By Simpactful Senior Partner, Heather Burgess & Life45 Founder and Owner, Paul Connington

Amazon has had a long-standing strategy of developing systems to run the company’s retail business – and then scaling and monetizing them by offering services to other companies. Examples of this include Amazon Web Services, Supply Chain by Amazon, and Amazon Advertising. Each of these businesses contributes meaningful profit to Amazon and enables faster/better innovation both in these areas as well as reinvestment into other strategic priorities. Taking a page from this playbook, Amazon has announced the launch of Amazon Retail Ad Service, a cloud-based platform that enables retailers to display contextually relevant sponsored product ads on their own websites and apps in addition to DSP advertising solutions. This service leverages Amazon’s advanced machine learning models, trained on extensive shopping data, to enhance ad targeting and effectiveness.

I spent the majority of my career in Brand Management at Procter & Gamble, followed by several years at Amazon, where I worked in Amazon Advertising. While in Seattle a few weeks ago, I grabbed time with Paul Cunnington, the founder and owner of Live45 Digital. The firm specializes in helping brands grow their businesses on Amazon’s eCommerce platforms. Paul previously spent 10 years at Microsoft, where he was a Director for Bing Advertising. He has used that experience extensively to build proprietary solutions for Live45 to help brands manage Amazon Advertising. Below is our combined take on the Amazon news:

Is this New? Plug-in advertising solutions like this are not new. All of the major advertising players and others, like Criteo’s Hook Logic, have been enabling retailers to create and scale advertising solutions quickly. Walmart, Albertsons, and the Carrefour Group are examples of retailers who partnered with solution providers versus doing full in-house development.

Why Could Retailers Be Interested?

  • Enhanced Monetization from Advertisers: In theory, more Retailers can now monetize their digital platforms by integrating Amazon’s sophisticated advertising technology, potentially increasing revenue streams while simultaneously creating a better shopping experience. The key to this is having a platform that advertisers are comfortable using with transparent data that brands trust. This is critical as almost 1/3 of Walmart’s profit is now generated by advertising. Implication: Retailers are likely to jump in, whether using Amazon or another supplier, out of fear they will be left behind.
  • Speed of Implementation: It took Amazon decades to build sophisticated Search and Display Ad solutions. However, off-the-shelf tools are now enabling retailers like the Carrefour Group to launch ad networks with some functionality within as little as 6 months. This announcement opens up better solutions (likely faster, knowing Amazon). Implication: Changes could come very quickly (e.g. in under 3 months).
     
  • Improved Ad Operations: By utilizing Amazon’s machine learning models, retailers can offer more relevant and personalized ads to their customers, potentially enhancing user experience and engagement. The service also allows retailers to manage ad campaigns directly on their sites, providing control over ad placement, design, and volume, which can lead to more effective advertising strategies. Amazon’s reporting capability is miles ahead vs some networks. Implication: Retailers without advertising or even “sub-par” capability today may convert to Amazon’s solution and suddenly offer ad solutions worth brand investment.

What Needs to Be True?

  • Display Click Share Data: Paul frames it well. “Display Ads will be a much easier lift for retailers, but they must be willing to pass back some click share data – while today, Social ads often offer a better ROAS, this could change as privacy concerns grow the value of 1P Retailer data.”
  • Ad-Influenced Search Ranking Algorithms: Amazon’s system is effective in part because it is hard-wired into the company’s Retail search algorithms. Product placement on search results is governed by real-time search data vs curated search results. Paul considers: “For retailers to use Amazon’s Sponsored Ad solution and generate the maximum benefits we call out above, they need to have Retail algorithms that are hard wired into advertising. Amazon is so successful because they can connect ad investment to an increase in sales. This is not a small technical feat or investment. It will work best for retailers that have this, are intentionally re-platforming or who are starting up. This is going to be difficult for the big retailers with custom eCommerce platforms to implement unless Amazon develops a plug-in that alters results based on Ads. If Amazon comes up with solutions for Magento or Shopify, this could take off quickly.”
  • Integration: Amazon and Walmart are highly successful because Advertising is highly integrated into every aspect of their business. The Customer Experience, Merchandising and Retail Operations are tightly integrated and include inputs from Advertising. Adopting or switching to a new advertising solution requires retailers to ensure sufficient integration. “This is what most retailer platforms are not doing today, and that is what made Amazon so different.” It is not clear yet whether Amazon is launching plug-ins that help retailers achieve integration, but we suspect this is likely.

