But the Amazon DSP platform is a mystery to many. Whereas everybody has access to the Amazon Sponsored Ads platform by default: Every seller, every vendor on Amazon, and all the agencies working for them, access to the DSP is gated. Only agencies with a “seat” and Amazon teams delivering « managed services », have access to the tool. Getting the seat requires a capable team in place and a commercial engagement on a minimum level of spend in the platform, and those stakes are getting higher.

But in these days of AI empowerment, why not simply ask ChatGPT, OpenAI’s generative AI chatbot to explain difference between Amazon PPC and Amazon DSP »?

Oh, I am a big fan of ChatGPT, but the answer regarding Amazon DSP is actually pretty far from reality. Maybe the reason for this is that there is not much public information available about the Amazon DSP on the internet. There are probably more people talking about it, who have never actually worked with it, than specialists with an in-depth understanding. Additionally, it is a relatively new and exclusive tool and the chatbot has only been fed data up until 2021. An AI can run really fast, but if you feed it with incomplete or wrongful data, it is not going to correct or improve that. It works by the SISO principle.

Without getting too much into why ChatGPT is wrong, let’s instead look at the two points on which I can’t agree in the description:

1. Amazon DSP Inventory is outside of Amazon
2. The purpose of DSP campaigns is to build brand awareness

Amazon DSP inventory is both inside and outside the marketplaces

Amazon is on a path to conquer more digital advertising budgets. It has a superpower compared to its competitors Meta and Google in the fact that its “media” is growing. This is due to the strong growth of its ecommerce which has had a growth rate of 20-30% before a recent slow down to 8-9% in 2022. What it means for advertising is that its inventory is growing by at least that rate – actually, it’s been growing a bit over double the rate of ecommerce growth in recent years.

One of the big characteristics of the Amazon DSP is indeed its capability to reach outside of the Amazon marketplaces, but its main attraction as a DSP is actually to be able reach open ad exchange like any other DSP, and then also have exclusive access to Amazon marketplaces and Amazon-defined audiences.

The DSP works with 4 levels of inventory

• The marketplaces and marketplace apps
• Other owned and operated (O&O) inventory (ex: Twitch, IMDB)
• Partner publishers with priority-serving deals
• Open ad-exchanges and mobile exchanges

Video inventory will be outside of the marketplaces but all other campaigns will run on the inventory you choose. In a standard European set up, I have often seen around 75% of the inventory delivered on the market places, themselves. Those campaigns were heavy on the platform and could even be restricted to only apply within. The balance between external and internal inventory depends on the audiences you are targeting and the purpose of your campaigns.

The Purpose of a DSP campaign is not just visibility, it is to sell

At the end of the day, or perhaps the end of the financial quarter, any communication campaign an ecommerce player carries out has a sales purpose. It can be a short-term perspective or a long-term perspective but sales are still the end purpose for its advertising. One of the great reasons for the rise of retail media, is the fact that the advertising and the sale are part of the same loop. This means reporting sales related to advertising becomes much more reliable than in settings where the two happen on different platforms.

The Amazon DSP has the capability to reach outside of the user context that the Sponsored Ads platform (the other Amazon Ads platform, also referred to as Amazon PPC) will target. It can reach audiences that are a little further away from the purchase. It is of course nice to build brand awareness along the way, but it is much more compelling to qualify audiences that are likely to be interested in one’s products on Amazon. This is the strongest application I have found of the DSP in conjunction with Amazon PPC. Increase the reach of campaigns, touch people who are a bit further away from the sale and guide them towards the merchants offering.

AMC reporting via Pacvue of overlapping DSP and Sponsored Products.

Source: E-Comas, 2022

As the Amazon DSP is integrated in the entire Amazon universe, it can play that role while maintaining the sales objective in place. Using it to build from the bottom of the funnel and towards higher levels, is one of the most efficient advertising tactics I have been confronted with across all digital advertising channels, and it would not be able to carry that function if its inventory were exclusively outside of Amazon and if its main purpose were to build brand awareness.

Let’s have a look at how performance driven DSP campaigns can be built below.

Media planning for Amazon DSP

The marketing funnel is such an outdated tool for understanding audience engagement and sales enablement, isn’t it? The problem is I’m just not capable of building media plans for performance without that model in mind. I think it is the concept of a hierarchy of decisions or influences a user moves through before a sale can happen. That speaks to behaviour in an online environment where touchpoints are measured and controlled.

Going through the inventory types mentioned above, I immediately qualify them on a scale of “far from conversion” to “close to conversion”. It’s the funnel waking up on me. Sending an Amazon product listing banner through an ad exchange out to some random site on the internet in order to match the right type of audience is bound to be a further fetch than showing the same ad inside the marketplace. So, we already have a hierarchy of inventory we can apply to the media plan. Inventory we expect to former better, and inventory we will test before keeping in the plan.

In my experience with Amazon DSP in the past years, there is a clear difference in direct performance between advertising inventory on the marketplaces themselves and inventory on other Owned & Operated sites, Partner publishers and ad exchanges. Reality is not as linear as shown in the illustration above, but the principle holds. In some cases, certain ad exchanges will perform better than partner publishers or other owned sites. This can depend on the type of product one is promoting and also on the audiences you are targeting on that inventory.

The same funnel-thinking applies to audience targeting. We know that users who have already bought the product, albeit a long time ago, are going to be an easier audience to convert to repurchase. This can be some of the easiest sales you make via your campaign but you always doubt whether these users would have bought the product anyway. That, however, is no reason for not using them as they help build audience data in the system, enabling us to find overlapping audiences which can open for more reach. But let’s put repurchase audiences a side for a moment.

The second-best performing audience type I have used is of course retargeting from product views. If a user has already been to the product detail page or performed a search for the brand or product, we know we are in the consideration phase already.

A little further away from the purchase, we will find users who have searched or visited pages for similar products. They are a bit further up the funnel, a bit further away from the purchase, just like any competitor audiences we are targeting. And finally, also in the consideration phase, we will find the best fitting inmarket audiences, machine-learning generated audiences Amazon has created based on user data and a prediction model for future purchase.

Only outside of these circles do we reach audiences that traditional advertising would target: lifestyle audiences and demographically defined audiences.

The stricter the retargeting, the higher the measurable ROAS – and the higher the risk you are converting the already converted, ie that you are simply tracking a conversion that would have happened anyway.

At the demographic and lifestyle audience level, we are very much in a higher-funnel brand-building exercise, but as we will see in the next section, even these branding efforts can be tied back to sales in a full-scale Amazon advertising operation. And inside a closed system, we can actually guarantee that we are reaching “New-to-brand” audiences by means of exclusions.

Two-phase Amazon DSP campaigns with a tROAS target

“We want to launch Amazon DSP to drive performance”. A classic client statement which is not always easy to work with. One should go on to Amazon DSP with nuanced expectations. The platform is good for reaching people and learning what works, but it can be a long ride and performance is rarely immediate. It is also a higher-volume platform where you can work through budgets very fast.

