How Amazon is stirring up the advertising industry

Although Amazon is not native to the advertising market, it brings with it a powerful treasure trove of data.

According to recent figures and forecasts published by the world’s largest media agency network GroupM, global net advertising expenditures will increase by 4.5 percent this year. They also forecast an increase of 3.9 percent for 2019. The biggest growth driver is clearly the digital advertising market. Worldwide, advertising expenditures in this realm will rise to a total of 243 billion US dollars next year. As such, digital will represent a share of 42 percent. The trend is clear: 95 percent of the growth in 2018 will be in digital advertising and by 2019 it should be 99 percent.

So far, Google and Facebook have dominated digital advertising, but the market is slowly starting to shift. Retail media is the keyword that media planners should have in their sights in the future. Amazon, eBay, Alibaba and Tencent as well as smaller retail platforms like Zalando, Otto and REWE digital have long recognized that they are that they have a wealth of data that makes them highly interesting for the advertising industry. After all, nobody knows his customers better than the online merchants themselves! And they will be making greater use of this data in the future.

Amazon has developed its core business to such an extent, that it can devote an increasing number of resources to what have thus far only been side businesses. And Amazon Display Advertising has the corresponding potential. “Advertising is a key factor,” explains Chief Financial Officer Brian Olsavsky on presenting the latest quarterly figures on the success factors for Amazon’s positive margin. He did not provide concrete figures, but experts believe Amazon will have a turnover of 19 billion US dollars by 2020.

And the marketplaces have some advantages over the previous top dogs Google and Facebook.

Five advantages of retail media

1. Consumers are picked up right when they are seeking to make a purchase

While Google and Facebook ads are faced with widely varying consumer motivation, Amazon and similar sites have a home advantage in this regard. Visitors here are rarely just looking for distraction, entertainment or information, but are instead highly likely to make a purchase. Amazon in particular has long passed Google as the place to start online shopping.

2. Targeting with “guaranteed conversion”

Facebook likes to boast about its many targeting options, but when it comes to actual purchasing behavior, retailers have the better data. Facebook and Google can derive forecasts from users’ interests, but the marketplaces know their customers’ purchasing history. This qualification of users as customers with an intention to buy serves as a “conversion guarantee” for advertising directly on the platforms.

3. Direct buying

Even when consumers are willing to respond to an ad on Google or Facebook and look at an advertised product, they have to switch to another site. But each additional step reduces the motivation to buy and makes the customer journey more complicated, especially on mobile devices. The marketplaces do not have this problem if the advertisers already operate a brand shop there.

4. Simple payment

Cumbersome payment processes are still resulting in cart abandonment in e-commerce. At Amazon, customers are already familiar with the checkout process and can complete purchase transactions smoothly.

5. Transparency and efficiency

Amazon also promises its display advertising customers comprehensive reporting: “You’ll gain access to full-funnel reporting across all platforms, ad products, and campaigns—driving transparency, campaign efficiency, and performance with non-indexed campaign metrics.” This type of transparency does not exist in programmatic advertising, for example. It can help mitigate risk factors such as ad fraud, in which the display of advertising material is merely faked, and ensure brand safety by only placing advertisements in reputedly safe environments.

The bottom line:

Retail media in general and Amazon in particular have the best prospects of securing a large piece of the advertising pie in digital advertising. These advantages are not only interesting for advertisers, but can also improve the customer experience. In comparison, advertising on other platforms starts much earlier in the customer journey.