[Guide] How growth of advertising impacts Amazon sellers
Ecommerce ad spend rose 115% (Q3 2019 vs. Q3 2018), according to Marin Software. The key player in this growth was Amazon, the leading digital retailer and one of the most-visited web properties in the US.
According to Emarketer, by 2021, nearly one in 10 US digital ad dollars will go to the Amazon platform. As a consequence, being on top of the ecommerce world may soon equal being on top of the Amazon search results. This, however, will go far beyond organic marketing and sellers must adapt to this new reality.
In this article, you’ll learn about:
- Ecommerce research & data pointing to the key drivers in the growing ad spend in ecommerce & on Amazon
- The changing dynamic between organic search and advertisements
- The fast-changing advertising reality on Amazon and how sellers can adapt to it by finding less competitive markets and identifying international sales opportunities.
Advertising on ecommerce platforms
Digital ad spend is constantly increasing. It’s forecast to make up almost 65% of total media ad spending by 2022.
As a result, the dynamic between organic and paid search is changing. In fact, paid search has started to dominate the digital landscape, becoming a weapon to outwit competitors.
According to Patrick Smarzynski, Co-Founder at Webinterpret, today you definitely need ads to have satisfactory visibility and conversions. It’s not a matter of ‘if’, it’s a matter of ‘when and how’.
Advertising and promotions are playing a bigger and bigger role on ecommerce platforms, such as eBay and Amazon.
Watch the expert interview below to find out more about the changing marketplace model.
Amazon’s PPC model differs from some other marketplaces. For instance, Promoted Listings on eBay supports the cost-per-sale funding model. The seller is charged a fee if an item sells via a Promoted Listings action.
Growth of Amazon Advertising
Amazon’s advertising business is growing at a rapid pace, especially as it diversifies its ad products. Amazon DSP (Demand Side Platform) has allowed sellers to programmatically buy display and video ads at scale and target audiences on Amazon.com, Fire TV, IMDb.com, Kindles, apps, third-party sites, apps, platforms and so on.
According to Amazon Ads Benchmark Report, 60% of Amazon DSP spend was attributed to campaigns focused on driving customer awareness.
Amazon is now the third-largest digital advertising platform in the US after Google and Facebook. According to Emarketer, Amazon accounted for almost 9% of US digital spend in 2019 (increase from 6.8% in 2018). US advertisers are estimated to spend $10.92 billion on Amazon’s platform in 2020.
Amazon vs. Google vs. Facebook
Currently Amazon owns significantly less market share than Google and Facebook. However, in the near future the long-standing advertising duopoly of Google and Facebook may turn into a triopoly with Amazon.
Amazon’s advertising revenue skyrocketed by 250% in Q3 2018 compared to Q3 2017. Further, in 2018 Amazon was one of the biggest players in Google’s search and shopping channels. The company saw impression share climb in several retail verticals.
Advertisers see Amazon as a source of growth. This is the place where shoppers go to actually buy stuff as opposed to simply discovering or researching a product, like on Facebook and Google. Thus, Amazon’s goal is not to display information search results, but to make sales by showing high-converting and best-selling products relevant to the query.
According to Allie Decker, a content creator at HubSpot: “Today’s consumers don’t just use Amazon to buy stuff. They also use it to check prices (90% of consumers use Amazon to price check a product), discover new products (72% of consumers visit Amazon for product ideas), and start product searches (56% of consumers visit Amazon before any other site).”
Amazon’s ad business growth: ecommerce research & data
According to Marin Software’s Q3 2019 Digital Advertising Benchmark Report, ecommerce ad spend rose 115% in Q3 2019 vs. Q3 2018 and was up 51% vs. Q2 2019. It was driven largely by Amazon, a seasonal surge for Prime Day and a strong back-to-school season.
Due to increased market saturation, the cost per ecommerce click was up 10.5% in Q3 2019 vs. Q2 2019. Sponsored Brands accounted for about 20% of the ecommerce ad budgets in Q3. Due to the prominent top-of-page ad placement, the CPC for Sponsored Brands is slightly higher (27%) than that for Sponsored Products.
In short, Marin Software’s Q3 2019 Report highlights:
- Growing investment in ecommerce advertising
- New quarterly high in Q3 ad spend
- Record-breaking Prime Day
- Strong back-to-school season
- Prominent role of mobile.
Other findings from Marin’s report from the past few quarters include:
- In total, retailers spent 40% of their budgets on shopping ads
- The number of clicks on shopping ads increased 14%
- Search click volume grew 14% percent.
According to Wes MacLaggan, SVP of Marketing for Marin, “Amazon continues to impact and shape advertising trends. Every brand of retailer has to have an Amazon strategy. It’s obviously a great channel and where people go when they’re searching for a product. There’s a cost for retailers of not being on Amazon”.
Other reliable sources and reports provide further evidence for Amazon’s prominence in the ecommerce advertising playing field.
According to Business Insider Intelligence’s “The Rise of Amazon Advertising” research report:
- Amazon’s ad revenue growth is accelerating year-over-year (YoY). In 2018 Amazon generated $10.1 billion in ad revenue, up 117% YoY from $4.7 billion.
- Amazon’s ad business will grow overall as it diversifies ad offerings beyond display ads and across its variety of popular platforms (Amazon.com, Twitch, mobile app, IMDb’s Freedive) and devices (Fire TV, Echo).
- By 2023, Amazon could account for as much as 14% of total US digital ad sales, per Business Insider Intelligence estimates, based on eMarketer data.
Organic search vs. advertisements on Amazon
Today, being first in organic results may not give sellers the best results on Amazon. As Amazon and other marketplaces have increased the prominence of paid ads, the first organic result may not appear until the middle of the page, or even closer to the bottom!
It’s no longer enough to simply be on Amazon and occasionally post an ad. To outperform competition, sellers need to embrace and invest in new advertising products and opportunities.
It’s also worth adding that advertising has an impact on organic rankings. According to Patrick Smarzynski, there’s a definite relationship between ads and organic search.
For example, Amazon wants to prioritize the products that are likely to sell the most, i.e. products with good sales and feedback history. So when sales and the amount of feedback improve, products climb in organic rankings.
Advertising and Amazon search engine optimization can work together to increase sales. This means that when a product ranks better, depending on the competition, you can reallocate ad investments to other products and other keyword phrases.
The future of advertising on Amazon
In the future, Amazon and other marketplaces are likely to be even more competitive, especially on established markets. Due to increasing competition and higher cost-per-click on specific markets, the advertising reality on Amazon is likely to continue to rapidly evolve and sellers will need to be up to speed.
As a result, sellers will have to look for alternatives on markets where it’ll be easier to compete. According to Patrick Smarzynski, selling globally will simply become a must for sellers to be able to compete and to benefit from economies of scale.
On Amazon you can sell on markets with less competition and more sales potential. These are often foreign markets where local online sellers aren’t able to offer specific products or meet the local demand. For example, in Italy many products have to be imported from abroad, e.g. clothes from foreign brands or vehicle parts for cars.
Webinterpret’s ecommerce solution helps sellers leverage ads on different international markets. With access to data and vast ecommerce knowledge, we can help merchants tap into their actual sales potential to achieve the best possible ROI.
The best time to prepare for the future is NOW!
Download the complete Amazon Advertising Guide & stay ahead of the ever fiercer competition!