If the main drive for an Amazon DSP campaign is fast performance, the setup will be biased to retargeting and repurchases, and those are no guarantee that the advertiser will gain market share. They do serve a purpose, though, as they allow you to predefine efficient inventories and identify interesting overlap audiences when the campaign has been running for a while.

The most efficient set-up for exploiting both the conversion capability and reaching new audiences at scale, is probably what we have called the two-phase set-up. A two-phase DSP campaign consists of 2 mutually exclusive campaigns. One to reach audiences that have not been exposed to the brand and drive them to the product pages. And another to target users from the product pages to the conversion.

The platform itself is geared to this setup, as it can help optimize toward those objectives.

Phase 1 in the user journey DPV campaign: objective to generate visitors to product pages

Phase 2 in the user journey RTG campaign: objective to generate conversions

In the two campaigns we are actually targeting the same audiences, but in phase 1 we will exclude audiences which have been exposed to the brand. We can be sure they are “New-to-brand” (NTB). In phase 2, we will only target people who have searched for the product or been to the product pages, and of course, we will exclude users who have purchased the product during the last 30 days (or whatever time frame corresponds to the duration of a product).

One essential thing to keep in mind when running a two-phase campaign like the one described here, is to only consider return on ad spend at the account level. The Phase 1 campaign will have a low ROAS and its target KPI is the DPV rate: the rate at which ads are generating visits to the detailed product pages. It can also generate sales directly, but that function is actually reserved to the Phase 2 campaign which is geared to conversion. A successful campaign is not aiming to generate the best possible ROAS. It is aiming to generate the highest possible revenue at an acceptable ROAS. This guarantees account growth, and, yes, we are getting to it: it actually builds the brand recognition within the Amazon universe. Over time brand searches will increase and perhaps sales velocity too. These are the ingredients for an additional boost in organic sales which you can measure via the Total ROAS of the account (total sales/ad spend).

Amazon DSP is for non-obvious sales

The Amazon DSP is really good at reaching audiences that didn’t already have your products on their mind and drive them on a path to purchase. Perhaps that is what building brand awareness should actually mean: activate sales for audiences that didn’t know the brand before. With what we have called a two-phase setup, you can use the Amazon DSP to do just that. Build sales-enabling brand awareness to new audiences, and you can monitor and improve you process as you go.

The key to successfully marketing on Amazon as a Seller is right there in front of your eyes, haven’t you noticed? It is a bit like the forest you can’t see because the trees are blocking the view. Although we tend to imagine that success is ruled by some algorithm we can’t understand, once you realize where your own objectives actually coincide with Amazon’s and learn to work along some its principles of operational excellence, customer obsession and long-term thinking, you will significantly increase your chances of success on the marketplace.

What Amazon success looks like.

As a merchant having set up your account as a Seller on the marketplace, your main interface with Amazon is “Seller Central”. It is your dashboard and your management interface. Did you realize that the components of the dashboard are direct indications of what Amazon considers the dimensions of your success? Let’s have a look at it in depth.

The seller central interface is directly telling us what is important and what we can work on. The top line dashboard shows the number of orders, sales today, buyer messages, buy box wins, money earned, inventory score, (the IPI: Inventory Performance Index) and the effect of your promotions. To sum it up, Amazon is telling us what matters: sales, customers, competitiveness, balance of earnings (sales minus cost of advertising) and stock.

Rephrasing those provides us with the following 5 key points to Amazon success:

• Maximizing sales
• Winning the buy box
• Minimizing stock (managing the IPI)
• Providing excellent customer service
• Controlling the ACOS (Advertising Cost of Sales)

Most of them are not things you just fix once and for all. The Amazon game is a long-term project where you will have to constantly monitor and maintain your key ratios. A winning Amazon marketing strategy is one in which the ratios are stable and gradually improving all the time.

Flow-and-grow rather than Stop-and-Go

One of the worst things that can happen to your account is if it goes into a stop and go mode. I have seen this way far too often working with Amazon Sellers over the past few years. It goes something like this:

1. Get the product listings up
2. Put some stock in
3. Push promotions and advertising
4. Get sales going
5. Run out of stock
6. Lose the buy box
7. Panic
8. Restock
9. Return to 3)

In a stop and go scenario, the seller needs to restart the marketing machine every time products have run out of stock. Bad for users, bad for Amazon, bad for you.

Let’s embark instead on a flow and grow strategy where the aim is to create continuous improvement by working on each of the 5 success points one by one, as we explore below.

Maximizing sales

Of course, you want to maximize your sales, everybody does. But have you realized that Amazon also wants you to? Sales velocity of a product is one of the key signals Amazon works with. It helps the platform propose the best performing products and thereby maximize its own sales. This also typically has a positive impact on your IPI because your days-in-stock will be lower.

At the level of a merchant, this focus on best-sellers and maximized sales has some concrete implications. Let’s say you have a catalogue of 10 products and one of them has much higher sales than the others. Your best strategy will be to enhance advertising on your best-seller to make it sell even more. On your less performing products you should focus on content optimization and only use advertising defensively until you get some kind of traction.

Bet on your best products.

Winning the buy box

In order to sell your products, they need to appear in the “Buy Box” as often as possible. This is something end-users on Amazon don’t realize: the product page does not belong to the Seller, there can be several different Sellers proposing the exact same products with different prices and delivery settings. At the time of an end-user visit, Amazon will decide which Seller will “win the buy box”. The main determining factor is the price.

The illustration below shows you where to find the buy box on the right-hand side of a product detail page allowing you to buy a product in a single click. Being a marketplace, Amazon can have a number of different sellers distribute the same product. But there is only one product detail page for each ASIN (product code), and on that page, only one of the sellers is put forward in the buy box.

Make that be you!

The buy box is indicated by the red rectangle and the arrow points to the winner of the buy box on this product page.
Source: Amazon.co.uk

Amazon makes the best performing seller appear, so the end-user doesn’t have to make that decision. Amazon’s objective with this exercise is to provide an excellent user experience by selecting the best provider of a product. This arbitrage made in real time is of course executed by an algorithm, and the signals it takes into account are stock level, price ranking, sales history, past user experience, past delivery performance. Obviously, the capability to deliver to your location is the very first filter that is applied. Be in stock, be distributable.

By having the right price, a low return rate and a compelling product listing, you increase your chances of winning the buy box. Optimizing product listings serves more than one purpose: it helps the user in the buying process and it helps the Amazon algorithm understand what keyword searches the product should appear on.

Minimizing stock (but maximizing IPI)

On the Seller Central dashboard, Amazon shows sellers their IPI score, the Inventory Performance Index. This score gauges the way inventory is managed over time by sellers using FBA (Fulfillment by Amazon), and therefore have inventory in Amazon warehouses. Merchants of course pay for the warehouse occupation, so that is an interesting revenue source for Amazon, right?

No, wrong.

