The Birds-Eye View Of Amazon’s Advertising Business

Amazon’s advertising business has exploded in the past five years.

Its DSP footprint now rivals Google and it has the second most-used SSP. The online retailer earned more than $22 billion in ad revenue just in the past year.

But Amazon’s advertising business is also a sprawling, mysterious empire, even for advertisers that spend heavily on the platform.

Take video, for example: Amazon built Fire TV, the beating heart of its video advertising ambitions, and also owns Twitch, which started testing direct programmatic deals last year. There is IMDb TV, a free streaming channel owned by Amazon. In-feed video spots appear in Amazon searches to review or explain products, and the Amazon DSP serves programmatic video spots across the web.

“It’s a conversation we need to have with every Amazon advertiser we work with, to explain the different types of video advertising, which all have different ways they can be tracked and measured,” said Jeromy Rew, associate director of Wunderman Thompson Commerce.

The multiplying advertising options don’t end with video. A growing roster of brands use the DSP but don’t sell on Amazon, or don’t even have ecommerce businesses. They just want to target across the web using Amazon shopping data.

To unpack Amazon’s expansive ad business, with its many pockets of inventory (Kindle ads, anyone?) and measurement capabilities, one must understand its four key growth areas: its video ambitions, its increasing work with non-endemic advertisers, its conquesting capabilities and its leveling up in targeting and measurement.

Video, video, video

Sponsored product listings on search results are the meat and potatoes of Amazon’s advertising revenue. But video is the future, and is Amazon’s most important differentiator compared to other retail media platforms.

When people think “Amazon video,” they often mean the Amazon Prime Video library, said Vinny Rinaldi, head of investment and activation for the GroupM agency Wavemaker – which he joined in April, after a stint as principal of programmatic partnerships for the Amazon DSP.

But what agencies mean when they talk about Amazon video is Fire TV, where Amazon sells a rough 30% cut of inventory on the streaming TV platform.

Fire TV’s footprint spans about 50 million US homes, and it is the only place where TV-style video ads can be tied directly to sales, Rinaldi said.

Amazon started a programmatic partner program for Fire TV in 2018 with dataxu and The Trade Desk. But it’s since abandoned the partnership route. Now, the Amazon DSP is the only way to buy Amazon’s Fire TV inventory. (A critical detail: advertisers can still get into Fire TV without Amazon, because programmers hold their 70% of the inventory to sell themselves. But only the Amazon DSP can juice those buys with logged-in Amazon data or attribute ads to online sales.)

Agencies often start client conversations with Fire TV. It’s an easy vehicle for brands that already spend big on TV and lean on agencies to manage their investments.

For Amazon sellers – smaller brands that don’t do national branding ads, but focus on ecommerce – the “gateway drug” to Amazon video is actually in-feed sponsored brand videos, said John Shea, president and founder of the ecommerce consultancy Momentum Commerce.

Those are the videos that sometimes play alongside a product listing on search results.

Video can be a pricey addition to static sponsored product listings, but it’s an easy sell for Amazon because those units are sold per-click, just like sponsored search. That means people may scroll and see the video, gaining the brand exposure, without paying for the impression, Shea said. Compared to programmatic video, where brands pay per impression and a view is counted at the second mark, the pay-per-click model can feel like a value.

Sponsored videos are becoming a must-have for sellers, especially in the US, said Trevor George, founder and CEO of the Amazon specialist agency Blue Wheel Media. That’s because Amazon democratizes products. Companies that spend tens of millions or hundreds of millions on branding campaigns and millions on R&D and product development are listed alongside half-priced knockoffs.

Sponsored video listings are becoming an important signal of brand status, George said, since Amazon is judicious with its sponsored videos, only showing the in-depth product videos on highly relevant searches and for quality brands.

The reason sponsored videos are a gateway drug, so to speak, is that building a library of creative is the toughest barrier to adoption for a video ad business, Shea said. Sellers focused on Amazon search or programmatic display ads need to build ad creative before they can be transitioned to CTV and video.

Non-endemic business

Amazon is also looking for growth outside its stable of ecommerce advertisers.

The Amazon DSP hired an ad sales team specifically for non-endemic brands.

To find people in-market for an automobile, say – even though it doesn’t sell cars – Amazon has black box audience segments based on purchase data for products that often precede buying a car.

Similarly, hotel brands can target Amazon audiences based on searches for terms like, say, “travel toiletry kits.”

