Amazon, Advertising’s Sleeping Giant, to Awaken in 2013

E-commerce behemoth preps self-serve RTB platform

Amazon made a splash during October’s Advertising Week while previewing its advertising business, but that was merely a ripple compared to the waves the e-commerce behemoth has coming for 2013 and beyond.

Over the past year, Amazon has built a proprietary real-time bidding platform that plugs into exchanges and supply-side platforms, including Google’s AdX and PubMatic. This platform lets the company retarget its users across the Web based on their browsing and purchase habits on Amazon’s owned-and-operated properties. That could be a game changer. Given Amazon's recommendation engine and general deal-closing prowess, the company's data should have advertisers drooling. 

Darren Herman, chief digital media officer at The Media Kitchen, said he’s bullish on Amazon’s market opportunity. “I think they could become one of the bigger media companies in the next five years or so. You have to realize that they’re capturing a ton of demand through their owned-and-operated sites and have people shopping right now.”

Amazon slowly rolled out the platform in 2012, but as early as the first quarter of 2013 it will introduce a self-serve real-time bidding platform for media buyers, including agency trading desks, which will be able to use the platform to manage their own buys, according to multiple sources with knowledge of Amazon’s plans.

“Amazon has a longstanding practice of not commenting on future plans, so we can’t speak to a self-service platform,” emailed an Amazon spokesperson.

While Amazon has yet to demo the platform for agency buyers, according to trading desk executives with knowledge of Amazon’s plans, the platform is expected to let buyers leverage Amazon’s valuable data—to an extent. The self-serve RTB platform would hypothetically function similarly to Facebook’s Ads Manager in terms of how buyers could target their ads. Sources said Amazon is extremely protective of its data and wary of providing outside access, so like Facebook, Amazon's platform would enable buyers to create targeting segments such as “men; aged 25-34; in California; interested in high-definition TVs; who have purchased how-to books and home improvement tools.” But Amazon is not about to hand over its customer's names or individual buying histories.

The self-serve platform would be a significant step for Amazon and its advertisers. Amazon has run ads on its owned-and-operated sites like IMDb.com for years, and more recently its Kindle devices, but those ads are sold more traditionally. That is, typically media buyers work with Amazon’s sales reps to discuss the audience their advertiser is looking to to target, and they then negotiate a buy—like any other online ad deal. In those cases, buyers submit insertion orders, and Amazon executes the buy across its network and reports back results.

Amazon also has the Amazon Advertising Platform, which it showed off during Advertising Week. That product has been in market “for about two years,” said the Amazon spokesperson. But sources said that until Amazon began building its own bidding technology last year, the company had partnered with ad tech firms including Triggit to place ads. That’s no longer the case. “Amazon Advertising Platform is a fully-managed service, run through our own, proprietary technology. We don’t currently work with DSPs,” the spokesperson said.

According to sources and confirmed by Amazon’s spokesperson, that platform’s media-buying process works much in the same way as advertising on Amazon's properties: lots of hand-holding and data-safeguarding, but in this case the ads run on non-Amazon sites.

“Amazon Advertising Platform leverages the same, pre-defined audience segments we offer for campaigns running on Amazon.com to show users more relevant ads—in much the same way Amazon has been recommending products to its retail customers for many years. These segments have a minimum size, and are based on anonymous, aggregate data,” said the Amazon spokesperson. Sources said Amazon currently offers two types of targeting options. Lifestyle targeting crunches Amazon’s data into product-related interest pools, such as those who view consumer electronics products; in-market target functions like traditional display retargeting programs.

For example, Amazon might see a user check out Blu-ray players on its site, drop a cookie on that user’s browser and then bid to run an ad for a Sony Blu-ray player when that cookie pops up on a site Amazon has access to through one of its inventory sources, such as PubMatic. The Amazon spokesperson said the platform’s inventory “comes from multiple sources—a mix of Amazon owned-and-operated properties (Amazon, IMDb, DPReview, etc.), ad exchanges and direct publisher relationships.” According to data from Evidon’s tag-tracking tool Ghostery, which measures the top domains delivering the AdChoices icon (a good indicator that RTB ads are being delivered), Amazon.com ranked 23rd globally during the week ending Dec. 10.

Amazon has also been using the platform internally to promote products it sells with banners on sites it doesn’t own that direct back to Amazon, sources said. In fact, last year Amazon used Turn’s platform to run its ads but has shifted to its own platform this year, said insiders.

Ads served on Amazon’s owned-and-operated sites have been sold on a cost-per-thousand-impressions basis, but agencies are said to be wary of Amazon switching them to a cost-per-acquisition model since the e-commerce company would then have more insight into which clicks resulted in purchases (potent data that often isn't shared with most publishers). Nonetheless, the idea of such closed-loop advertising has many media buyers excited.

“What’s so powerful is having revenue data and action data on purchases,” said Scott Symonds, managing director of AKQA Media. “Google has [some ability to track conversions] through Google Analytics, but everyone is desperate to see [a closed-loop system].”

Said IgnitionOne CEO Will Margiloff: “I’ve always believed that the best data is conversion data. Who has more conversion data in e-commerce than Amazon?”

