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Amazon Advertising Revenue is Increasing – What Does it Mean for Brands?

Amazon Advertising Revenue is Increasing – What Does it Mean for Brands?

– So I wanted to get
both of your thoughts, Joe, starting with you,
about a study that I have in front of me, a recent study that says Amazon’s ad revenue is gonna grow roughly 470 percent by 2023. Where is that figure
coming from in your mind? – In my mind, I think it’s coming from three main areas. I would call it funding,
function, and growth. Funding is what budget
bucket it’s coming from. Typically, Amazon has been controlled by a sales
organization within a company and as it expands as a publisher and more people go to it
just to consume information, I think you’re going to
see more budgets coming from a traditional marketing department. I think it’s coming from an expansion of where they’re getting
funded, sales and marketing. In terms of the function, I think that they’re the dominant search
engine for product searches so that’s pulling money away from Google. I think they’ll continue
to pull money away from traditional search engines because people are going to
Amazon not only to purchase, the low part of the classic funnel, but now more and more for discovery. That’s what the traditional search engines have been used for is discovery and it’s become much more
of a discovery engine. And the last one is just
the growth of Amazon, the growth of the Prime customer, that attraction of Amazon as a place where you’re pretty confident. First of all, you know you’re
gonna find what you want, you’re gonna get it in two days, and you’re gonna get a compelling price. And there’s all the content,
reviews and ratings. They kind of validate your
decision to purchase there. Just that massive growth
in consumer appeal. – I’ll also add some context from my end. So I think maybe two or three years ago, a lot of the incremental
budgets we saw with advertising were coming from trade spends so, most brands were still looking at Amazon first and foremost, really
maybe exclusively as a retailer. They were saying, well their
target business was flat and maybe it was down. Maybe another big retailer was down. Amazon’s up 30 percent. So let’s shift some of
that budget into Amazon but still basically using those sort of retail trade spend budgets. I think more and more, you’re
still seeing those budgets shift because Amazon
is still in most cases growing in terms of actual sales volume and can justify that, but you’re also now, to Joe’s point, seeing more
of those traditional marketing budgets and actual
advertising budgets shift incrementally to the trade budget. You’re layering those on top of Amazon. I think what becomes an
interesting problem to tackle or a new challenge for these big consumer product brands is that they basically have, it sort of throws your
whole budgeting process out because it used to be that you’d spend your advertising dollars with advertising platforms and you’d spend your retail dollars with retailers and there was no overlap. It was one or the other. Now Amazon has released
the first company ever who is big in both of those domains. So the question is, sure you can spend from both of those parts of the companies but you have to manage
the budget holistically and you might then have
competing interests between those two parts of the company. So how do you kind of rectify that in a way that doesn’t cause
too much internal conflict and fully maximizes the
potential on the platform? And I think we’re seeing
more and more companies now kind of be realistic about that
in that they do need to have a unified approach but it’s been kind of an interesting dynamic to watch. I don’t want to put you on the spot, but if you had to come up with, you know, you have a brand coming to you and saying this is how Amazon is doing things now. What advice would you give
to brands coming to us say? – I would say you have to embrace the idea that Amazon is a big retailer and they’re a big advertising platform and they are the country’s
premiere product search engine all at the same time. And if you can really be honest about that and embrace that, at least
that gives you the foundational understanding as an organization to then build capabilities,
budgeting processes, et cetera on top of that. I think, frankly, a lot of
brands aren’t even there yet in terms of that general
understanding so I think that’s a really important first step and then obviously every company’s gonna do things differently but typically what the
lack of that understanding results in is just brands
not spending enough. And you know, it’s easy
for the agency to sit there and say hey, spend more money but the reality is if
you were looking at just the incrementality, the
amount of customer reach, the amount of engagement in
the platform and research, the access to different targeting
capabilities, et cetera, most brands, even today,
are still underspending on that platform. – I wonder if, I mean,
you’re much more of an expert on the retail side than
me but when I look at it from my perspective,
one of the limitations on spend from a traditional
retailer point of view has been just that
physically limiting shelf and Amazon is literally the endless shelf. As long as the company is making stuff, that shelf will be there
for you to sell it on. That’s why retail budgets, it’s the limited shelf but
it’s also limited foot traffic. I mean, you only have so many people walking into a Target
store on a given day. Maybe if you do a really
great job of marketing within that environment,
you can get more people to walk into that store
just to buy your product and sure, there’s some impact on that. The reality is, you’re always
gonna be somewhat limited to just the overall amount of traffic, doors, and shelf space you have. On Amazon, you have 60,
70, potentially 90 percent depending on kind of the demographic that you’re going after of your customers engaging on the platform
on a regular basis. They’re there. They may not be looking at your product or buying your product, but
they’re doing something. They’re watching a movie,
they’re buying a book, they’re buying school supplies, whatever. And then the key is to
get in front of them and show them your product and obviously have them
convert but it just means that the upside is so much
greater than it would be even in a large traditional
retail environment. So it just changes the whole concept of how you should be doing budgeting.

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