Non-endemic businesses are “a drop in the bucket” for Amazon’s total ad revenue right now, but could grow into a major revenue stream, Shea said.

When brands simply seek “young,” they might try Twitch. Its video inventory is a lure for non-endemic brands – Chipotle and Ally Bank are the inaugural brands in Twitch’s new marketing partner program – that need to reach younger consumers who don’t watch linear TV.

Twitch has been its own advertising island within Amazon World. But a DSP bridge is in the works. Amazon is working on adding Twitch to the default programmatic video pool available in its DSP, according to three agency sources.

Conquesting and defense

Conquesting is the name of the game on Amazon.

Search for “Banana Republic Shirts” on Google, and the page is dominated by organic listings for Banana Republic. By placing competitors’ ads over Banana Republic, Google would be interfering with that user’s clear intent to find Banana Republic shirts.

The same search on Amazon, however, will surface Amazon-owned brands and Banana Republic competitors atop the page.

The downside is that conquesting is expensive. Someone searching directly for a brand knows that’s what they want to purchase, so relatively few will divert to a different brand. Often, the conquesting brand must drop its price, further squeezing its profit margin, George said.

Conquesting drives up ad rates because companies have to spend defensively on key search terms. Also, some brands are willing to sacrifice profitability to gain market share in ecommerce.

Some brands begrudgingly advertise on Amazon because they see rivals swiping customers who search directly for their products, said Prerna Talreja, biddable media co-lead at the agency Crossmedia. Running TV campaigns in a market will lead to a bump in searches for their product on Amazon in those areas – but without sponsored listings, all the value generated by their own paid media accrues instead to a competitor, she said.

“Whenever we do any kind of advertising across any channel, it doesn't matter what it's pointed at, we always see an uptick in searches on Amazon,” said Jeremy Sherman, director of marketing and growth for the vegan snack brand Snacklins.

That halo effect, where any media investments drive down funnel to Amazon sales, is an important reason why Snacklins now spends more on Amazon search terms than on Google, Sherman said.

Refined targeting and measurement

Amazon has been known for its “clunky” ad platform. But the company is making progress to catch up with the likes of Google and Facebook, whose platforms allow buyers to merge or overlay data and create infinite varieties of audience segments.

Yoto, a smart audio device toy brand, can build an audience on Instagram containing parents of young kids, or people who follow children’s education topics, while layering in demographic or behavioral data. On Amazon, it’s limited to people who visited their product page or broad, black box Amazon segments based on purchase and search data, said the brand’s performance marketing manager, Matthew Ralph-Savage.

It’s using an axe instead of a scalpel; But sometimes that’s the right tool.

Amazon is refining its targeting and measurement with a cloud-based data clean room in beta.

Amazon’s clean room is more nascent than Google’s Ads Data Hub, where the Google ad server data is housed, Talreja said. But Amazon’s clean room creates more opportunities to leverage Amazon shopping data.

For example, the Amazon DSP has an attribution window of 14 days, she said. Using Amazon’s marketing cloud, advertisers can test longer attribution windows.

“One of the most interesting features (of Amazon’s clean room) is the online-to-offline measurement,” she said. Brands can bring their own sales data to Amazon’s marketing cloud, and do incremental testing to understand how Amazon ads impact overall retail sales.

If a deodorant brand owns the top spot on Amazon, how does that impact perception of the product? Will people who see that deodorant atop the Amazon rankings be more likely to buy the brand later in a pharmacy or grocery store? Those are questions brands can address with clean room data.

Big-name brands are also trying to figure out whether ecommerce is a profitable venture.

Consider that same deodorant brand. Selling a single stick of deodorant on Amazon may actually be an unprofitable proposition. The cost to ship the product to someone’s door erases the profit margin on any small purchase.

Many traditional retail brands are taking a loss on Amazon sales right now, as they figure out ecommerce, and since they don’t want to cede market share in ecommerce even if it means eating their profit margin, George said.

Amazon’s own advertising metric underscores this measurement challenge. Amazon’s version of ROAS (Return on Ad Spend) is called ACOS (Advertising as a Cost of Sale).

The metric is a reminder that, on Amazon, advertising isn’t the thing itself. For Amazon, advertising is one of many factors, including pricing, warehousing, shipping and delivery, that are all interwoven into how brands achieve a sale.

Brands are accustomed to shipping pallets of hundreds of items to retailers, not to getting individual products to people’s doorsteps, George said. This type of selling requires adjustment. “Amazon data is the way they’re figuring out how and whether ecommerce will work for them.”

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