Online shopping

Amazon pushes for local ad growth as online shopping slows

Amazon is betting on new ad products — like a local ad business — to generate revenue as e-commerce growth slows.

In April, Amazon announced that growth in its core e-commerce unit fell 3% at the end of the March quarter. But Amazon said its advertising division’s profits rose 23% to $7.8 billion. That’s significantly stronger than Amazon’s overall revenue growth of 7% over the same period.

In turn, Amazon is looking for new ways to grow its advertising business. Last week, Business Insider reported that the Seattle tech behemoth had aggressive hiring plans for its local advertising unit. The company has posted new roles and described his role as local advertising manager as a “rare opportunity to join a start-up within Amazon Ads and play a strategic role in building the future of ads.” local”. While the job posting offers few details about what Amazon’s Local Ads product will entail, it outlines Amazon’s priorities amid slowing core growth and rising inflation: bet on new ad products to drive revenue growth and stay ahead of competitors like Google and Facebook. .

“We continue to be very happy and satisfied with the performance of the advertising team and how the advertisement has been appreciated by both vendors and vendors and others who use it to reach our customer base at the time. where they’re considering purchases,” Amazon Chief Financial Officer Brian Olsavsky said during the first-quarter earnings call. But Olsavsky added that Amazon “will continue to roll out new products for sellers to manage their advertising and increase the ability to analyze and calculate the ROI of marketing investments with us.”

“Amazon wants what Facebook and Google have,” said Insider Intelligence senior analyst Andrew Lipsman. “They’ve already built a really good business and they’ve only scratched the surface of what they can do.”

The push to local advertising also comes at a time when tech giants Apple and Google plan to purge their privacy settings and limit the ability of rivals like Facebook to track user behavior. Facebook said Apple’s app tracking transparency feature will cost the company $10 billion in 2022.

Historically, Google and Facebook have been the go-to places for small businesses to advertise. According to a 2021 Deutsche Bank report, 75% of Facebook’s ad revenue came from small businesses. So, as Facebook’s ad revenue declines, it creates an opportunity for companies like Amazon to create ad products that help small businesses reach local customers.

“In this new privacy-centric climate, platforms that have their own first-party data and aren’t reliant on those privacy policies have a big advantage and that’s one of the areas where Amazon really shines. “said Jason Goldberg, director of commercial strategy for Publicis. said. “It has a lot of first-party data on buying behavior, which is especially valuable for advertisers.”

Goldberg added that while Amazon has “done a good job of leveraging this first-party data” so far, “we’re probably still in the early innings of a nine-inning game in terms of capacity. ‘Amazon to take full advantage of its first-party data’. The data.”

The new era of digital advertising

Amazon began experimenting with ads in 2012. Small and medium-sized businesses were the primary buyers of Amazon advertising, Lipsman said. Over the past 10 years, the Seattle-based tech giant has become the third-largest digital advertising platform in the United States, just behind Facebook and Google.

Amazon uses search queries from its consumers to help target advertisements on its website. Much of Amazon’s ad revenue comes from its flagship retail site, where businesses pay to be listed as a “sponsored product” at the top of search results, according to a recent study by the analytics firm. Sellics e-commerce.

Amazon also offers video ads, ads on Amazon’s FireTV device, and Amazon’s cardboard delivery boxes. Amazon also assists brands with online advertising on sites it does not own. For brands looking to reach a younger demographic, Amazon offers a wide variety of channels including Prime Video, Fire Tv, Kindle, Alexa, its Echo devices, Twitch, for growth.

“Amazon’s advertising ambitions go far beyond turning more of Amazon into advertising space. This is where I think efforts like local ads will play a role,” said Marketplace Pulse Founder and CEO Juozas Kaziukėnas.

There are other near-term opportunities for Amazon to expand its business beyond local advertising. Later this fall, Amazon will make its first big foray into select TV commercials when its streams National Football League matches on its Prime Video streaming service.

“It will appeal to major national advertisers in a way we’ve never seen before. And it’s also sure to attract non-endemic advertisers on Amazon,” Lipsman explained.

Amazon’s new fleet of brick-and-mortar stores, like its Amazon Fresh grocery stores and its recently launched fashion store, also potentially offer advertising space.

Amazon has been one of the biggest winners of the last pandemic, pointed out Miya Knights, director and publisher of trade publication Retail Technology. Knights added that Amazon would benefit from integrating its e-commerce weight with advertising.

“I don’t have a one-click login to buy anything from Facebook or Google. Amazon can definitely use its reach and the fact that they’re closer to what is a transactional business than Google and Facebook. Do of their advertising presence the first step of the customer journey leading to a transaction and make that seamless,” added Knights.

But social media giant Facebook has a larger and more locally diverse advertiser base than those who just have something to sell.

“Amazon is taking a market share from Facebook in that sense, but I don’t think that’s going to be enough in terms of being able to attract entertainment, hospitality, charities, all those little little local businesses that depend on really about Facebook and the community aspect that Facebook adds as added value,” Knights explained.

Amazon’s local ad unit may also lack some of the geographic advantage offered by Google. “Amazon’s new local advertising business has some disadvantages compared to Google. Google already has a lot of geographic search terms in its search engine that Amazon doesn’t,” Goldberg said.

Yet, historically, Amazon has been a very big threat in every market it enters.

“In the early days of Amazon’s evolution, people thought they were good at selling books, but they’ll never be good at selling electronics or ever good at selling clothes,” Goldberg said. “In every business Amazon has entered, there have been incumbents who felt they had unique advantages that Amazon would not be good at tackling. But Amazon has shown otherwise.