Will Amazon conquer digital advertising platforms next?
Brands and retailers are shifting major advertising budgets to the Amazon platform at the expense of incumbents like Google and Facebook. Relative to other advertising channels, brands can reach customers at a low cost via Amazon, and the path to purchase is very short. Gold Eagle Company, an automotive aftermarket manufacturer, sees a $5 return on every $1 spent on Amazon Sponsored Products compared to a break-even result with Google Adwords.
One equity analyst predicts Amazon will quadruple its advertising revenue by 2020. This would take Amazon’s estimated share of the digital advertising industry spend from around 3.5 percent in 2016 to over 10 percent by 2020 based on eMarketer estimates.
Who will be the winners and losers in Amazon’s pursuit of digital advertising wallets?
Winner #1: Amazon will generate more high-margin advertising revenue, pleasing investors and subsidizing thin retail margins. Further, a heightened ability to affordably reach consumers through paid search may finally coax big brands who have eschewed Amazon in the past to finally develop an active presence on the site.
Winner #2: Advertisers will benefit from Amazon’s continued investment in the platform. While the interface and reporting currently lags behind other platforms, given a huge increase in potential revenue from its advertising products, Amazon will make it easier and more compelling for advertisers to spend their ad budgets. The tangible outcome will be better reporting, more tools, more ad types, advanced targeting, etc.
Loser #1: Google and Facebook, the two incumbent digital advertising giants, stand to lose some share of the digital advertising market. Amazon’s investment will create pressure for these incumbents at the very least.
Loser #2: Brands, retailers, and digital advertising agencies who are late to the game. Advertisers typically gain momentum from mature campaigns and extensive historical data. Also, Amazon’s paid search ads come relatively cheap right now, but the platform will become more competitive as new brands enter and increase their spend.
- Amazon to surge more than 25% as internet giant disrupts ad business: Analyst – CNBC
- For Amazon, Online Advertising Can Drive Revenues – Forbes
- Is Amazon the next big advertising platform? – Digital Commerce 360
DISCUSSION QUESTIONS: How will Amazon fit into the broader digital advertising ecosystem, both as a competitor to incumbents and as a platform for brands? What other winners and losers will emerge as a result of Amazon’s gain in the digital advertising space? Will Amazon finally begin to share more consumer data to help advertisers measure advertising performance?