Implications for Amazon and Other Ad Networks:

  • Increased Competition with Risk of Market Dominance: Short-term, Amazon’s entry into the Retail Ad Service market introduces new competition, but arguably could drive increased market concentration with limited choices for brands and retailers alike. Implications: We expect to see some industry shake-up. Heightened competition could cause retailers to adopt new partnerships and drive out some current ad network players. Anticipate regulatory scrutiny and legal action. Conversely, this move could drive better and faster innovation across the industry. Based on the Walmart playbook, we would expect them to react with a fast follow, but they have licensed their capability, which will put them at a disadvantage in this situation.
  • Data Privacy: The integration of Amazon’s advertising technology into retailer sites raises concerns about data privacy and the potential for Amazon to access more consumer or competitive data – which could attract regulatory scrutiny – especially with the privacy in Europe and California. Implication: Retailers will be watching this closely. Amazon is not new to this concern and has undoubtedly planned carefully for it as much of their growth strategy focuses on services that tap into other websites (e.g. Buy with Prime integrations with Shopify). The company claims to manage with firewalls for supply chain and web services – and retailers will need to weigh the risk of data privacy versus the potential profit rewards of introducing a BIC ad network solution.

Implications for Consumer Brands. There are several reasons it warrants close attention:

  • Broader Amazon Advertising Reach (Likely Globally): It’s clear that if this takes off, brands will be able to access a wider audience by advertising on various retailer sites using Amazon’s platform, potentially increasing brand visibility and sales. We believe the bigger implication is that this will unlock Amazon’s Advertising business in the rest of the world, where it is currently constrained by the strength of Amazon.com in each market. This could be particularly powerful in developing countries where ad network development lags the US, China, Europe, and Mexico. Implication: We maintain our stance that understanding Amazon is absolutely critical for global Sales and Marketing teams because Amazon has been establishing the bar to advertising capability – and this is now urgent.
  • More Retailers Focused on Ad Investment: Most of the brands Simpactful has surveyed seriously focused on ad spend for only 4-5 accounts as part of their annual negotiations. However, this could change quickly if major retailers like Costco, Meijer or smaller retailers began to integrate Ad Network spending into Merchandising scorecards and operations. Implication: Sales teams on all accounts need to be trained on best practices for managing Retailer Media as part of comprehensive Retail negotiations. The grocery channel may be the most ripe for this.
  • Comprehensive Capability: Amazon arguably offers the most advanced solution of any network. Leveraging Amazon’s data-driven insights allows brands to target consumers more precisely, improving the effectiveness of their advertising campaigns. Implication: Brands that have leaned into optimizing their back-end systems to ensure success with Amazon Advertising (agency selection, incrementality measurement, Amazon Advertising partnerships) will benefit disproportionately as Amazon retail Ad Service expands because there is a know-how and infrastructure in place they can scale to other retailers.

In summary, never underestimate Amazon – or discount the retailer as a predominantly US and Europe player. The company’s launch of the Retail Ad Service presents significant opportunities for retailers and consumer brands to enhance their advertising strategies through advanced technology and data insights. For retailers, the profit potential of these networks will be tempting. Manufacturers should pay close attention to the adoption by retailers because it could happen quickly, and they must ensure global sales teams are fully trained on retailer media and negotiation tactics. Concerns regarding data privacy, market competition, and the potential impact on existing advertising ecosystems are real, but it could take a while for these to play out.

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