What Would It Take For Amazon To Overtake Facebook And Google’s Ad Business?
The rapid growth of Amazon Media Group seems to be taking a few of people by surprise. I’m actually puzzled it’s taken AMG this long to represent a quarter of Facebook’s ad revenue in the US considering it has been sitting on a gigantic pile of gold ready to be mined. As anybody working in media can attest, it looks like AMG is finally about to light the dynamite, ready to capitalize on Amazon’s amazing household penetration and ridiculous Prime stickiness.
The primary reason why they have licence to blow up the ad industry is because in the age of audience buying, the prized tool of a marketer is not some made up psychographics or approximate demographics, but segmenting a category’s market into specific purchase behaviors. Amazon can tell you who buys the competition, who is price sensitive, who is most loyal, what stage they’re likely at in their purchase journey etc. They are building an engine that can map (and to some imperfect extent predict) who you should target, and how to best segment them. And while Walmart and Google could one day deliver what would arguably be the most powerful advertising ecosystem the marketing world has ever known, they seem to be taking a pass, potentially leaving Amazon control of Ad Land’s Medellin: real time buying behaviours connected to a wide advertising ecosystem. They already took Google’s crown on product searches, and it doesn’t look like they’re going to stop there.
So, what will it take for Amazon to become the #1 player in digital advertising?
1/ Fix the ad tech
The first and most glaring issue is that Amazon’s ad platform has been lagging behind in terms of development, with limited self-service tools, narrow access to data and reporting, and fairly basic ad tech options (something Sizmek’s ad serving tech acquisition is undoubtedly here to improve). It’s pretty glaring that the engineering team at Amazon didn’t make the advertising platform a priority up until recently, but there are a lot of signs this is changing, and with the right changes it could turn things around in the next 12 to 18 months. Yet, in a company that isn’t culturally built for advertising as a service (yet), outsourcing this operational progress might be a necessary step. One big accelerator would be to API as much of their platform as possible and let a 2ndparty ecosystem of approved partners take its development to new heights. Being able to access advanced self-service tools that can connect data to activation and content creation will make a huge difference in wetting advertisers’ appetite.
2/ Improve brand building inventory
To reprise a Scott Galloway metaphor, the second problem is that Amazon’s ad inventory is kind of the Discovery Card of the advertising dating scene: it’ll pay the bill, but it won’t get you laid. It remains a product-focused machine, with ad formats built to optimise immediate conversions over brand experience. Amazon doesn’t really speak to the brand building part of marketing just yet, something it will need to crack if it wants to attract the biggest campaigns — and the big bucks. The likes of IMDB, Twitch or FireTV are interesting but remain too small or too niche (or both) to make it a must-buy. Google has YouTube, Facebook has Instagram, but Amazon has very little to tickle marketers’ libido. And while it likes to think of itself as hyper customer-centric, it remains siloed internally, making it even harder to deliver more advanced brand experiences. To succeed, it will need to develop more flagship proprietary formats, scale massively its mainstream video inventory, and probably acquire a strong social player. To this day, I am still surprised they haven’t acquired Pinterest yet, a perfect fit for commerce that could spice up both its shopping journey and its advertising inventory. Seriously Jeff, shag Twitch if you want, kill IMDB if you will, but please, marry Pinterest.
3/ Sacrifice parts of its business
One of the biggest woes brands have with Amazon is the fact Bezos’ company has consistently behaved as the apex predator, preferring to launch its own products and even sometimes using brands’ consumer data to better undermine them. If Amazon wants to attract brands, it can’t be the quick sand where they come to suffocate, it will have to be an oasis where they can feel really welcome and thrive. Right now, it’s still not assuredly the case, and many brands have decided that they were better off not letting them have their cake, eat it andask them to pay the bill. One tell that Amazon is finally serious about advertising will be giving up the ubiquitous pursuit of owning every single vertical they possibly can. The question is simple, but not trivial: is it better to own the entire supply chain and compete even in low margin markets, or to tax brands for doing the fighting and taking the punches instead? This remains a strategic decision only Amazon can answer. When e-commerce wasn’t a big priority for most brands, owning enough of the supply yourself was important to get a competitive edge. But as it becomes more ubiquitous and brands are finally ready to invest, it might be a good time to capitalize on what the new economy does best: outsourcing the risks and cashing in on the rewards.
Whichever path Amazon chooses, it is a massive player in the advertising world and one that will inevitably play a bigger role in brands’ marketing budgets. After all, they’re already on the podium and have only recently pulled their finger out. Smart brands are paying attention, and those that have opened Alibaba’s cave in China know too well that investing in Amazon could soon be a much bigger question than just optimizing ROAS on e-commerce conversions. But if Bezos and his team are serious about becoming the new king in ad town, there will be more sacrifices and investments necessary to take the crown. The question is, do they really want to light the spark?