Amazon.com Inc.’s (AMZN) advertising business is gaining momentum, and is rapidly grabbing market share from leaders like Alphabet Inc.’s (GOOGL) Google and Facebook Inc. (FB). Citing the projections made in the recent report by research firm EMarketer Inc., Bloomberg reports that Amazon “will generate $4.61 billion in U.S. ad sales this year, which represents 4.2 percent of the total digital ad market.” The figure is significantly higher compared to the projections of $2.89 billion made earlier by EMarketer. The research firm has attributed the revision to an accounting change by Amazon as well as increased demand.
While Google and Facebook continue to dominate the total $111 billion digital advertising market with a combined 58 percent market share during 2018, they have slipped a percentage point compared to a year ago. (See also, Amazon Ad Business Could Grow to $20B By 2020.)
“Close to Purchase” Helps Amazon Benefit
To a large extent, advertising success lies in converting the digital ads clicks to purchases. Citing that “advertisers are looking for a third option that ties purchase data directly to the advertisement,” EMarketer analyst Monica Peart said that Amazon is nearest to the consumers “at the moment of purchase” compared to Google and Facebook.
Shoppers willing to buy often start their searches directly on Amazon, instead of doing a general web search on Google. With digital ads, Amazon is capitalizing on its marketplace model which hosts millions of third-party sellers. They pay a commission to Amazon for each sale they make through its platform. With more than 50 percent of the products sold on Amazon coming from third-party sellers whose numbers run in millions, Amazon is compelled to provide the best, most visible, above-the-fold product placement to sellers and advertisers who pay more compared to those who pay less.
Online shoppers - who are shown their desired products through such top-placed ads - mostly click the ads with a high probability of completing the purchase. It offers a win-win for sellers as well as Amazon. Sellers-cum-advertisers benefit from sale of goods through right placement, while Amazon benefits twice – it earns revenue for displaying (and from click-through on) the ads, as well as a commission on each sale.
The foray of the Seattle-based company into groceries has also bumped up its ad revenues. Leading FMCG brands like Procter & Gamble Co. and Coca-Cola Co. want to maintain brand recognition on the site, even if their products don’t lend themselves to online sales, Timothy Seward, chief executive officer of e-commerce marketing firm ROI Revolution told Bloomberg.
Drawing parallel with the brick and mortal retail stores, Seward added that “All of the major brands usually sold in Walmart and Kroger have to be on there (Amazon).” (See also, Amazon to Challenge Google, Facebook in Online Ads.)