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Amazon's ad business is spiking, but ad buyers say the coronavirus reveals the commerce giant's weaknesses versus Google and Facebook

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  • Amazon's ad business took less of a hit than Facebook and Google in the first quarter of 2020 due to the coronavirus because of the e-commerce giant's ties with direct-response advertisers that sell products on its platform.
  • Yet some ad buyers say that the pandemic has shown how far Amazon's ad business lags Facebook and Google.
  • Some ad buyers say that ad prices for Amazon vary wildly from month to month. Ad agency PMG saw ad prices for search ads increase 30% in March and then drop 21% in April.
  • The pandemic could also help Amazon win over smaller advertisers as big brands pull their advertising spend.
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Amazon's ad business has fared better than Facebook and Google during coronavirus, but ad buyers say the pandemic has shown how far the commerce giant has to go in building an advertising business to rival the two tech companies.

During the first quarter of 2020, Amazon made $3.91 billion from advertising, a spike of 44% year-over-year. Amazon attributed the growth to the surge in shopping during the pandemic and said that it was more insulated because its ad business relies on direct-response advertisers that sell products on its website.

"A large portion of our advertising relates to Amazon sales not things like travel and auto, which off-site may have been disproportionately impacted at least early on here in the COVID crisis, and I think our advertising will prove to be very efficient as well and can be directly measured," Amazon CFO Brian Olsavsky said during the company's first-quarter earnings call on April 30.

But ad buyers say that they've experienced turbulent ad prices and logistic problems that could hamper Amazon's long-term advertising plans.

Amazon's ad platform isn't as slick as Facebook or Google's platforms

Price Glomski, EVP of digital commerce at ad agency PMG, said that Amazon's volatile marketplace over the past couple of months has shown how Amazon's ad platform is not as advanced as Facebook or Google.

For example, he said that Amazon's decision to de-prioritize shipments of non-essential products from third-party sellers in March made it harder to use Amazon's auction that advertisers use to bid on ad prices. He also said that Amazon has focused its merchandising efforts on essential products, making it harder for advertisers to promote products. Amazon is known for constantly changing the user experience of its website and app.

"There's breakage in the Amazon platform — their algorithm hasn't figured it out," he said. "You have Facebook and Google that have been around long enough to understand these volatile times. [With] the Amazon platform, I don't know if it's there yet."

Ad prices are swinging dramatically for some advertisers

Multiple agencies and adtech firms report that ad prices have fluctuated significantly over the past couple of months, making it harder for advertisers to set budgets and run campaigns.

Glomski said that cost-per-click prices for Amazon search ads increased 30% for brands like streaming services, apparel and consumer electronics in March when shopping sales shifted to essential goods. In April, the firm saw ad prices across all formats drop 21%.

"It's because of accelerated competition and because their auction doesn't quite understand consumer behavior," he said.

Data from Amazon-focused ad agency Bobsled Marketing, meanwhile, showed widespread ad price declines for advertisers. Of a sample of 28 Amazon sellers and vendors, 21 had lower cost-per-click rates in April compared to March.

While the pandemic has made it harder for advertisers to navigate Amazon, it could also open up opportunities for smaller brands.

Stefan Jordev, advertising director at Bobsled Marketing, said that the lower ad prices could bring in more smaller advertisers that normally get priced out of Amazon's ad auction by big brands that have pulled back on ad spend.

"Many advertisers have reduced advertising budgets because of the uncertainty that comes with the pandemic — the natural course is to focus on campaigns which are more profitable," he said. "The COVID-related events come as an opportunity to small and agile sellers, which are able to react quickly to changes imposed by Amazon, then advertise their products at more cost effective advertising rates, which are currently available."

SEE ALSO: Inside Amazon: Everything we know about the e-commerce giant's growing advertising business

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