Last year, Amazon noted a significant rise in spending across its demand side platform (DSP). The Q4 2019 Amazon benchmark report confirmed that quarter-on-quarter spending was up by 44%, marking the biggest increase of the entire year.
As a result, Amazon ad spending reached new heights of over $11 billion by the end of the year, having risen rapidly from $593 million in 2009 to $3.3 billion in 2014, and finally breaking through the $10 billion threshold at the end of the decade. This led to Brian Wieser of media investment firm GroupM crowning Amazon the ‘biggest advertiser on earth’, and estimating the platform is responsible for 2% of total international ad spend.
This rise in spending introduces three important questions that advertisers will want answered: into which areas are marketers allocating their Amazon budgets? What’s really driving this rise in expenditure? And, is spending still expected to rise given the huge impact that COVID-19 has had on the economy?
Question 1: Into which areas are marketers allocating their Amazon ad budgets?
Looking back again to the Amazon Benchmark report, it seems that Sponsored Products ads and Sponsored Brands ads are continuing to lead the way, and have together played a significant role in the universal decision to increase ad spend.
Spending on Amazon Sponsored Products ads grew by 30% year-on-year, from Q4 2018 to Q4 2019. Product sales driven by these ads also increased, up 21% year-on-year. Sponsored Products are one of the most effective options for retailers today, especially as Amazon uses automatic targeting to display ads through its ecommerce platform, on both search results pages and product pages.
Perhaps more interesting is the growing revenue being generated by Amazon Sponsored Brands ads. Why is it interesting? Because while spending in this area grew by 27% YoY, sales resulting from these specific ads types rose by a whopping 43%, signalling an impressive return on investment for those advertisers utilising this particular ad product. Sponsored Brands ads are focused more on boosting overall brand awareness rather than driving sales of individual products. Visibility is something that we’re going to look at in closer detail next.
Question 2: What’s really driving this rise in expenditure?
Last year, the Sprout Social Index Report suggested that almost three quarters of marketers were using social media primarily for boosting brand awareness. It appears that this focus on visibility is rapidly filtering over to the Amazon DSP. In fact, ‘rapid’ is somewhat of an understatement, with a massive shift from using Amazon’s ad platform for sales to using it for awareness taking place within just a 12-month window.
In Q1 2019, 74% of advertisers stated that they were using Amazon’s ad platform to increase sales, with just 26% citing boosting awareness as their primary aim, according to the Amazon Benchmark report. There was a notable shift in Q2, taking it to a 60/40 split, and then a smaller shift in Q3 to 58% purchasing and 42% visibility. Q4 2019 was the first time that the number of advertisers using Amazon advertising to boost awareness overtook sales as the most important reason for marketing through the ad platform.
So why are advertisers who are looking to boost awareness choosing to spend their budget with Amazon rather than with its competitors? In February this year, Kristina Monllos from online magazine Digiday stated that Amazon was ‘increasingly an awareness platform’, swiftly expanding beyond search.
With a new interest in over-the-top (OTT) media, which we’ll discuss in more detail a little later, recent updates to the Amazon DSP have seen the platform branch out from its own ecommerce system, and even its own immediate network, to bring advantages to third parties, including those third parties who don’t actually sell their products on Amazon.
However, we can’t confidently say that a growing focus on brand awareness is on its own responsible for driving the increased expenditure. It’s also important to consider the higher return on investment that Amazon advertising is able to offer over its closest competitors.
While Facebook and Google have long been considered the digital advertising ‘duopoly’, recent figures suggest that ROI is much higher through Amazon.
A report by US insights firm Zogby Analytics shows that 59% of marketers see their biggest return on advertising spend (RoAS) from Amazon. To put that into perspective, 22% cite Google as generating the best results, with just 17% saying that paid social channels such as Facebook ads are the most lucrative.
Question 3: Is spending expected to rise given the impact of COVID-19?
Shortly before lockdown measures were implemented, the results of a survey of digital advertisers were published. This survey showed that more than 80% of those already advertising on Amazon planned to increase their Amazon ad budget over the following 12 months.
