Amazon's Ad Business Is 50 Percent Bigger - But Is It Better?

As long as the advertiser remembers that any Amazon system always benefits Amazon first and has to be able to scale, they can make it work. Whether that ads up to 'better' is a reasonable question. JL 

Lisa Lacy reports in Ad Week:

When 2019 wraps, Amazon’s advertising business is projected to be more than 50% bigger than it was a year ago—when advertisers spent nearly $5 billion—as it continues to challenge its much bigger rivals, Google and Facebook. 60% to 70% of Amazon Advertising budgets are allocated to sponsored products. Even when shoppers search for a brand’s products by name on Amazon, they may still see the brand’s competitors first. Agency reps have seen prices go up 200% across Amazon’s search units in the last two years while Google and Bing have remained flat.

Key Insights:

• Brands that sell on Amazon typically start with search tactics
• Agency reps say sponsored display ads are “weird”
• CPM for Amazon’s DSP is high, but you get what you pay for
• Display ads are the starting point for brands that don’t sell on Amazon

When 2019 wraps, Amazon’s advertising business is projected to be more than 50% bigger than it was a year ago—when advertisers spent nearly $5 billion—as it continues to challenge its much bigger rivals, Google and Facebook.

Meanwhile, the agencies that work with brands on the platform say Amazon’s advertising ecosystem is itself becoming more competitive as advertisers work harder to generate the same returns they saw just two or three years ago.
Even when shoppers search for a brand’s products by name on Amazon, they may still see the brand’s competitors first, which is in part why Amazon is a must-play ad channel now, said Eric Heller, chief knowledge officer at digital marketing agency Wunderman Thompson. And it certainly doesn’t hurt that Amazon ads help juice organic rankings.
But, like Amazon as a whole, Amazon Advertising has a lot of moving parts. In the coming days, we’ll look at how Amazon Advertising is going to change in 2020. But, to start, let’s break down its existing components, as well as how they work together and how advertisers use them.
For starters, how brands advertise on Amazon depends whether they are endemic or non-endemic: Endemic brands are those that sell on Amazon; non-endemic brands do not.
According to Todd Bowman, senior director of Amazon and product marketplaces at performance marketing agency Merkle, when working with endemic brands, Merkle first looks at search tactics, which include sponsored product ads, sponsored brand ads and sponsored display ads.
“The reason we start with those is they are lower funnel and clients are looking to find ways to sell products,” he said. These ads help drive traffic to products and support what he called the “Amazon flywheel”—more traffic means more reviews, which “support that product to show up organically.”
Agency reps didn’t share cost estimates for these products, but said they’ve seen prices go up 200% across Amazon’s search units in the last two years while comparable units from Google and Bing have remained relatively flat.

Sponsored Products

Amazon

Sponsored products are the product listings that appear on the first page of search results intermingled with the products that rank organically for a given query.
According to Andrew Ruegger, managing partner and head of commerce and data science at advertising company GroupM, as much as 60% to 70% of Amazon Advertising budgets are typically allocated to sponsored products because they link to specific products and boast high performance rates.
Elizabeth Marsten, senior director of strategic marketplace services at search engine marketing company Tinuiti, agreed that sponsored products are “by far the tried and true ad type you start with” because of said return, but also because they have the lowest barrier to entry—and they were Amazon’s first self-service ad product.
A report from Tinuiti noted targeting capabilities for sponsored products have recently expanded, allowing advertisers to reach customers as they browse product detail pages and filter search results for similar products.

Sponsored Brands

Sponsored brands, formerly known as headline search ads, are the keyword-driven ads that appear atop search results. They include a brand logo, headline and up to three products.
Tinuiti noted Amazon expanded sponsored brand placements in 2018, adding them to the middle and the bottom of the search engine results page (SERP).
Bowman said Merkle has found sponsored brands help drive awareness among shoppers in the consideration phase of the customer journey.
However, Ruegger said it has been challenging for brands to understand what exactly they are selling through the sponsored brand unit—merely that it resulted in a certain number of sales—and they haven’t been as successful as other units from a performance standpoint.
That being said, sponsored brands can be tied to category pages or a brand’s store page, which have better conversion rates and yield larger basket sizes.