Amazon charges for your inventory, but if it could carry stock only on the products which make a margin when you sell, it would earn more. Additionally, Amazon has a huge storage challenge due to the physical and invariable nature of warehouses and its strong growth. It is in both Amazons and your interest to optimize inventory to only occupy space for goods that are sold frequently. To further optimize its warehouse resources, Amazon has even created a new mechanism to put warehouse space on auction.

Amazon describes IPI, the Inventory Performance Index as a metric for how efficient and productively Sellers manage their FBA inventory via a number of factors. The key factors it measures are the following (Source: Amazon):

• Avoiding excess and aged inventory.
• Long-term storage fees.
• Speed at fixing listing problems (that immobilize stock)
• Right levels of stock of popular products

Most sellers on Amazon will appreciate the IPI as a score for how they are doing. A stop-and-go account will have a low IPI and it will take time to rebuild it after having been out of stock. What most sellers don’t realize is, that it is one of the quality signals that Amazon uses. It can influence whether you win the buy box and may even have an impact on your ranking in search results.

Additionally, the IPI can be a cost saver. You pay for the amount of stock and the time it stays in Amazon warehouses. Amazon inventory space is never unlimited and non-moving inventory is not efficient for anybody. Amazon charges for it but also penalizes non-efficient stock management. Your objective is to be lean and efficient. Another objective that serves both you, Amazon and the end-user.

Make your stock management lean.

Providing excellent customer service

Amazon is obsessed with the user experience. It doesn’t do surveys of user satisfaction, though. Instead, it obsessively measures any signal that can be interpreted as a success parameter for the user experience. User reviews and ratings, return rates, customer service requests, speed of dispute resolution.

Source: Amazon DSP training material. https://learningconsole.amazonadvertising.com/

The best way to influence those signals is simply to strive for excellence. But providing excellent customer service is both challenging and costly. It requires preparation, processes for problem resolution, fast intervention and sometimes generous return or refunding conditions.

So, will that investment pay off? Odds are it will help you win the buy box which can contribute to more sales on Amazon. It can also spill-over into your ratings and reviews and help boost conversion. It might even enhance your customer care in other distribution channels. So, don’t neglect or underprioritize customer service, it is one of the keys to success of your business in the long run, both on Amazon and beyond.

Make your clients happy.

Controlling the ACOS

Marketing your products on Amazon is practically impossible without advertising. “Products that sell themselves” is a concept of a distant past, don’t fall for it, however proud you are of your product development or research.

On Amazon, you don’t win if you don’t play the advertising game.

When you are just starting to sell on Amazon, you will need to invest a higher proportion of your sales in advertising. The ACOS at the outset might even be too high for you to turn a profit.

ACOS means Advertising Cost of Sales and is a metric primarily used in Amazon marketing. In other advertising we usually use the inverted value of ACOS, which is the ROAS: Return on Ad Spend. Both metrics score how much value you are getting out of your advertising. The reason for the adoption of ACOS by Amazon is probably found in the way Seller relationships are structured: a merchant sells on the platform and thus earns a balance to be paid by Amazon. The seller can use a proportion of that balance on advertising and will only receive the difference between total sales and advertising and other fees on its bank account.

As you learn from your advertising investment and from the outcomes of your campaigns, you can optimize accordingly to reduce investment for the same result or increase sales with the same budget. This will mean your ACOS goes down, but more importantly, your sales velocity goes up. At this stage, you should experience both an improvement in your buy box ratio and a rise in organic sales. The flow is kicking in. Amazon is more likely to show your product on relevant queries in its search results if you have ramped up your sales.

This mindset of investing to learn what works – making small bets all the time – is a great way to grow your account. You can bet on keyword targeting, on competitive products, on complementary products on past buyers, on non-buying visitors to your product pages. All of these can be performed inside the Amazon Sponsored Ads platform, and if you max out on that platform, there will be plenty more bets to do on the Amazon DSP, where targeting options are supercharged providing almost endless optimization levers.

But before we get carried away with all the potential customers, let’s remember that a high ACOS won’t be sustainable in the long run. In order to earn money a company generates margins on the sale of its products. The margin is the difference between the sales price, the cost of goods sold (COGS) and the costs of marketing. Gradually taking the ACOS down to a sustainable level while maintaining sales growth is the key to growing your account.

In reality, however, a much better measure of success is to take a wider view of your performance by looking at total ACOS (or tACOS/Tacos, as it is often called). Total ACOS better takes the derived benefits from advertising into account (more organic sales) and is a better measure of your success.

Optimize your advertising to reach a sustainable ACOS, then expand.

Position your products, then invest to learn and grow for the long run

As your product flows and your sales grow, you will need to maintain your level of customer service and your control of efficient stock levels. Remember, you are in it for the long haul. Your advertising bets will show you how and where to develop your account further and while this iterative process  can be long, it can also put your business on track to conquering a market at a pace of 10, 15 or even 25% growth per month until you reach you market potential.

Being impeccable on price level, customer service and stock, and having faith in your strategy could steer your business to unprecedented heights. And the dashboard for your performance is right in front of your eyes in Amazon’s Seller central.

Google Ads versus Amazon Ads: Who Eats Who?

Some 12 years ago, I was point man for all European Google Ads spend for a large media agency group. At the time, our claim was to be the biggest spender on Google Ads. And whereas it didn’t provide us with any monetary benefit, kickback or commission, it did give us some prestige, some clout, and a few privileges. We were the number one revenue stream, after all.

Fast forward to the 2020’s: Amazon is the biggest advertiser in the Google Ads auction. My good friend Mike Ryan, calls it the “Elephant in the room”. When the elephant makes a turn, the room is shaking, and sometimes things are breaking.

In the midst of the pandemic, we saw signs of Amazon pulling its advertising on Google Ads. Whether all advertising was stopped or this was only partial or local, we do not know. What we do know is that it coincided with the first ever negative growth quarter in the history of Google Ads. There was of course a generalized drop in advertising spend across all media, but Google took the biggest blow. There must have been some painful video conferences taking place in that quarter.

Let’s not be carried away by that fact, however. With its 69% YoY growth in Q2 of 2021, Google Ads has recovered from the blow. It is also still 6-7 times bigger than Amazon Ads and almost double the size of Facebook Ads. It had been a while since Google Ads had experienced higher growth than Facebook which only reached 56% YoY growth this time around. Surely, this must confirm have been overseen by those thinking Facebook advertising has played its role out.

Pandemic turbulence

Are we through with the pandemic yet in Q3 of 2021? It doesn’t quite feel that way, but for sure, digital advertising has surfed the wave for 18 months at this point in time. Growth rates for Gogle Ads, Facebook Ads and Amazon Ads were 69%, 56% and 87% respectively in a year on year perspective for Q2 2021. All-time highs since 2018 for all of them. When we compare the sum of the three ad platforms’ revenue to the worldwide digital advertising spend estimated by Statista, they represent 75%. It is the rise of the triopoly. Digital advertising has indeed survived and recovered from the pandemic.

