Five Reasons Why Amazon Is the Third Largest Digital Advertising Platform

If you’ve glanced at the headlines recently, you likely know that Amazon has far exceeded expectations when it comes to its digital ad business, and is set to be the world's third largest digital advertising platform, according to market research firm eMarketer.

After revising its previous estimates, eMarketer now predicts Amazon will gross $4.61 billion in ad revenues in 2018 -- a vast increase from previous projections that had it $2.89 billion, attributed in part to a spike in growth from a reclassification of revenue. According to eMarketer’s revised estimates, the online retail giant will surpass Verizon Communications Inc.’s Oath and Microsoft Corp, firmly placing it in the No. 3 spot in the world for digital advertising revenue behind Google and Facebook.

That said, it still has a ways to go before reaching the league of either of its archrivals. But while the online retail giant still comprises only about 4.15 percent of total U.S. digital ad revenue, it is experiencing a steadily growing upward trajectory, while Facebook and Google revenues are simultaneously in decline.

That means it will also be actively be taking share from its two major competitors for the foreseeable future. By 2020, eMarketer predicts that Amazon’s growing digital ad business will continue to increase by more than 50 percent annually through 2020, ultimately totaling 7 percent of all US digital ad spending, while Facebook’s and Google’s share will decrease to 20.8 percent and 35.1 percent respectively. While Amazon isn't yet considered a serious threat to the Facebook-Google digital ad duopoly, it appears that the global retailer is nipping at their heels, and is on track to becoming a serious contender in this space.

eMarketer cites strong “organic growth” as one of the most significant reasons for Amazon’s rising digital ad revenues -- which aren’t destined for a slowdown anytime soon. In short, companies are increasingly buying ads on Amazon. And they’re clearly reaching the right audiences.

And over time, merchants will be under increasing pressure to buy up even more advertising space to compete with other merchants, lest they lose visibility in the search results to sponsored listings. As such, Amazon is now taking advantage of this wide open playing field as every merchant on the platform could potentially be an advertising customer as well. Looking ahead, that untapped potential will continue to be a powerful driver for growth in its ad business as merchants look to capitalize on Amazon’s copious search traffic.

So, what can Amazon’s bullish strides in its digital ad business be attributed to? As with almost anything, it turns out, there’s no one simple answer. But its continued digital ad success can be sourced to the right mix of a rapidly evolving digital advertising environment, some astute accounting changes and a clear, holistic understanding of their customers’ buying behaviors and relationship to technology.

It’s Easier Than Ever to Buy Ads on Amazon

It wasn’t that long ago when consumers regularly labeled Amazon’s ad buying process as confusing, frustrating and difficult. That all changed in September, when Amazon announced that all of its ad buying and reporting would fall under the new, fully consolidated umbrella dubbed “Amazon Advertising.”

The comprehensive Amazon Advertising moniker now entails Amazon Marketing Services, Amazon’s suite of CPC ad formats; Amazon Media Group, which sells display advertising on Amazon properties, and Amazon Advertising Platform. In addition, Amazon has recategorized its former Headline Search ads -- a CPC format that serves up multiple products on search result pages -- to Sponsored Brands.

Many of Amazon’s accounting changes reclassify several advertising services from cost-of-sales to revenue, and, according to eMarketer, were the primary drivers for eMarketer’s adjusted projections. But the net-net is that Amazon has streamlined and simplified its entire digital advertising portfolio for its customers, making ads more efficient, accessible and targeted, increasing their value and giving a big boost to advertisers’ ROI.

Users Start - and End -- Their Product Searches on Amazon

Once upon a time, Amazon was a place that would-be consumers landed after extensive and exhaustive product searches. Not so anymore. Now more than ever, users are skipping over Google, which might eventually be perceived as a sort of digital middleman. Instead, they’re going right to the source -- Amazon -- to begin their product journey -- which bodes well for advertisers looking to target specific demographics and other types of dedicated shoppers.  And because Amazon is first and foremost an online retailer, consumers are ending that journey there too with a purchase.

Amazon Expanded Its Mobile Advertising Business

With the explosive reliance on smartphones as consumer buying tools, retailers need to be heavily investing in their mobile advertising strategy. This hasn’t been lost on Amazon, which has bulked up its mobile ad business to accommodate an anticipated groundswell of users. Thus, in its report, eMarketer also projects that Amazon will increase its mobile ad revenues 242 percent to $1.61 billion in 2018, which will give it 2.1 percent market share of the mobile ad market. Naturally, its mobile ad play will only serve to build out its expansive digital ad business.

Amazon Offers Increased Consumer Insights

No one can argue that better data means stronger insights -- and that includes Amazon’s. Another reason Amazon is increasingly attractive to advertisers is because it provides access to consumer purchase data. And advertisers looking for insight into the impact of their ad buys on purchases have that information right at their fingertips. Google and Facebook, on the other hand, don’t offer the same type of granular insights. And in an increasingly data-driven environment, advertisers need every ounce of insight to refine their digital advertising strategy, better target their consumers and gain an edge on their competitors -- or risk being left behind.

The Power of Voice

All this growth is great for advertisers. But there’s yet another factor that might contribute to Amazon’s rise in the digital ad space -- voice. It’s no secret that Alexa-powered devices like the Amazon Echo are becoming increasingly common household items, and as such, the eCommerce giant has a strong potential to lead the charge in delivering voice ads to users.

Currently, Alexa directs inquisitive users to products that are well-reviewed on its site, as well as available on Prime. But taking that a step further, Alexa’s “expert” guidance could potentially direct users to well-placed programmatic voice ads, according to a recent report from CB Insights, opening up even more opportunities for advertisers to more acutely target desired audiences.

So, What Does All This Mean For PPC?

Ultimately, Amazon’s steady upward growth trajectory opens up a host of new opportunities for PPC advertisers. The biggest reason? PPC advertising isn’t just about targeting more consumers or bigger audiences -- although that often contributes to the success of a campaign. But at the end of the day, it’s about optimizing marketing efforts to target the right consumers -- the ones that will not only click, but convert.

And if there’s anything that Amazon can do well, it’s gathering dedicated audiences. In general, people don’t go to Amazon just to surf or browse. Many -- perhaps the majority -- go to the site with a mission. They basically know what they want, without perhaps knowing the right brand, style, size or color that would specifically suit their tastes. Thus, Amazon turns up an array of products that it deems are a close fit to the users’ description. As more users leverage organic search to narrow down their choices, their attention will be increasingly drawn to paid search opportunities as well. What’s more, Amazon is paying attention to the way today’s consumers shop, and is doubling down on creating new and unique channels through which advertisers can reach those highly targeted -- yet untapped -- audiences.

Amazon’s comprehensive advertising business and means of gathering the right audiences aligns well with the principles of PPC that include increased efficiency and ROI. With a streamlined organization, as well new platforms, technologies, and data insights with which to keenly vector in on both advertisers and buyers, the online retail giant will likely be making noticeable dents in this space in the near future.

And PPC advertisers will be watching its path with interest.