“The truth is that they have a singular amount of data that nobody else can touch,” said Jonathan Adams, iCrossing’s U.S. media lead. “Search behavior is not the same as conversion data. These guys have been watching you buy things for … years.”

Amazon is pulling at the low-hanging fruit of online advertising: retargeting, a market crowded with other retailers including Walmart, Best Buy and Target as well as pure-play retargeters like Criteo. The company had even been in deep acquisition talks with Criteo before Amazon began building out its bidder over the last year, sources said. Those talks dissolved after Criteo pegged its price higher than Amazon was willing to pay; one source estimated Criteo’s current valuation to be around $1 billion. The Amazon spokesperson did not respond to a question on the acquisition talks with Criteo.

But Amazon also has an opportunity to shift up the funnel, to go after demand-generation ad budgets (i.e. branding dollars) by using its audience data to package targeting segments. It's easy to imagine these segments as hybrids of Google’s intent-based audience pools and Facebook’s interest-based ones.

Many media buyers agreed that Amazon has the potential to seismically shift the online advertising market, with Google, Amazon and Facebook replacing Yahoo, AOL and MSN as online advertising’s holy trinity. That's if they even want in.

Several sources, including buyers and ad tech executives, questioned how invested Amazon is in advertising. One trading desk executive who met with Amazon executives said the company's execs seemed most interested in how to beat Walmart, not Google. Another ad tech exec noted that Google has tens of thousands of employees focused on advertising. Sources ballparked the size of Amazon Media Group, which runs its ads business, in the range of 600 employees. The Amazon spokesperson declined to confirm the number of Amazon Media’s Group employees. Amazon has staffed a respected team within the Amazon Media Group, with sources pointing to former MediaMath vp Mark Mannino and former NBCUniversal sales exec Ryan Mayward as key hires.

Should Amazon choose to compete on a level with Google and Facebook, it will have one clear advantage. The Amazon brand lends the company a trustworthiness among consumers not shared by lesser known entities like Criteo or even well-known companies like Google and Facebook, both of the latter two have had their hands slapped by the Federal Trade Commission over privacy violations.

Amazon seems to recognize that advantage. Ads run through the RTB platform are expected to feature Amazon branding, as is currently often the case with Amazon Advertising Platform ads. Those ads are advised to display either the Amazon name or Amazon-approved calls to action, such as “Shop Now at Amazon.com,” though the Amazon spokesperson said Amazon Advertising Platform “campaigns running off-Amazon are not required to include Amazon branding or link back to Amazon.com.” Affixing the Amazon brands to ads display outside of Amazon’s sites could eliminate the creepiness factor often associated with retargeting (Amazon features the AdChoices icon on its ads and operates an ad preferences manager, the spokesperson said). If someone was just checking out watches on Amazon.com or The Wire’s page on IMDb.com, they’re less likely to be startled when navigating to a blog about cats and seeing a Swatch or HBO ad featuring the Amazon logo.

A challenge Amazon could face—though admittedly a stretch, even a long one—is explaining its off-Amazon ads business to people outside of the advertising industry. Ad-supported companies like Google, Facebook and Yahoo can justify their ad business as necessary for keeping the lights on; those companies apply user data to ad targeting because it bolsters their advertising revenues and therefore allows them to keep services free for consumers. Amazon doesn’t have that luxury.

Instead, Amazon has always been about commerce. The company banked $13.8 billion in Q3 revenue, with 84 percent of its sales being products (including shipping fees). Advertising fell into the “other” bucket alongside Amazon Web Services and co-branded credit cards, and the miscellaneous business segment altogether chipped in less than 5 percent of the period’s revenue. Amazon’s advertising business is “quite literally gravy,” said iCrossing’s Adams. Though that doesn’t mean Amazon couldn’t explain how it exchanges value from advertising for consumers.

“The promise of ad-supported shopping continues to be Amazon’s killer story,” Adams said. “Consumers always support ad-supported sales models with cheaper products than higher prices with no ads model.”

Throughout its history Amazon has operated on low margins. That lean strategy has let the company reduce prices to pressure competitors while inducing pressure from profit-hungry investors. Amazon’s advertising business—provided it reached its potential atop the online advertising food chain—could subsidize the rest of the company to the point that competitors should get very nervous, especially because Amazon has yet to really roll out its weapon of mass disruption.

The Amazon Web Services (AWS) cloud-computing platform is where things get really intriguing. The product has been in market since 2006; it powers the back-end technology for companies including Netflix, Instagram, Pinterest and News International. Sources said Amazon’s ties into media companies’ platforms could pave the way for Amazon to run ads alongside their content, with AWS functioning as an ad server without the need for Google’s DoubleClick or 24/7 Real Media’s Open AdStream ad servers. So theoretically, Amazon would have a delivery mechanism to any property with an Amazon tag.

And as more TV viewing shifts to streaming on-demand content, Amazon is well positioned to become the content-and-advertising-distribution platform of choice, taking a cut of those companies’ ad revenue. That could explain why Netflix, which does not currently run ads on its platform, has engineered its own technology with the ability to pull away from AWS.

But in the meantime, before it takes on the greater media world, Amazon has the Web-display market right in its sights. A giant sleeps no more.