In my quarterly recap on the Triopoly of digital advertising, Google Ads versus Facebook Ads versus Amazon Ads, I dubbed Q2 of 2020, “Christmas in May”, as the seasonal spikes of Q4 was suddenly equaled by a Q2 spike in ecommerce which was a high as we would expect the end of year season. Would it all come back down? Had everyone now spent all their beer money? Not quite, the Q4 spike was back as well and a new pattern was showing.

Shifting budgets to retail media

We detected anecdotal evidence of a shift of budgets within the Google Ads mix in our research for the 2018 Paid Search Trends report. We believe this trend has existed for the past 10 years. Text ads budgets are shifting to Shopping ads. We could call this the rise of retail media, a term that has become popular alongside the rise of Amazon Ads.

I am tempted to give this a less flattering name, such as the tyranny of last-click attribution. Tracking on the internet becomes harder the further away from the measurable conversion you get. And conversion tracking has been one of the keys to the explosion of digital advertising. Comparatively, advertisers always favour last-click. It is easier to measure conversion on a marketplace than in an influencer campaign, but does that mean the marketplace is more important than the influence generated from reaching out to wider audiences?

A shift from Google Ads to Amazon Ads?

The biggest shifts in advertising budgets we are seeing are two-fold. Google Ads budgets are shifting to shopping internally. And Amazon advertising budgets are draining Google to feed its marketplace and consequently its own advertising offering.

Is this a story pattern that repeats itself? In the 1990’s, Google managed to sign a deal with the market leader for internet search, YAHOO! to provide the backfill for organic search results on the the catalog. This coincided with Google becoming a household name, and as we all know, the leading search engine is now Google and Yahoo! has all but disappeared.

Is Amazon draining Google and winning the battle of product search in the process by being such an omnipresent advertiser on the search engine? Or is it on the contrary Google which benefits from the surge of Amazon to monetize its huge covering?

Viewed from the trenches Google and Amazon are not substitutes

For large online retailers, there may well be a need to aim for native ecommerce in each available online media channel: provide a native ecommerce experience on Facebook and Google, just like the one Amazon provides. But for most merchants, the duality of Amazon and non-Amazon is a really complex setting to be in.

Seen from the trenches, Amazon is fast and dynamic, but merchants would much rather drive traffic via Google to their website where they can generate higher margins and a better client relationship in the long run.

Whenever I am in a discussion where both Amazon Ads and Google Ads are discussed, they are never seen as direct competitors for a budget line. They are separate universes an advertiser will consider strategically and in most cases want to address separately to get the best of both worlds. In some cases, Google Ads can also be an external advertising challenge for Amazon, something the ecommerce platform is incentivizing as of late.

Amazon Ads is booming but it would be wrong to say Google Ads isn’t. The big difference between the two is that retail media is growing at a much higher rate than search. Additionally, Amazon Ads has created an advertising product which merchants can hardly live without. That in itself doesn’t guarantee sustained future growth, but at the moment retial media and Amazon Ads are the winners of the day.

In the 1990’s web search engines were the big thing and ranking at the top of search results pages was like winning at the roulette. I remember how important it was to repeat the same keyword over and over again, and to have the keyword in the page title was crucial to ranking in Altavista – the now-forgotten predecessor to Google.

In those days, Search Engine Optimization – SEO, was a nascent industry and most experts were constantly testing to improve their understanding of each search engine’s algorithm. We counted the words, the characters on a page, the number of markup tags and their nature, we removed the “stop words”; fill words that were believed to not be indexed: is, in, at, the, or, because. After removing them, we calculated one of the key ranking factors in that generation of search engines, the keyword density. Could you get it up to 4-5% you were good – in some search engines you had to go even higher to rank.

With Google, the game changed somewhat. It was a new generation of search engine and suddenly, it was not only what was inside the page that counted, but also surrounding factors, and especially links pointing to the website. The nature of SEO changed, link building became a thing. The Google algorithm is believed to have hundreds of ranking signals, some known, some guessed, constantly evolving to provide the most relevant search results to users with changing search behaviour and evolving technology, and all the while keeping abuse at bay.

What is Amazon SEO?

Search Engine Optimization (SEO) is about maximizing the traffic one receives from clicks in search results pages. Users search on a variety of keywords, and the first challenge is to identify the ones that are relevant for your products. The next is to do everything in your power to appear in search results when a user searches using those keywords.

SEO is often consider as a free means of promotion as it does not take sponsored results and other paid ads in the search results page into account. Into consideration even.

SEO on Amazon is focused on optimizing the product listings for a merchant. Each individual product listing has the potential to rank in search results if it is relevant to the search a user performs. But like in traditional SEO, it is not only the page content that matters, external factors are important too. Popularity, authority, links pointing to a webpage are important for ranking on Google. But what is important to make your product rank in the Amazon search engine?

The Amazon search results page

The Amazon search results page is very long and holds many categories of information. The illustration reconstructs an entire search results page and shows the various categories as well as their order of appearance (click to enlarge).

The results categories we found on this page are the following:

• Sponsored results: The top row of products are all sponsored products. This means the brand runs Amazon Sponsored Products advertising targeting the keyword we searched for.
• Best seller & Amazon’s choice: A best selling product in a category carries a badge and is prominently and repeatedly shown in search results. Getting in that position is a huge challenge, as you need to reach the highest amount of sales in your category.
  Amazon’s choice is an editorial choice made by Amazon editors based on a qualitative review.
• Highly rated products: In this section, the products are the ones with the highest ranking based on user reviews. Another great spot to be in but very difficult to reach too.
• Editorial choice: A great chance to stand out if your product is differentiated and discovered by the editorial team.
• Advertising: In this case it was a video advertising results finalizing the custom made top of page spanning more than the first viewable page of results on your screen.
• Organic results: Below the custom-made section comes organic results. It is mainly here SEO makes a difference, and being at the top of this section is a great achievement and can boost sales for a product.

Main ranking factors in the Amazon search algoritm

You can appear prominently in the Amazon search results page via advertising, by being the best selling product, having the highest rating or by having the favour of editors. Beyond those instances, the order of the page is ordered by the algorithm. The A10 algorithm if that is indeed the current version.

There are three main categories of ranking factors in the Amazon search algorithm:

• Product attrativeness
• User experience
• Sales maximization

Source: The Amazon Marketing Report: “Marketing on Amazon 2020”, Innovell 2020

In our illustration we have shown the three categories as well as the individual ranking factors that play into the algorithm. These are further affected by a number of indirect factors as illustrated in the table below:

The range of factors influencing search ranking is long, and optimizing for better ranking can be an ongoing process. There are however, some basic things that need to be in place in order for a product to appear in searches: available inventory, the right price, good ratings and relevant content.

Is Amazon A10 or Amazon A9 the current version of the algorithm?

Right about the time we built the above ranking factors overview in Summer 2020, industry observers reported changes in the Amazon algorithm. This made a number of people announced that Amazon had upgraded to A10. The number of changes in the algorithm wasn’t very high, though. So, was there really an update or is it still a tweaked A9 algoritm we have a hand?

I decided to check what my network on LinkedIn thought, and a majority of people believe the algorithm is now A10 but quite a few voted for A9.

