Google and Facebook command 60% of the $107 billion online advertising business, but growth has stalled, and Amazon is stealing market share. Amazon recently acquired ad-server company Sizmek to boost capabilities.

Is Amazon becoming a serious threat to the duopoly?

What are Amazon’s growth intentions?

Amazon continues to pour large investments into Advertising this year (2019). Our data shows roughly 800 open positions in any given month. The number of new positions in August is up +22% MoM and +34% YoY; this typically accounts for ~20% of all open positions.

Positions are split halfway between software development roles and sales/business development roles. India, China, Japan and Slovakia (Europe) have the most business development openings beyond the United States. It’s clear Amazon intends to continue improving their product offering while expanding market share. They are investing for continued growth and actively trying to steal share from Google/Facebook.

thebattleofgiants.com

What’s the problem?

Buy my headphones; not theirs.

As a seller, my biggest pain point would be to have shoppers choose my products in a sea of other similar products online. How do I get customers to pick my headphones over the 80,000 other headphones sold on Amazon? Or the 1M+ distracting headphone related stuff on Google? 

Amazon solves this problem by providing a set of advertising tools and an audience. Just like Google. The tools themselves are not revolutionary: sponsored search results, display ads, branded stores. Amazon’s audience on the other hand is uniquely appealing.

Visitors to Amazon.com look at 2x the number of pages and spend 50% more time than visitors to other mass merchant websites. Amazon also receives tonnes more traffic. Shoppers visit Amazon.com 8x more than Walmart.com, 24x more than Target, and 44x more than Costco.com. Consumers perceive Amazon as a great place to both discover and research products. Exactly when sellers want to be noticed.


AmazonWalmartTargetCostco
Visits2,224B333M138M55M
Duration6:23min4:09min3:55min4:07min
Pages/Visit8.744.785.555.45
Bounce Rate39.6%52.6%45.77%35.93

Source: SimilarWeb August 2019

Amazon’s audience was strategically and patiently cultivated. Most notably with the launch of Prime Video over a decade ago, and later boosted by the acquisitions of Audible, Twitch, and the launch of the Kindle/Fire platforms. Amazon has been more than a retailer for a long time. It’s a media giant able to gain and keep the attention of over 100M set of eyeballs through the Prime ecosystem.

The result: Amazon has become the de facto shopping launchpad. Not Google. 44% of online shoppers start on Amazon compared to 33% on Google. This trend is even more pronounced among younger, wealthier demographics. 

NPR Marist Poll 2018

Why? Shoppers may not want want to bounce from site to site. Google’s wide-array of search results are arguably too distracting compared to Amazon’s streamlined shopping experience where we are only 1-click away from finishing the hunt. Especially when shopping for simple things like toilet paper or toothpaste: 69% of Amazon Shoppers usually purchase household basics from Amazon.

NPR Marist Poll 2018

Fulfilled by Amazon has also allowed a unique group of manufacturers/brands to reach the U.S. market without having to invest in marketing or distribution. Unique products not found at Wal-mart, Target or Costco. That’s especially true of Chinese electronics brands. Think Anker.

Amazon’s sponsored related products are also much less hated than ads on YouTube, Facebook and Google. They don’t distract you from your activity. People shopping don’t mind ads as much as when they’re reading news, watching cat videos, or catching up with friends. 

As result, 41% of shoppers search AND buy on Amazon.com. No other retailer has such a huge, captivated, and ready-to-buy audience. Why wouldn’t a seller advertise on Amazon?

Amazon is not alone.

Retailers have sold ad-space to brands and advertisers for a long time. Amazon did not invent vendor/manufacturer co-op funds. Brands pay tens of thousands of dollars in slotting fees to have their products stocked at supermarkets, and even more to appear on the homepage of Costco.com.

The difference Amazon offers is a digital ad-marketplace much like Google/Facebook. Self-managed, data-driven, and highly scalable. This is in contrast to having Brands/Advertisers negotiate in-person with retail merchants/marketing teams for ad-space.

Target tried offering a self-managed ad-platform, but pivoted to being an in-house agency offering to manage their clients ad-spend across all platforms, not just Target.com. Costco uses Criteo to manage its vendor ads online:

Criteo Homepage 2019-Oct-14

The only other mass merchant with an in-house digital ad-platform is Walmart. 

