google Fiber in 11 cities but shut down Louisville earlier this year. Amazon may also be challenged leveraging the data if Google’s internet encryption protocol is implemented.
Competition is a great thing, and you can bet that Amazon’s competitors will have some sleepless nights over the next few months as the company’s broadband offering takes shape. Perhaps not so coincidentally, Comcast just announced it is increasing broadband speed in the West at no additional cost.