So if there was an update in the algorithm from A9 to A10, what did it do? Most observers mention a higher importance of traffic from external sources. This is a great case for directing external advertising into Amazon campaigns, something we call the “Drive-to-Amazon” strategy.

Some of the other things that changed with the A10 algorithm update was toning down the effect of Amazon’s own advertising and focusing less on sales velocity as opposed to content relevance. These observations are mostly based on hunches and anecdotal evidence.

In the end, who makes the call on what the algorithm is called? Amazon supposedly. But the company is not so accustomed with communicating about internal affairs, so I have found no confirmation of a shift to A10 anywhere. And, at end of the day, what does it matter?

All you need is excellent products, content, sales and fulfillment

Be it A9 or A10, the formula for success on Amazon is fairly well-known: Provide an excellent user experience, sell at a competitive price, and be an active player in the marketplace with a high rate of sales and great reactivity.

Succeeding on Amazon starts with building a strong foundation via optimized product listing and a brand store. Next the build-up of sales history, user reviews and top ratings will make a product climb the sales ranking. Maximizing those sales via Amazon Advertising makes you climb faster, and plugging in traffic from external sources can provide a further boost.

The upside is that the prize money can be well worth the effort. Being at the top of the Amazon search results drives a disproportionately high level of sales. Great user experiences, great SEO and efficient advertising is the key to winning on Amazon. Go for gold.

If you want to go deeper into Amazon marketing and successful strategies on the marketplace, the Amazon Marketing report can help you. It is a commercial report. Discounts are occasionally shared via our newsletter. 

Growth of the triopoly

After every end of quarter, we feast on quarterly reports showing just how massive growth these three giants are consistently creating. The illustration below show the quarterly evolution of each of the three players’ advertising revenues. They peak in Q4 as advertising traces the end of year ecommerce peak. Therein lies the explanation for the success of these platforms – they drive sales. And they are able to demonstrate it in their reporting.

The only exception to the Q4 peak happened during the pandemic in 2020 where we had a “christmas in May” effect where consumers were in lockdown, spent hours behind their screens and started on accelerated their online buying.

Amazon Advertising grows faster

Amazon Advertising now represents 9% of the Triopoly and catches up a little more on its’ competitors for every year that passes. From a mere 3% of the triopoly in 2017 to 6% in 2018 and 2019 and now at 9%. Advertising spend picks up in Q4 as it traces the end of year ecommerce peak.

The largest share of Amazon Advertising is shown inside the marketplace itself. When ecommerce peaks, there is more ad inventory, and when ecommerce sales peak, so do advertising investments. Amazon Advertising grew at a staggering 77% in Q1 2021 compared to 2020. The ecommerce platform itself grew at around 40% and the advertising solution has shown its capability for generating a rate of growth well above the platform growth. This is easy to visualize when you look at the correlation between ecommerce and ads sales for Amazon.

Google has restored its health

In Q2 of 2020, Google Ads experienced its only ever negative growth in revenue for a quarter compared to the previous. However, the 32% growth YoY of Q1 of 2021 erases that dip. This growth level is the highest Google has seen since 2017.

Facebook advertising hits a 46% growth YoY in 2021, also much higher in recent years. This level of growth hasn’t been seen in Facebook since Q1 of 2018.

Digital maturity, hope and economic growth

The year of the pandemic was 2020. The world came to a halt. We stopped moving our feet and accelerated our online usage. For better and for worse. During that year, businesses accelerated their digital transformation like never before. Online shopping boomed like never before – it X-mas in May as we were bored, or replacing social interaction with online shopping. I think I ate disproportionately more chocolate than I used too out of self-pity. Or maybe that was when I started exploring exotic cocktails before dinner.

Now that we are expecting the end of the pandemic, businesses are investing, consumers have higer hopes, and we are expecting economic growth to take off and maybe recapture some of the lost growth of 2020. All of these factors are beneficial from an advertising point of view. If this trend confirms itself, we may be in for continued above-normal* advertising growth way further into 2021.

“Above-normal”. What is normal in 2021, anyhow?

The biggest and most important Amazon market is without a doubt the US market. It weighs 67% of revenues and grew by 19% in 2021. It will be a long time before any other market catches up. If ever! The three following markets: Germany, United Kingdom and Japan add up to only 20% of revenues. And the remaining 15 active markets 14%. Amazon is top-heavy despite a massive international expansion.

[the original article from 2021 has now been updated with 2021 numbers and developments]

The top four markets are directly accounted for in quarterly earnings report. The following five markets, India, France, Italy, Canada and Spain all had more than 150.000 sellers in their local Amazon marketplace according to this overview of third party sellers by country from Statista, and we checked their traffic and GDP per capita to build an initial list. When we initially shared this, we were made aware of actual measured figures which Edge by Ascential provides us with. To our surprise, India is actually the fifth biggest market ahead of France and Italy. For the tenth position, we initially bet on Brazil, but it seems it is Australia that holds that position followed relatively closely by UAE and Mexico.

Managing multiple marketplaces on Amazon

Navigating the various marketplaces can be complex on Amazon. And even more complex for ecommerce outside of Amazon. As the formats and functionalities of market places are essentially the same from one Amazon country to the next, there are a couple of practical solutions in place. In North America, sellers can set up a unified account to cover US, Canada and Mexico. And in Europe, a unified account spans Germany, the United Kingdom, France, Italy, Spain, Netherlands, Poland and Turkey. If you are looking to expand internationally, the Amazon’s Global Selling guide is your go-to destination.

Amazon’s international growth strategy

Amazon appears to have a distinct synergy-driven approach to internationalisation where new markets piggy back on existing ones, and where additional features are rolled out progressively. It is also using existing regional strongholds to build neighbouring markets, as proximity is so important to ensure high quality fulfillment. Brazil may enable an expansion into Argentina in South America in the future, and Germany was a key piece in the puzzle for opening Poland. In recent plans for opening in South Africa and Nigeria, those two are part of the same project, just as Colombia and Chile are grouped together.

There seems to be a fair amount of merchant copy and paste going on to get a marketplace up and running. Product listings are autotranslated and made available in a new marketplace to get it going. There must be both ample supply and demand for a market to function.

Once merchants start flocking to the marketplace, the advertising platform is then rolled out. And with the recent opening of the physical stores, Amazon Go in the UK, perhaps the physical stores branch will start trickling down the top market list in the future. Perhaps Germany, Japan, and regional strongholds such as India and Brazil will be next?

Let’s look at some of the ways Amazon markets are growing and how the international expansion strategy seems to be organized below.

Amazon Advertising

Advertising is one of the first powerpack added after a marketplace opens. There are four types of Amazon Advertising, three of which are intimately tied together with the marketplace:

• Amazon Sponsored Products (which we like to refer to as Amazon paid search due to its similarity with Google Ads)
• Amazon Sponsored Brands
• Amazon Sponsored Display

These three are used by merchants to fight competition on the marketplace and boost their sales. As described in our Amazon Marketing Report, these solutions form an integral part of an Amazon marketing system and have been opened to all the recent marketplaces.