Walmart Media Group started allowing agencies and advertisers to buy digital ads via Walmart Exchange (WMX) in 2014. That effort seemed half-hearted at best until last December when the number of new job positions at Walmart Media Group grew 8x from 6 to 44. A snap hiring spree in prep for new year. There’s been over a dozen new jobs at WMG every month since. Mostly in business development, and ~25% in software / product development. This growth coincided with the acquisition of Polymorth earlier this year. Polymorth’s ad-server technology will allow them to host a real ad-marketplace with real-time auctions.

thebattleofgiants.com

Walmart’s investment in media advertising however pales in contrast to Amazon. From June to August this summer, Amazon Media Group has posted from 10x to 20x more new jobs than WMG. Walmart’s hiring spree has also slowed as of late; they only had 33 open positions in August. It’s also difficult to imagine Walmart becoming a serious threat to Google/Facebook when they’re only Investing 25% of their hiring budget into product development. Compare this to Amazon’s allocation of 50%.

thebattleofgiants.com

Walmart also lags behind in audience attention. Amazon captures 8x more visits than Walmart and keeps visitors’ attention 50% longer.


AmazonWalmart
Visits2.224B333M
Duration6:23min4:09min
Pages/Visit8.744.78
Bounce Rate39.6%52.6%

Source: SimilarWeb August 2019

It’s not for lack of trying. Walmart acquired Vudu in 2010, an online video-on-demand platform offering thousands of films. Yet it never tapped into its potential. Vudu’s 25M members only spend on average 1.9Hrs on the platform every month. That contrasts with Netflix’s 150M+ subscribers watching an average of 25 hours of video a month. Amazon is in a slightly different league offering both exclusive content for Prime members in addition to having FireTV as a platform to watch Netflix and other digital channels. Looking at Desktop and Mobile visits only (excluding Fire TV), Prime Video received 7x more visits than Vudu.

It’s unclear whether Walmart is even investing in Vudu: There are less than 10 new job positions posted monthly. It appears barely alive. Amazon on the other hand has had an average of 125 new positions monthly in 2019 directly related to Prime Video streaming.

thebattleofgiants.com

It’s likely Wal-mart never intended to leverage Vudu as a membership/loyalty program. They may have acquired it to simply offset declining DVD sales. To sell movies in digital forms instead of DVDs. One transaction for another. Not to cultivate an audience or member base. It’s therefore not surprising Vudu has no original shows to date, nor a subscription service.

Wal-mart’s ambitions on becoming a world-class advertising platform are limited by its lack of tech investment and poor audience. But this doesn’t mean existing agencies and brands already giving vendor funding to Wal-mart won’t enjoy easier self-serve features and data-driven optimizations. They will. And that may be WMG’s goal: To keep existing advertisers happy.

Amazon has its sights on bigger mountains.

The 3rd Ad Giant.

Amazon currently hosts 8.8% of all online ads, up more than 20% YoY. In contrast, Google lost 2.6% market share and Facebook only gained 1.3% share YoY. 

Will Amazon successfully challenge the Google/Facebook duopoly?

Amazon alone accounts for 38% of e-commerce sales. 58% of that is from independent merchants. Assuming retailers, which account for 22% of all digital ad spend, share similar revenue to ad spend ratios (ROAS), Amazon’s marketplace platform can directly tap into 4.85% of total ad spend (38% e-comm share x 58% non-Amazon sellers x 22% ad spend share). This is clearly not enough considering Amazon is already past this point.

Amazon needs to convince more major retailers like Nike to both sell their products and advertise on its platform. That may prove difficult. Other retail giants such as Walmart, Costco or Best Buy are unlikely to advertise on Amazon due to both an innate fear of giving the giant their data, as well as not wanting to fuel its growth. Walmart asked its vendors to even stop using AWS. Best Buy only has a dozen electronic products listed on Amazon. Amazon may have already hit a plateau in selling ads to other retailers.

Can Amazon attract advertisers beyond retail?

Consumer Packaged Goods and Electronics come naturally to mind when thinking who else could benefit from advertising on Amazon. The majority of Amazon Shoppers purchase household goods and electronics from Amazon rather than somewhere else: 69% and 55% respectively. CPG and electronics account for 16.5% of total digital ad spend. Assuming Amazon captures 38% (its e-commerce market share) of digital ad spend from CPG and electronics manufacturers, this represents another 6.3% digital ad spend market share.