The largest percentage – 41% – planned to boost spending by an additional 25%. 22% had greater expectations, increasing their budget by up to 50%, while 10% had plans to boost their budgets by 50% or more.
Most were expected to cover costs by dropping some of their more traditional ads, such as print and outdoor, although 21% said they would be reducing their paid social spend, and 17% reducing investment in paid search.
The COVID-19 outbreak has resulted in a 50% decline in ad spend in the UK. So could coronavirus put a dampener on Amazon’s success? It could. But it’s not looking likely.
Why? Here are three possible reasons:
1. Amazon is faring better than the rest
It can’t be denied that, to date, Amazon has remained remarkably stable throughout the pandemic. Market research firm Forrester found that all major advertising platforms had reported a revenue reduction of between 20% and 30% at the end of March 2020, in line with the start of lockdown in many countries. All, that is, except Amazon.
Forrester stated that ‘Amazon will continue to maintain or even grow ad spend to capture shopper demand during and post-pandemic’ as a direct result of more and more people shifting from bricks and mortar retail to the Amazon ecommerce platform. Forrester’s Consumer Technographics COVID-19 Survey estimates that 22% of Generation X will continue to shop online in the future due to the COVID-19 outbreak.
2. Advertisers are being urged to plan ahead
In his recent article titled ‘How to Think About Marketing in the Post COVID-19 World’, Pivotal Research analyst Michael Levine warned brands that having a strategy in place and ready to go is key to emerging strong on the other side.
‘Table stakes is getting your online strategy right – yesterday”
He states. He continues to say that,
“If you have not had a cohesive online e-commerce strategy, you better figure one out in a hurry’
Advice that is expected to spark increased spend through proven platforms.
A major part of these new strategies is anticipated to include video… and lots of it.
Data firm Nielsen says that the decline in media consumption that was expected to take place following the height of the pandemic is simply not happening. It was reported that, during the worst period in the United States, total media consumption reached 1 billion hours. And while linear TV use is beginning to return to pre-coronavirus levels, the use of connected TV (CTV) is showing no signs of slowing down just yet.
Currently, video isn’t utilised quite as much as Amazon’s Sponsored Products or Sponsored Brands ads. In fact, just 28% of advertisers on a managed service plan and 31% on a self-service plan utilise Amazon’s video marketing options according to the Benchmark report. However, with media consumption remaining high, advertisers will undoubtedly be more open to video adoption, and there’s nowhere better to adopt this technique than the Amazon DSP. Not only are Amazon’s video ads displayed across the Fire TV ecosystem, but there have also been recent rumours that Amazon is looking to expand to outside networks, too. Although unconfirmed, PlayStation, Xbox, Apple TV, and Android TV have all been put forward as potential OTT partners.
3. Amazon loyalty is real
The Amazon Benchmark report shows that almost 70% of spending on the Amazon DSP in Q4 last year came from within Amazon’s own network. This includes IMDb, Kindle, Fire TV, and the Amazon e-commerce platform itself. Looking back at the survey of digital advertisers that we discussed earlier, it appears that around one third of Amazon advertisers don’t advertise anywhere else. While Amazon may not be as well known for its fan base as the likes of Apple, it certainly seems advertisers are loyal to the brand.
The Future of Amazon Ad Spending
Prior to the pandemic, a Juniper Research report titled ‘Future Digital Advertising: Artificial Intelligence & Advertising Fraud 2019 – 2023’ estimated that, as a direct result of Amazon DSP’s unrivalled access to hugely valuable consumer data from both its e-commerce platform and its Prime Video setup, ad spending could reach £520 billion by 2023, and account for 8% of total digital ad spend, up from an already impressive 2% this year.
While the COVID-19 outbreak may mean that the platform doesn’t quite reach these heights, data suggests that Amazon ad spending will continue to grow in spite of the new challenges facing marketers. In fact, COVID-19 may even accelerate the shift to video, which could see spending rise to completely unprecedented levels.