Netherlands, Poland and Sweden are recently opened market places and the advertising branch has not yet been launched. Turkey has been around longer but it is characterized by a small Amazon market share.

The fourth advertising type is the Amazon DSP, the demand side platform allowing advertisers to advertise inside and outside the Amazon platform and a CPM (cost per thousand impressions) model. Amazon DSP could in principle be launched independently from the other ad types, but in practice it seems to tag along with the other types or shortly after.

Amazon Prime

We have a hunch that the roll-out of Amazon’s loyalty program, Prime, follows approximately the same pattern. In Europe, Prime was launched first in the UK in 2007, in France in 2008, Italy in 2010 and Spain in 2011. The trickle down pattern is probably similar across other markets.

What will be the next Amazon market to open?

In recent years, new market places have opened or absorbed in a number of countries: Turkey, Singapore, Saudi Arabia, Egypt, Netherlands, Poland and Sweden. And in a recent article for Business Insider, plans for further expansion were leaked with Belgium up next in 2022 and for next year the plan includes South Africa and Colombia and then Nigeria and Chile.

The launch plan for 2022 – 2023 goes like this according to Business Insider:

• Belgium – Sep, 2022
• South Africa – Feb, 2023
• Colombia – Feb, 2023
• Nigeria- Apr, 2023
• Chile – Apr, 2023

(source: https://www.businessinsider.com/amazon-to-expand-into-5-countries-by-early-next-year-2022-6)

Worldwide domination is still far away

Amazon is experiencing amazing growth, its ad offering is penetrating the triopoly of digital advertising consisting of Google, Meta and Amazon Ads. Physical stores are breaking down the barriers between online and offline retail. But when we look into the details of the domination, Amazon is very top heavy and has a long way to go before it reaches the same level of market power in worldwide markets. As we exposed in our recent report “State of Retail Media 2022”, local Amazons often face competition in the form of local pure players such as Allegro in Poland and Cdiscount in France. They also face vertical marketplaces such as Zalando in beauty and fashion or ManoMano in DIY.

It is interesting to note, though, how the constant progression of Amazon in international markets reinforces existing strongholds and markets as it goes. It may take a while, but the machine seems unstoppable.

If you are aiming to build a more full understanding of Amazon marketing, you find a complete coverage in Innovell’s “Amazon Marketing Report”.

Paid search was the advertising solution which made possible the Google we know today. And Amazon has one just like it. An advertising product which is not intrusive, and which consumers, search platforms and marketers all love.

In Amazon, the paid search product is called Sponsored Product Ads, and it is one of the four ad products Amazon advertisers can use. On the Google front, it used to be called AdWords but changed to just Google Ads in a shift to a broader advertising offering focusing less on the keywords and less on search.

What is Amazon search?

We have come to “Google” information, as the brand has become a verb. We haven’t quite come to “Amazon” a product yet, but search behaviour is increasingly seeing a shift in searches for products away from general search engines and into marketplaces, shopping search, and to a very high degree Amazon. People are starting to have a “Prime” reflex, as their membership of the Amazon loyalty program of that name enables them to buy a product fast, seamlessly and at the lowest available price.

Amazon Search is powered by an engine referred to as A9. Some say it has shifted to A10 now, as an update to the algorithm that powers it. It is a search engine which interprets users’ search queries on one hand and indexes product-related information on the other. There is a focus on keywords and product descriptions provided by the merchant, but additional variables affect the search results, including things like reviews and ratings, customer experience and sales velocity. Sales velocity? Yes, the speed at which a product sells – the higher the better.

Similarly to the world of search marketing for Google, Bing and other web search engines, in the case of Amazon, there is also a separation between Amazon SEO and Amazon paid search. Let’s look closer at the latter below.

What advertising solutions exist in Amazon?

Amazon Advertising has two branches: Amazon Sponsored Ads which includes three cost per click (CPC) based solutions, and Amazon DSP, the demand side platform offering programmatic media buying inside and outside of the Amazon marketplace, based on a cost per thousand impressions (CPM) payment model.

It is within Amazon Sponsored Ads, that we find Sponsored Product Ads, Amazon’s paid search solution. Its main targeting mechanism is the keyword just like in other search engine advertising. It also allows for product and brand targeting via Amazon’s product codes, the ASINs. In our survey for the Amazon marketing report, 85% of the participating Amazon marketers’ preferred ad solution was Sponsored products.

The other two CPC advertising products in the Amazon market place  are called Sponsored Brand and Sponsored Display. They are CPC-based like Sponsored Products but have different placements and different targeting mechanisms. Dive deeper look into the topic here: Amazon advertising characteristics.

7 similarities between Amazon Sponsored Products and AdWords

Amazon Sponsored Product ads have been built into the user experience, just like Google’s AdWords, now renamed to just Google Ads,. When a user searches for information or for a product, the ad appears prominently and close to organic search results. It even looks like an organic result. This is the case for both Amazon’s and Google’s search advertising.  Let’s look at the seven dimensions in which the two ad products are similar.

• Pay per click: The orginal search advertising product from GoTo was the first search advertising solution to use the click as its’ main metric. Most search advertising is “pay per click”, or rather “cost per click”, abbreviated as CPC, meaning simply that the advertiser does not pay for exposure or ad impressions, but only pays when a user clicks on the ad.
• Real-time auction: In most digital advertising, the impression of the ad is decided in real-time and on the basis of an auction between advertisers targeting one specific ad placement. The highest ranking bid wins the auction. In Google and Amazon, the rank of the bid is not exclusively based on the price the advertiser is willing to pay. It also carries an element of user experience optimization, such as the Quality Score in Google Ads and available product inventory in Amazon.
• Keyword: The keyword is the basic targeting mechanism for all search advertising. One of the functions of the advertising engine is to match the targeted keyword with the real search terms used by users.
• Match type: In order to match keywords with advertiser targeting, advertising engines use four basic matching mechanisms: Exact match, Phrase match, Broad match and Negative match. These match types are available in Amazon Sponsored Products but have evolved towards less transparent versions in Google Ads and Bing Ads.
• Native ad format: Whereas ads in Amazon search are nowhere similar to ads in other search engine, they carry a ressemblance with organic results. When ads closely integrate with organic results or content, the word “native” is used to characterize them. Search ads were some of the first native ads to be found in digital advertising. Both Amazon sponsored product ads and Google text ads are very similar to the organic search results above and beneath them.
• Ad placement: Just like the native ad formats, the ad placement of search ads is closely integrated with natural results. The key ad placement for search ads is just above the organic search results. To increase visibility, they are often continued at the bottom of the search restults page.
• Automatic targeting: Amazon search ads may ressemble Google AdWords from the way they worked years ago, but in its automatic targeting features it is much close to the Google Ads of today. Google has an automatic targeting function known as Dynamic Search Ads, where the advertiser submits a URL rather than a list of keywords. Amazon Sponsored Products has an automatic targeting function used by marketers to find relevant keywords for their campaigns.

