How Amazon is becoming the third force in advertising, making the duopoly an oligopoly

Amazon's growth as an advertising platform

As Amazon wields a growing power as a search engine, it is also becoming a more compelling advertising platform and, as a result, is posing the first real challenge to Google and Facebook, which have long commanded digital advertising budgets virtually unopposed. Of the two, Google initially stands to lose more, but as Amazon’s ad offerings expand, Facebook could also bleed ad dollars.

At the same time, it is unlikely Amazon will overthrow this so-called 'duopoly' until it starts to do more with online media and command a larger chunk of consumers’ time. So, instead, we’re likely to end up with three digital advertising powerhouses instead of two.

Here’s how that’s likely to play out:

Amazon the search engine

Research shows many consumers turn to Amazon when looking for information about products. Figures vary from 31% to 55% when it comes to first-time research – and a study from marketing technology company Kenshoo found 72% of people visit Amazon at some point before making a purchase when they want to research products online.

According to Collin Colburn, analyst on the B2C marketing team at market research firm Forrester, use of Amazon as a search engine will continue to grow for two reasons:

Amazon is built like a product-specific search engine – consumers can search for anything product-related and get relevant results better and quicker than they can with Google.

Second, Colburn noted Amazon is unique in that its product listing pages have virtually everything a shopper could want to know – including price, description, pictures and reviews – which gives customers a one-stop shop for research even if they aren’t actually going to buy from Amazon.

Nathan Grimm, director of marketing at Seattle-based agency Indigitous, agreed Amazon's share of search will grow.

“They have built a sizeable lead in selection and service over their competitors and continue to grow their market power,” he said. “As retail stores continue to struggle and close down, even more business will shift to Amazon. Their share of search is very much a function of them being a preferred channel for purchasing products. Until someone else upsets their model, it will grow.”

In addition, Kevin Mannion, chief strategy officer at business intelligence firm Advertiser Perceptions, said he believes Amazon has growing influence on how advertisers view search.

“Our data shows that advertisers are increasingly ready to shift down their spend in traditional digital search and [are] more likely to see alternate search opportunities. Amazon is one. And perhaps the most important,” he said. “Searching within the Amazon environment is essential to the data story that Amazon can share with marketers and agencies. And as the shopper leaves [its] walled garden, Amazon is able to track and retarget shoppers who have explored a product category and…considered contender brands.”

Amazon the ad platform

It’s this knowledge about consumer behavior that makes Amazon such a powerful foe against Google and Facebook, which have long ruled the digital marketing landscape.

In fact, Advertiser Perceptions’ Q4 2016 Programmatic Intelligence Report found Amazon’s nascent ad business was the most-used DSP and the most preferred DSP – and Mannion said Amazon also performed well in a forthcoming study, confirming Amazon is a “significant player” among DSPs. That’s in part because it has its own exclusive placements on Amazon.com and other Amazon properties that other DSPs can’t reach, as well as because Amazon can offer targeting based on what consumers are shopping for on Amazon and it can report on sales, as well as on how purchase and search behavior changed while ads were running.

In fact, at Dmexco, Marc Pritchard, chief brand officer at P&G, said advertising on platforms like Amazon enable the brand to better understand consumer behavior and deliver ads when they are most likely to result in sales. (A Samsung rep at Dmexco, however, told The Drum the brand respects Amazon, but sees it primarily as an ecommerce platform rather than a marketing platform.)

Amazon v. Google

Of the two players in the duopoly, Amazon is more like Google – which means they’re now squaring off for consumers looking for information.

And, according Joe Migliozzi, managing director of e-commerce and retail media unit Shop+ and lead of media company Mindshare North America, Amazon’s business model is not dependent on advertising revenue, which gives it the freedom to change the competitive landscape.

“For example, Amazon Echo's main ambition is to sign up more Prime subscribers and sell more goods, not to sell ads,” he said. “However, Echo has disrupted the search business both by voice, as well as the singularity of its answers: There is no room, or at least very limited space, for paid search advertising in a world of single voice answers to queries.”

Jason Hartley, senior vice president and national head of search and paid search at digital marketing agency 360i, agreed the challenge from Amazon is significant because it has disrupted Google’s virtual monopoly on search – and as Google loses market share in product searches, it is also losing revenue from the ads it used to serve consumers making those searches. And, as Amazon does a better job of monetizing its own searches, Google could see further losses in the consumer product and retail budgets it used to command.

In addition, Hartley noted that advertising is a means to an end for Amazon, which wants to sell more products. For Google, however, advertising is the end “because, with few exceptions, they don’t sell anything or make any money off the goods they direct people to via searches,” he continued.

At the same time, Hartley also noted Amazon has some limitations – for example, if it doesn’t sell a given product, the brand behind it can’t advertise on the platform. There are also verticals like travel that Amazon probably won’t touch.

“There will be a lot of competition for traditional retail and CPG searches in the future, and Amazon will be on par in terms of search volume, but not necessarily advertising because, again, it’s not a revenue priority for them, selling the product is,” he added.

Amazon v. Facebook

Facebook also stands to lose market share to Amazon, but it isn’t as much of a direct competitor as consumers use the platform for different reasons. Facebook could, however, still be hurt if budgets moved to Amazon as its ad offerings expand, a 360i rep noted.

“Until Amazon starts competing more for online media they aren't directly challenging Facebook,” Grimm said. “Amazon does have inroads with Amazon Video and Amazon Music, but they don't have a social network or a news portal with wide adoption.”

The Oligopoly

Hartley noted Amazon is likely to follow a similar path as Facebook and Google in digital advertising.

“In the next year, I think you’ll see the maturation of the digital advertising products on Amazon, which will mean early gains for those who understand how the system works, followed by a rapid rise in competition as more players get to know how to leverage the advertising opportunity effectively, and then in the crowded space it will become a lot harder for brands to win and create ROI,” he said. “This is the same trajectory Facebook and Google faced in their early days. But with Amazon’s growth, there is probably another three-to-five years of being able to find strong performance without particularly sophisticated strategies.”

However, he also noted Amazon is known to move quickly, so this time period could be compressed if Amazon prioritizes advertising and works closely with brands and agencies and “shares data more effectively.”

Grimm believes that Amazon can carve out “a nice chunk” of the digital ad market by serving ads to shopping customers.

“However, consumer awareness and preferences are primarily built elsewhere, so Amazon will have to control a lot larger chunk of consumers' time before they steal a large chunk of ad dollars from Facebook and Google,” he added. “I see them becoming a third pillar of Internet advertising, but not replacing Facebook or Google.”

Colburn agreed that consumers more likely to end up with three powerhouses than two. That’s in part because many companies are investing in Amazon advertising from their shopper marketing or retail teams and not their marketing budgets. This means they’re not necessarily taking dollars away from Google, but rather putting more money in Amazon.

“It doesn’t really change the duopoly – it just sort of props Amazon up more,” Colburn said. “But it doesn’t take share away from Google.”

Additional reporting by Rebecca Stewart.

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