Zuckerberg is Worried about Amazon Advertising. You Should be, Too.

Amazon Advertising Is Now The Third Largest In The Ad Industry

While you were sleeping, Amazon Advertising became Facebook’s newest competitor in digital ad sales. According to this article in The Motley Fool, they’re now the third-largest in the ad industry, right behind Google and Facebook. And Mark Zuckerberg knows it.

Amazon Advertising Doubled in One Year—to $10 Billion

Amazon is working hard to capture its share of the U.S. $212 billion ad spend. Last year they doubled their year over year advertising revenue to an estimated $10-11 billion. In just over two years, e-commerce giant Amazon went from what the WSJ called the “sleeping giant that could someday challenge Facebook and Google” to what Mark Zuckerberg now sees as a true media competitor.

Amazon Advertising is now a Media Giant

Don’t get me wrong, Amazon sells a LOT of product—$40B in Q4. But they didn’t make any money on those sales. None. What they really bring to the bank is profits from advertising. According to one analyst, Amazon is making 75% margins in the advertising business.

Why does this work? Here’s a bit of a well-kept secret: most people who visit an e-commerce site don’t make a purchase. They shop. So, Amazon is a SHOPPING site. A research site. And a trusted product review site. About 97% of e-commerce traffic doesn’t purchase. Amazon is now the destination for those who are “just looking” and are receptive to ads and reviews as they shop. The proliferation of display ads, sponsored ads, and video content rivals the product content on every page of their site.

Why the Shift?

Amazon understood early on that most retailers are overly focused on sales transactions. Instead, they looked at customer interaction and search data and understood it in a new light: e-commerce sites are really marketing websites—and consumers are hungry for a range of product information and content.

This knowledge is allowing Amazon to structure their content to create a new monopoly—not just sales, but an ad monopoly. Where ads and additional content don’t detract from the experience, they are additive. They drive traffic as much as a lower price or a wide product assortment.

Shopper Marketers are Pursuing Amazon Ad Placements

Due to ready access to mounds of consumer search data, many companies are devoting a larger chunk of their digital ad spend to Amazon. According to estimates of WPP, the largest buyer of advertising in North America, 75% of those dollars came from Google Search spending.

Amazon has strategically built an advertising product line that competes on every level with Google or Facebook. Take a look at the breadth of their ad products:

  • Sponsored Products: Appear in Amazon search results and on other product pages
  • Sponsored Brands: Logo + customized headlines at top of page
  • Stores: Amazon offers free dedicated store pages to brands with product and messaging equity
  • DSP Programmatic Buying: on other amazon owned sites and apps they call “safe”
  • Contextual Targeting: reaches consumers as they browse for like products
  • Display Ads: Run on their sites and on a network of “trusted” Amazon affiliates
  • Video Ads: Targeting traditional TV advertisers with a newer, mobile audience, these play automatically on the page

Should Ecommerce Resellers Worry?

If I’m a reseller with my own ecommerce site, should I care? Absolutely.

Here’s why:

  1. Amazon’s Q4 retail net profit was over 6%—with 100% of that profit coming from advertising-related services and not sales of products. This 6% profit advantage gives Amazon the ability to create differentiated benefits that you, Mr. Reseller, may not be able offer. Like free shipping. That alone could bring smaller e-commerce resellers to their knees.
  2. Amazon has a vast and loyal customer base who go to Amazon first for their product information, pricing, and reviews. Already, over half of U.S. shoppers go there first for product information.  If Amazon continues to offer a superior content experience—with ads at the center, this ratio will continue to grow—snuffing out retail competition.
  3. If Google and Facebook are worried about this, we should worry too. Amazon is smart enough and ambitious enough to take on the ad giants and continue conquering the internet.

E-commerce Sites Must Become Media Sites to Survive

So, what so we learn from all this? Amazon is a growing threat not just to retail stores, but to every e-commerce site.

As an industry, we’ve got to get smarter about using our site real estate for advertising and employ more than the standard product/price listing we’re used to.

If you are a brand, you should encourage every other retailer to offer advertising to reduce the concentration of power that Amazon has by giving other retailers the ability to survive against Amazon. And then purchase that ad space, not just on Amazon.

Bottom line: e-commerce sites and brands that focus on selling alone and don’t offer more than product inventory listings to their site visitors will go the way of shopping mall booksellers and MySpace.

But hey, if you’ve still got inventory, Amazon will offer you a free Store page for your products. And teach you a thing or two about driving traffic there.