After this list of similarities between Amazon search ads and paid search in Google and Bing, it is fair to mention that there are of course differences too. One of those differences appears in the way marketers work with the ads.

Search marketers fall into two groups, SEO’s aiming to improve organic rankings, and paid search marketers deploying winning strategies to maximize the outcome of search ads. But in Amazon marketing, those two functions are often merged into one, as paid advertising directly impacts organic outcome. In Amazon, effective paid search can have a positive impact on a products organic visibility as “sales velocity” is a ranking signal for the A9 search engine, and marketers naturally work in both dimensions for optimal outcome.

Amazon Sponsored Products is on an AdWords trajectory

AdWords is what made Google rich. Amazon Sponsored Products is only one of the main growth drivers of Amazon, but it is on a trajectory of success. It is likely the most important advertising product for Amazon, although that information is not disclosed. We do know that marketers love it, that it typically generates higher click through rates than the other ad products, and that it is really easy to use. It has practically become a must if you want to sell on Amazon in 2021.

The key for the continued success of this ad product, and possibly for the successful incursion of Amazon Ads into the digital advertising landscape will be to maintain a great user experience in the search interface when the ads are on, maintaining the triple win for the platform, the advertiser and the end user.

If you are interested in search trends and outlooks for digital marketing, you will find more in-depth analysis in our recent reports: “Major Trends in Paid Search“, “Paid Search Strategies“, “Marketing on Amazon” and “Digital Marketing in Uncertain Times“.

With Amazon Advertisings’ staggering 66% growth in Q4 of 2020, the giants ad offering is now firmly established in the digital media landscape. Amazon Ads has become part of the Triopoly of Digital Advertising together with Google Ads and Facebook Ads. On top of that, the Amazon advertising platform is pacing well above the baseline Amazon e-commerce growth rate, already impressive at over 30%.

But what is Amazon Advertising and who is it for? Can any advertiser make use of the platform? How does it work? Should your business be advertising on Amazon in 2021?

In our research for the Search Trends Report in 2018, we discovered that search marketers specialized in Google Ads and Bing Ads hadn’t adopted Amazon Ads, and that it was below the radar for many advertisers despite having gained critical mass and experiencing much higher growth than the other ad platforms.

What is Amazon Advertising?

Amazon Advertising is a division within Amazon composed of two different offerings, Amazon Sponsored Ads on one hand, and the Demand-Side Platform, Amazon DSP on the other. The names have changed quite a bit in the past, but names like Amazon Media Group (AMG), Amazon Marketing Services (AMS) and Amazon Advertising Platform (AAP) are no longer used.

Amazon still reports on its advertising revenues in a category called “Other” in its quarterly reporting, despite its having passed the 5% mark of Amazon’s earnings.

Amazon Advertising proposes a range of advertising solutions made available to agencies and advertisers inside and outside the marketplace. The primary media placements for Amazon advertisements are inside the marketplace: on product detail pages and in search results pages. Amazon additionally places advertising outside the marketplace on properties it calls O&O: Owned and Operated media. And finally, it has the capability to use ad exchanges such as Rubicon and AppNexus to reach sites completely external to Amazon.

When it comes down to the ads themselves, an Amazon ad can have a wide range of formats. Each depend on the placement and the advertising solution in which it is found. The simplest ads are based on product listings, more advanced ads can be display banners and carrousels, and video is also available in some of the solutions.

Amazon Sponsored Ads or Amazon DSP

Amazon Sponsored Ads and Amazon DSP are two different organisations within Amazon Advertising. The more accessible solution is Amazon Sponsored Ads, which Sellers on the platform can access freely and which is conveniently part of the same accounting as their ecommerce. It is composed of three products, all using the cost per click model (CPC):

• Amazon Sponsored Products: simple and straight forward keyword-based advertising for product listings.
• Amazon Sponsored Brands: keyword, product and category targeting for promoting a brand, logo, text message in more prominent position in the marketplace
• Amazon Sponsored Display: audience targeting, retargeting, display banners using placements inside and outside the marketplace using a CPC model.

The Amazon DSP is a programmatic advertising platform with restricted access. It allows for a much more advanced targeting than Sponsored Display and works on a cost per thousand impressions (CPM) model. It is the Rolls Royce of advertising with Amazon.

6 essential things to know about Amazon Advertising

Amazon Advertising is evolving quickly. Not only is it experiencing phenomenal growth, but the platform and the offering also progress. The recent opening of Sponsored Display to inventory outside of the marketplace is a prominent example. But let’s look at some of the things that don’t change. The keys to advertising on Amazon in 2021.

Advertising is an essential part of being an Amazon merchant

Marketing on Amazon involves showcasing, pricing and describing one’s products and making inventory and shipping available to buyers. It is essential but not necessarily enough to have great reviews and ratings to become a best seller. An increasingly important part of the marketing equation is making sure one’s product is visible to buyers by using advertising.

Amazon advertisements are best for endemic advertisers

Amazon distinguishes advertisers whose products can be found on the platform, endemic advertisers, from advertisers whose products are not marketed there. Non-endemic advertisers fall into categories such as automotive, energy, finance, travel and hospitality, telecommunications and gambling.

Endemic advertisers make up the bulk of ads on the platform as the user journey is short and sweet ending in a measurable conversion directly on the platform. Nationwide non-endemic advertisers may however be interested in building an Amazon advertising strategy because of its large exclusive audiences which can’t be reached via any other advertising platform. The other attrative Amazon DSP asset is the rich audience data the platform can make available for targeting purposes.

Link In and Link Out

Whereas the Amazon platform is pretty much a closed garden where you are either inside or outside, there are a few approaches through which traffic is exchanges with the outside world, such as:

• Amazon DSP campaigns for non-endemic advertisers can link a banner inside the marketplace to a destination outside of Amazon.
• External advertising can link directly into the marketplace to promote a product outside of the platform. This approach is emerging as a paid search strategy for Amazon-first
• Amazon DSP and Sponsored Display campaigns can retarget users outside of the Amazon platform to bring them back into the fold.
• Amazon Influencer partners is an affiliate program where influencers can enter into revenue share deals with merchants on the Amazon platform by promoting the products on their social media or websites and sending users into Amazon to purchase.

Linking in to the platform is still a nascent discipline made difficult by the somewhat rudimentary tracking made available via the affiliate platform or the Amazon Attribution platform.

Amazon Sponsored Product Ads are like AdWords

In our research for the Amazon Marketing Report, we found that Sponsored Products was the most popular product among marketers. It ressembles the Google Ads search product so much that it could have been named Amazon paid search, or even Amazon AdWords, now that Google has abandonned that name.

Amazon Sponsored Products is easy to use because it directly uses the product listing as the ad, targets keywords and even allows marketers to use automatic targeting for refining the keywords that drive conversion.

Amazon Sponsored Products is the first step a Seller will take into advertising, and in many cases it is a necessary step to increase visibility, once the product listings have been optimized and a brand store created.

