Commentary

Amazon's Data Turns The Duopoly Into A Triopoly

There is a new kid on the proverbial block that is about to make the duopoly a triopoly.

Amazon has come from virtually nowhere to be in a position to account for 10% of all digital advertising in the United States by 2021 -- a mere two years away.

That is the latest prediction from eMarketer, whose figures show that the ecommerce giant saw American digital ad revenues soar 122% last year and will see them increase by a third during 2019.

This growth is due to be maintained in 2021 before levelling off at around 28% in 2022.

To put that into perspective, that is outperforming the average rise in digital advertising spend in the market roughly by a factor of four this year and next.

It's not quite rubbing shoulders with Facebook and Google -- but 10% of all spend within two years is a pretty meteoric rise, I think most would agree.

The reason? Well, as usual, it's pretty obvious. I was tasked with looking into Amazon's amazing rise recently, and the most obvious answer is that Amazon is the place to buy -- so why wouldn't advertisers pay to appear at the top of search results and in ad units?

eMarketer reveals that the split on Amazon ad revenues, in case you were wondering, is about 70% for search and 30% for display.

More to the point, if you think about discovery. Facebook knows what people are into and might be likely to buy, and Google does a good line in letting advertisers know what people might be interested in purchasing.

Facebook, for me, is top-of-the-funnel -- it's about awareness. Google is about awareness and discovery and possibly consideration. 

Amazon, however, is an ecommerce powerhouse at the tip of the sales funnel. People go there to buy, so you know the hit rate of reaching out to searchers who click through will be good.

Crucially, it has the data. It knows not only what a person is searching for, but each person's purchasing history and browsing behaviour. That is hugely valuable for knowing who is in market for which particular products and has to be immensely powerful for propensity modelling. 

Another point that experts have reminded me of when we talk about Amazon is that people are signed up to the service. This is all first-party data that it is big enough not to have to share. It can keep everything it knows about its users behind a walled garden in a way that is similar way to how Google and Facebook operate.

As such, there is little concern for privacy because people are actively telling Amazon what they want to buy and they know purchases are stored against their log-in credentials. 

As Google and Facebook are embattled in privacy and regulation cases, Amazon looks to be in a better place. Sure, there are question marks over working conditions, its tax arrangements and how transparent it is with regard to how it is suggesting some items over others -- but compared to the duopoly, its troubles would appear to be on a smaller scale.

Once when talking to some bankers about this, they said they admired Amazon for doing just enough to be massive but still not too big to prompt probes and calls for it to be broken up.

The tactic -- if it is indeed a chosen tactic -- appears to be working. The latest eMarketer predictions did see a slight downward revision from 53% growth for 2019 to 33%. But even so, when a company is growing at four times the rate of the market, it can rest assured that it's on course to hit the 10% US market-share threshold that has been in its sights for the past couple of years.

Everybody in digital marketing was suggesting that Amazon would one day be a force to be reckoned with for digital ad spend. That it should have happened so quickly is quite mind boggling.  

Next story loading loading..