NPR Marist Poll 2018

What about automotive ads? Top 2 digital ad spender. Amazon Vehicles is helping manufacturers showcase cars and helping consumers leverage a familiar shopping platform to compare/research cars. Automotive’s share of digital ad spend stands at 12% and could translate into another 0.6% share for Amazon if it captured just 5% of that market. That doesn’t even account for car related services (e.g. insurance) ads.

Our rough estimates above indicate its platform can grow its market share to 11.75% by appealing to retail, CPG, electronics, and automotive advertisers. Roughly 3% more than their market share today.

Other beachheads have not yielded much ad money yet. Prime Video has the opportunity to advertise media and entertainment content, although it has only advertised Prime exclusive content. Similarly, PillPack has refrained from advertising pharma products. It’s also not clear how Amazon plans to attract other top digital ad spenders: financial services, telecoms, travel.

A top exec leading Amazon’ advertising initiatives is also going on sabbatical in 2020. This may give Google and Facebook some time to re-enforce their defenses.

Google and Facebook fight back.

The fact 44% of shoppers start their research on Amazon is making the duopoly nervous. 

Google now offers a whole suite of retail-specific ads beyond just sponsored search, including local inventory ads showing what’s in stock in nearby stores, as well as product specific ads allowing people to compare a retailer’s price vs. the competition. Google even tried to launch its own store front with Google Express, offering products from mass merchants struggling to become major players online including Walmart, Target and Costco. E-commerce represents less than 10% of all sales for these retailers. The idea was to let a real tech company focus on the front-end store design and let retailers take care of merchandising and fulfillment. That did not got well. Offering an easy shopping experience wasn’t enough. Amazon’s secret sauce is made up of not only easy shopping, but also lightspeed fulfillment, human-centric customer service, and a unique loyalty program (prime video/music). Ingredients not available from Google.

Facebook also allows retailers to setup a shop within its social network, and more recently, checkout products they see on Instagram, Facebook’s media sharing network. Even Amazon has a Facebook page. It’s clear Facebook’s ability to attract and retain eyeballs is second to none. Pew Research Center shows 68% of US adults use the platform, of which 51% visit it several times a day. But converting impressions and views into purchases is a different story. Even Facebook knows its ad-solution is more up-funnel than Amazon: It only mentions awareness as a goal, not conversion:

Caption: Facebook Business Webpage 2019-Oct-14

The ability to convert impressions, searches and clicks into purchases will determine whether Google and Facebook can stop Amazon’s rise. Especially in retaining CPG and retail ad spend. Wind is not in their favor: Some report conversion rates north of 9% on Amazon, 3x higher than Google at 2.81% (E-comm) or Facebook at 3.26% (Retail).

So, will Amazon Ads keep growing?

Assuming Amazon can keep growing its share of total ad spend at 30% annually, it will hit our estimated ceiling of 11.75% ad spend market share in 2020, next year. Total ad revenue at Amazon will grow 53% accounting for both market share growth and market-wide digital ad spend growth of 17.6% next year.

Amazon’s meteoric growth in advertising may therefore be coming to an end. It has picked all of the low-hanging fruits: attracting ad spend from independent retailers on Amazon, electronics manufacturers and CPG advertisers. Ad revenue will slow down to market-level digital ad spend growth if that proves true. A declining trend.

Faster growth will depend on Amazon’s ability to attract other industries onto its platform: media, entertainment, pharma, financials, telecoms, travel, etc. Yet it does not hold much competitive advantage against Google and Facebook on those fronts. For example, only 20% of Amazon shoppers buy clothes on the platform and 76% do so somewhere else, whereas Instagram has helped Kylie Jenner launch a $1B+ cosmetic and fashion company. Amazon may even lose some share of retail and CPGs as Google and Facebook fight back and improve their value proposition.

About the Data: The Battle of Giants uncovers companies’ growth intentions by using machine learning to transform recruiting data into strategic insights. It’s the difference between knowing a company is hiring 10% more software developers vs. investing 10% more in last-mile delivery. Data may not be all-emcompassing (we only access public recruiting websites), but complement press releases and news articles for a more comprehensive view of a company’s competitive advantage.