Sponsored Display

Amazon

The last cost-per-click (CPC) option is sponsored display ads, which are still in beta. They allow advertisers to run display campaigns after selecting an audience, setting a bid and a daily budget and choosing products to advertise. Amazon says ad creative is “automatically generated with the same familiar features as sponsored ads, including a product image, pricing, badging, star rating and Shop Now button that links back to your product detail page.”
Amazon also says these ads may appear both on and off Amazon on desktop, mobile sites and apps based on the audiences or product targeting strategy used.
“It gives us a very basic set of retargeting [tools for] people who have been to product pages,” Bowman added.
That being said, Jason Hartley, senior vice president and national head of search and paid social at digital marketing agency 360i, said challenger brands are more likely to do more with sponsored display ads in order to “be wherever you can be and just to get yourself out there.”
In addition, Ruegger called these banner ads “weird” because the placement is random, so they are “kind of used for excess budget or just kind of different reach [or] targeting, but we haven’t really put any money in that.”
Marsten, too, said “the jury is out on that one.”
What’s more, Ruegger said the unit needs to scale “because the price is going up considerably and they don’t have the inventory to support it,” so he suspects it will get moved into Amazon’s DSP.
Bowman, too, expects Amazon will continue to innovate with retargeting in sponsored display.
Stores
Amazon Stores is a free self-service offering that allows brands to create personalized pages, URLs and brand experiences on Amazon.com.
Amazon says stores help customers discover products and give advertisers a better understanding of their sales and traffic sources.
They have better conversion rates and result in larger basket sizes—and the brands that use them can see how it is driving new customers and incremental sales, Bowman said.
“You can tell your story, show your whole catalog, get your own URL, and if you want to have ads on Facebook or Google or Instagram or any other channel where you can link to a website, you can run them and drive them back to Amazon,” Bowman said.
Ruegger noted stores give brands more control over the customer experience as they can direct shoppers to sections and products. What’s more, Bowman said they help brands that don’t sell on their own websites offer more of a direct-to-consumer (DTC) experience.
But stores are mostly for big brands with the resources and the content for it, Hartley said.
“As people get more and more comfortable with the concept and think of it as a mini website for the brand, different behaviors emerge,” he added. “If you’re in transaction mode as shopper, you’re not going to be exploring, but if you’re in more of a discovery mindset and if you’re a brand that is smaller but wants to make a mark, having that content [could help].”
A year ago, Ruegger said advertisers were spending about 90% of their budgets on sponsored products, but now more money has started to shift to sponsored brands and stores.

Amazon DSP

Amazon DSP is a demand-side platform that enables advertisers to programmatically buy display and video ads and use Amazon customer data to reach their target on and off Amazon. It was ranked the No. 1 DSP—ahead of the Trade Desk and Google—in a recent advertiser survey.
According to an Amazon product video, Amazon DSP gives users access to exclusive audiences across Amazon’s sites, apps and devices, as well as third-party sites and apps, like IMDb, “hand-picked quality publishers and trusted brand-safe environments” and open exchanges.
Amazon DSP also offers insights and performance reporting, as well as closed-loop reporting for advertisers that sell products on Amazon.
Amazon DSP has self-service and managed-service options. The latter “typically requires a minimum spend of $35,000.”
Agency reps say the CPM (cost per 1,000 views) is $6 to $7 for the DSP, which is slightly higher than the other exchanges, but Amazon’s quality makes up for it.
One agency executive noted these display and video ads are tough to estimate because there are a lot of dimensions that can influence cost, like audience sizes, added data cost and type of video unit. It’s also different if it’s Amazon’s own inventory versus the open web and depends on the arrangements they make with clients for broader brand and media activations and partnerships, the executive added.
According to Tinuiti, one of the “major perks” is the ability to use Amazon customer data to serve ads to past purchases and other shoppers likely to purchase a given brand’s products on Amazon-owned network sites. And, across the board, Tinuiti said it has seen promising results from retargeting through Amazon DSP.

Display Ads

CPM display ads and retargeting come in to play for endemic advertisers after the search ads—sponsored product, sponsored brand and sponsored display—have been taken care of.
But non-endemic advertisers can also buy these display ads.
“When customers click your ad, they can be taken to a product page, a store or a custom landing page on Amazon or to an external website,” Amazon said.
For these advertisers that don’t sell directly on Amazon, Merkle goes straight to these display ads.
“If what they’re advertising is sold on Amazon, they can’t run display ads on Amazon’s owned and operated sites, but they can advertise on the network on any open exchanges and link out to their website,” Bowman said. “The big thing is with the DSP and open exchange display, there are restrictions there. If Amazon sees a brand as a competitor, it won’t let them [advertise].”
So, for example, the department store Macy’s sells a lot of the same products, which means Macy’s wouldn’t be allowed to run display ads on Amazon’s platform because it is seen as a competitor, but, Bowman said, “Macy’s could run OTT ads … because Amazon doesn’t have the same kind of competitive restrictions.”
Macy’s could, however, use Amazon DSP if they started selling on Amazon, like Nike and Under Armour have done.

Video Ads

Video ads are the other ad unit available through Amazon DSP and enable advertisers to share brand messages on Amazon sites like IMDb, devices like Fire TV and across the web.
It’s another option for non-endemic advertisers and, like display ads, has both self-service and managed service options with a minimum spend of $35,000 for the latter.
Hartley said brands with an online video strategy should definitely consider OTT advertising with Amazon—and brands that sell things on Amazon can get “some great measurements you can’t get anywhere else.”
And, like YouTube has become for Google, Fire TV will be a compelling argument for Amazon when pitching its DSP to advertisers, Ruegger added.

Custom Ads

Finally, Amazon offers “tailor-made experiences” like brand integrations, out-of-home executions, events and digital placements to help capture customer attention.
This unit is available to both endemic and non-endemic brands and have included advertisers like grooming brand Remington and movie studio Fox Studios.