You are a merchant and you sell laptops; which scenario favours you?
Option A: You pay a company so that when people search “laptop”, it shows promoted links on top of the search results. Those people may not be looping for laptops to “Buy” but could be doing research on the specifications of laptops or just trying to understand how laptops work. If someone clicks on the space you have bided and won, you have “lost” money since that person has no interest in actually buying a laptop.
Option B: You pay a company which sells laptops so that when people come into its ecosystem and search “laptop”, your store comes on top of the search results. More than 90% of visitors are in the “spirit of buying” something when they visit that site. Yes, any click has a potential “Buy” trigger that can follow.
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Option A is the Google search scenario while Option B goes for Amazon. Amazon is now a huge ad company for merchants and it is growing every quarter: “Amazon generated $8.76 billion in advertising revenue in its second quarter. That revenue, which included things such as advertisements on the e-commerce website, contributed to an overall beat against Wall Street estimates”.
Amazon Ad could become another play for Amazon’s ecommerce one oasis. Indeed, the biggest threat to Google search (for merchants) is not Bing, but Amazon, because on merchant advertising, Amazon is winning that segment. Google gives you clicks, Amazon delivers sales into the bank accounts for merchants. If you understand that merchants spend a lot on adverts, it becomes easier to process why Amazon market cap rose by more than 10% yesterday.
Facebook will be a waste of efforts if Amazon carries that item especially if you have a merchant store within Amazon. Both Google and Facebook will give you clicks from adverts; Amazon will deliver sales to the bank accounts. That makes Amazon ad business a superior business. If ads are to take users to commercial sites, Amazon wins because it is the grand-dominion of all digital commerce sites.
Why Merchants Like Amazon Ads – And Why it is Now a $31 billion Business
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Comment: What’s missing in this analysis is that buyers do not always go straight to Amazon. More often than not, they would first search for where buy a laptop. So, there’s plenty of value for the seller outside of an Amazon.
Although it could be argued that they are the single largest forum, when one considers that it is not only Amazon selling laptops, limiting oneself to Amazon automatically cuts the market range for the seller’s product.
My Response: Certainly, I am not saying other channels are not useful. I am focusing on conversion efficiency and value on ads. Coca Cola can throw its money in any channel. But for a merchant with a $1,000 ad budget, that conversion rate matters. That is why Amazon has grown this from $0 to $32 billion in a very short time!
Comment follow: That conversion rate sure matters for a user with such limited ad budget. It will sure impact ad spend choices for maximum impact. Still I won’t ask them to go to Amazon by default. A number of other considerations will come: type of product and target market are critical.
I don’t know that Amazon has grown because of the ads. It is probably adding to it presently and it’s share will grow. Moving from 0 to 32bn has been a combination of innovation, customer obsession, diversification and sheer capital thrown at it. It took Amazon several years to break a profit.
My Response again: The $32b is specifically for the ad business, not other aspects of Amazon. Putting that number is to make a case that it is very viable and useful to small sellers. As I noted in the video, this is one oasis strategy because Amazon is collecting $32 billion to help people showcase things within Amazon and after they have sold, Amazon takes another cut on those sales. It is a massive positive loop!
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Google also offers targeted ads, the scenario you painted is more effective for those who already know what they are looking for, some ads are there to help people to even know what is on the market, and then where to buy it. It’s a multipath affair, focusing on Amazon ads alone will limit the prospect of new converts, and there are more people on that side.
Certainly, I am not comparing the broad spectrum of Google ads and Amazon. I am merely focusing on a specific component of the ad universe. Here, it is the search ad. That was why I noted that the other key competitor is Bing. The one you noted is like “discovery” ads and for that, Google has to fight with Facebook & Instagram, and not Amazon.
Google remains the king of ads (total of all ads including YouTube, etc was $209 billion in 2021) but Amazon, out of nothing, has made its search ads a $32 billion business! Google’s similar ads system is about $62 billion.
Yet, I do acknowledge that Google ad is still growing even as Amazon grows its own. So, possibly, both are picking growth from TVs, print media, radio, etc.