A couple of weeks ago, I wrote about how Amazon is giving some of its vendors an ultimatum to either lower their prices so that Amazon can make a profit selling them or they can forget about Amazon promoting those products for them.
I also mentioned that Amazon’s move to push out vendors that contribute to their overall advertising revenue growth may also be a risky move, especially, if those same vendors decide to give their advertising dollars to Facebook and Google instead. And even more risky, when you consider how hard Amazon has worked to become the third advertising force and compete head to head with Facebook and Google.
What’s the Advantage of Amazon Advertising?
Amazon advertising is a direct connection to buyers. At the most basic level, Google is a search engine that primarily works based on the searcher’s proactive “intent” to look for something or get more information about a particular subject.
Facebook/Instagram are social networks with most of their ad revenue and magazine style scrolling and ads added to news feeds being based on users’ “interest” rather than intent.
Amazon has now become the third advertising giant thanks to its own massive marketplace. In their eyes, they don’t worry so much about people’s “intent” searches or even their social “interests.” What they do know a lot about is what people actually buy. In other words, if you consider “buying” as the ultimate conversion event in your advertising journey, as a massive marketplace, Amazon is the only advertising option that connects a prospective buyer’s search for a product to an immediate, on-site purchase.
The fact is that, in most cases, when people go to Google to search for a product, or when they are served an ad for a product they like on Facebook, they end up going to Amazon to buy it. So you, me, and especially, Amazon, can logically ask: why would people go to Google to search for a product rather than going directly to Amazon? And that’s exactly what’s happening now.
Nearly half (46.7%) of U.S. internet users started product searches on Amazon compared with 34.6% who went to Google first, according to a May 2018 Adeptmind survey. And the leading method among digital shoppers in the U.S. surveyed by Salsify in February 2018 was searching and buying on Amazon (41%) followed by searching on Google then buying on Amazon (28%).
This is the reason why, when it comes to advertising, Amazon has to be careful not to punish one of its hottest and most profitable revenue channels today. According to eMarketer, Amazon’s ad revenue more than doubled to $10.1 billion between 2017 and 2018 and it’s expected to grow another 50 percent in 2019. Not bad for the “other” category of revenues in addition to its more commonly known revenue streams via eCommerce and Amazon Web Services cloud servers.
So what happens to current Amazon vendors such as electronics manufacturers, consumer products brands, clothing brands, office supplies manufacturers, automotive accessories and the likes that are now spending significant amounts of money on Amazon advertising? Remember, these are vendors that use Amazon advertising to have their products appear on the first page results when the average consumer is searching for their products. Is Amazon going to effectively ‘block’ their ads because the products they sell are not profitable for Amazon?
The Amazon Vendor Dilemma
Amazon seems to be just fine with this situation and willing to accept the trade-off. For vendors, the ad suspensions are just the latest source of frustration with Amazon, which has grown into a huge retailer monster and is able to change its policies on a whim. In fact, Amazon is quite vague explaining to vendors what they need to do in order to get their products re-approved for advertising. It’s more of a guess game as far as how much of a wholesale price reduction is required to get the ads back and running again.
It’s important to keep in mind that unlike Google or Facebook, Amazon uses ads to drive sales on its own site. So the ad platform is very much part of their own unique ecosystem (some politicians refer to it as a monopoly) where advertisers are at the mercy of their advertising platforms which in this case is also their online retail store.
The bottom line is that Amazon wants to make money not just with your ads, but with the products that you sell through your ads. If the latter is unprofitable, the former will not happen.
It’s just a tough situation and one that makes a lot of Amazon vendors very frustrated all the time. We hear it from our Amazon clients too. All I can say, is that we always recommend to all of our Amazon clients to invest equally in their own eCommerce store. We specialize in all major eCommerce platforms, including Shopify, BigCommerce, WooCommerce, Square, Wix and more. You just don’t want to (or can’t afford to) give all of your control to a third party company that may change its policies on a whim and cut your revenue overnight.
If you need assistance, MGR will set-up, manage and optimize all of your initial selling platform activities to launch your own eCommerce store. Once your store is up and running, through one of our eCommerce Maintenance Programs, you get complete and clear data-driven reports and recommendations so you can grow your sales and increase your margins while keeping full control of all of your sales activities.
Thank you for reading. Until next time, this is Manuel Gil del Real (MGR).