Citing unnamed sources, CNBC reported this week that the e-commerce giant has been holding talks with big consumer companies about running ads on its Alexa-powered Echo smart speakers. Some of the early talks are focused on whether or not companies would pay to be placed higher in searches on the Echo similar to what happens with Google internet queries. Amazon is talking with companies about different promotional opportunities with some currently being tested. In one case Amazon is letting companies reach customers based on what they purchased in the past. In another test, it is letting brands promote their goods without it being tied to past purchases. This is on top of a December report by CNBC that Amazon is testing different advertising products across all its channels. According to CNBC, Amazon offers companies sponsored product ads that appear when searching for a specific product, headline search ads that are shown at the top of the page in search results and a product display ad.
(See also: Amazon Stock Could Drop 20% in First Quarter.)
How Much Overlap?
With Amazon focused on advertising in 2018, Mizuho Securities analyst James Lee said in a research report highlighting an investor call with Merkle RKG, a marketing and data company, that the biggest opportunity for the Seattle-based online retailer is in search. Still, Lee said it shouldn’t be a threat to Google given Amazon’s advertising technology is in the early stages when compared with Google search. "We do not expect the emergence of Amazon's ad business to threaten Google's search business.
Merkle is seeing very little overlap between Amazon's ad customers and Google's. In addition, the use case for Amazon and Google's search is very different," Lee wrote in the note covered by CNBC. He pointed to Amazon’s customer targeting technology. According to Mizuho, it's not at the same level as rivals, and, as a result, monetization is harder for the company. "That said, we believe that Amazon has plenty of headroom to improve its performance and monetization," Lee wrote. (See also: Amazon: 10 Secrets You Didn't Know.)
For Amazon, any headway it makes in advertising will be welcome given that it's tiny when compared to Google and Facebook Inc. (FB), which currently rule the online advertising market. eMarketer is forecasting for Google and Facebook to control 63% of digital ads in 2017 with Google’s share potentially jumping to 80% by 2019. Mizuho has a buy rating on Amazon and a $1,300 price target, which implies a 9% increase in the share price this year based on Tuesday’s close.