Amazon DSP is gaining ground

In the world of programmatic advertising, Google DV360 is the incontested leader trailed by TheTradeDesk. The Amazon DSP is quite a bit lower on the list. It has a triple advantage, though: it provides the only access to inventory on the Amazon marketplace, its inventory is experiencing hefty growth, and it has some of the best audience data on purchasing behaviour. Expect to see the Amazon DSP gain more ground in the near future.

The learning center is great

With such a strong growth, a rapidly evolving platform, and a culture of confidentiality, it can be difficult to find reliable information about Amazon Advertising. Luckily, there is the Amazon Learning Console, a training and examination platform freely available and really well structured. In the learning center, anyone with a an account, some time and curiosity can obtain an Amazon Advertising Certification.

Don’t ignore things that grow at 30-70% growth rates.

No serious business person can ignore trends that represent 30-70% growth per annum, except if they are Bitcoin and suddenly drop at the same rates again. The Amazon platform and ecommerce grows continuously and Amazon Ads grows consistently above that rate catching up on other advertising platforms and gaining ground in the digital advertising triopoly.

It is time to figure out how marketplaces in general, Amazon and its advertising dimension in particular can affect your business area and pick up the challenge of competing there.

If you are aiming to build a more full understanding of Amazon marketing, you find a complete coverage in Innovell’s “Amazon Marketing Report”.

In our recent report “Digital Marketing in a VUCA World” we looked at how digital marketing is affected by COVID19, the rise of AI and the end of cookies. The most abrupt changes are of course due to the lockdown and drop in advertising investment. Now, in Q3 we can see how each of the platforms recovered.

Amazon Ads grows 51%, Facebook Ads 22% and Google Ads 9% in Q3 ’20

Every quarter, the three members of the triopoly of digital advertising publish their revenue figures and it used to be almost predictable. An average growth every of around 15% year on year and a peak in Q4. Amazon Ads playing catch-up by steadily eating triopoly share every quarter but still representing only ¼ of Facebook Ads and 1/7 of Google Ads.

In Q2’20 Google Ads saw negative growth YoY

With COVID19, things were shuffled around a bit. Google Ads saw the first ever quarter of negative growth yoy in Q2 (-8%) whereas Amazon Ads and Facebook Ads resisted. But the recovery was so much stronger for Google Ads in Q3 that the lost quarter of COVID19 may be soon forgotten. Facebook didn’t seem to be impacted in Q2, and experiences higher growth than recently in Q3 (22%).

In Amazon, E-commerce exploded in Q2 and ads picked up in Q3

Amazon Ads grows with over 50% in Q3, a level of growth the platform hasn’t seen since 2018. It is probably riding on a delayed impact of the massive Q2 growth in e-commerce on the platform. Amazon Ads spend is strongly tied to the the e-commerce activity. On Amazon the media is the marketplace. When you plot e-commerce revenue against ad revenue over time, the correlation becomes very clear – all but in Q2 and Q3 of 2020 due to COVID19.

Amazon experienced massive growth of e-commerce in Q2 at 49% yoy compared to recent growth around the 20% mark, Q2 was a bit like christmas in May. However, advertising was affected by uncertainty and only picked up in Q3 with over 50% growth where recent quarters showed around 40% growth year on year.

Q4 outlook, anyone?

With a massive Q2 for e-commerce, recession, new lockdowns and an uncertain holiday season, Q4 shouldn’t be expected to be business as usua, should it?. Amazon, of course, pushed its Prime Day private sales event to Q4 and should be expected to benefit from a further surge in e-commerce. Advertising spend usually picks up strongly in Q4 too, so we have two contrary forces at work: high media pressure on one hand and uncertainty on the other. We are likely to see the traditional Q4 spike, but it will probably be composed of a different advertiser mix than we are used to, and there could be some platform shift also. One thing is certain. Q4 in digital advertising will be higher than ever before for the triopoly.

Amazon published its quarterly earnings report last week and I rushed in to discover the massive growth of Amazon Ads, which is the highest growing activity within Amazon. Amazon Ads increased by approximately 44% year on year and thus had slightly higher growth than in the last quarter as compared to the same quarter the year before.

I also made my way by the Google and Facebook quarterly reports to get a feeling for the state of the triopoly of digital advertising. Both are experiencing healthy growth: Google Ads grew 10% and Facebook Ads 17% YoY.

As, in the past, I have strongly insisted on the way Amazon Ads has been catching up on both Google Ads, of which it represented approximately 1/8 in Q4’19, and on Facebook Ads of which it represented almost 1/4 in the same period, I was curious to see whether the trend continued with the increase in growth we noted. To my surprise it was not the case. In Q1 2020, Amazon Ads dropped to a 11,6% of Google Ads and 22,4% of Facebook. A relative decline despite the high growth.

The explanation for this seeming paradox of higher growth but lower proportion, is that Amazon Ads have a higher seasonality than Facebook and Google. All the big internet players have an extremely high seasonality in the last quarter of the year due to the holiday seasons and shopping frenzy. But for Amazon, this is even more pronounced and the relative drop into Q1 is more pronounced as well, as Amazon Ads closely traces the ecommerce activity as shown below:

What this tells us is probably that a large majority of Amazon’s ad revenue is in Amazon Sponsored Ads, the advertising which is displayed inside the marketplace (as opposed to Amazon DSP which is mainly outside).

What does this tell us about the future?

The growth of Amazon Ads is strongly correlated with Amazon ecommerce. If Amazon ecommerce continues to grow by 26%, we can expect Amazon Ads to grow at the same rate or higher. Advertising has grown as a part of Ecommerce for a while, and the question is whether there is an upper limit. Within Amazon Advertising, one of the reporting measures is an internal ratio called ACOS: Advertising Cost of Sale. The higher the ACOS, the less net margin a merchant generates. This is a good illustration of existence of an upper limit to how much advertising the system can support.

With this potential ceiling for advertising on the marketplace, the huge growth opportunity for Amazon obviously resides outside of the marketplace and this is where Amazon DSP comes into play. Amazon DSP leverages user data for advertising outside of Amazon and has an almost unlimited potential for growth.

If the growth for Amazon Advertising beyond the growth of ecommerce, and solely based on the additional growth of the Amazon DSP offering, then we should probably expect to see a slowing of the growth in coming quarters with the floor being the growth rate for ecommerce itself. Currently sitting at 26%.

But with Covid19 predictions are hard to make

However, Q2 results in 2020 will reflect a completely different picture of where both Ecommerce and Ads are going due to the impact of the Corona virus disease which affects both the volume and types of ecommerce and the volume of advertising. In a crisis situation, advertising spend is often cut but in the present situation, there is also an effect of reorientation. There could be shifts from other channels to Amazon and there are definitely shifts between categories of products.

But whatever the Q2 figures will be, they are likely to show a further catch-up of Amazon Ads compared to Google and Facebook whose advertising revenues will likely be more affected in times of crisis. So, despite the crisis situation, Amazon is probably still catching triopoly share at the time of writing.