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

E-commerce behemoth preps self-serve RTB platform

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.

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