Amazon has decided to change its move on advertising due to a significant drop in revenue from advertising sales. It intends to re-accelerate the ads business by expansions and strengthening relationships with brands in order to speed up the purchase funnel.
As Amazon’s ad business is trying to pace up, it is trying to find a more efficient way to retain big sellers. Several major brands decided to pull their products off the platform and stop direct sales. Amazon is now planning to focus on branding products designed to help brands build a more curated and engaging presence on the platform. Let’s see why the sudden change in approach to advertising and what made Amazon remodel its advertising strategies.
Amazon’s “Other” Segment Is Stagnating
Amazon’s “Other” business segment related to advertising generates a lot of cash for the company or, better said, it used to. What went wrong? Amazon’s advertising sales peaked at $4.8 billion in Q4 2019. That is 41% year-over-year for Amazon’s Q4 2019 total earnings. Compared to the last year-over-year of 97%, there has been a significant downfall.
Amazon bets high on its advertising business. Even though the growth decelerated in 2019, it began to stabilize during the last couple of quarters slowly. Amazon is optimistic to reach the figures on which it was a year ago. The company decided to act on it and try to facilitate growth in advertising sales.
Strategic Approach to Building Long-Term Relationships
The potential of the brand story and awareness is now being recognized by advertisers in and outside the Amazon Ecosystem and Amazon is currently testing ways to bring more people to brand pages. This is to help the brands promote more engagement on the platform.
And to do it, Amazon has something brand new in its arsenal of features. Say hello to “Stores” and “Posts”. These features will allow brand marketers to come up with their own branded landing pages around the website. As the brands start seeing ROI from using new features, Amazon hopes they will become big Ad spenders and re-accelerate the growth of the company’s advertising sector.
What Are “Stores” and “Posts” Bringing To The Table?
“Stores” and “Posts” must pack some very interesting features since Amazon thinks the features are going to help them build deep relationships with brands. Amazon’s director of investor relations mentioned that the new Amazon branding features would help brands establish a recognizable and engaging presence on the e-commerce giant’s website. Let’s take a closer look.
“Stores” and “Posts” are developed to enable brands to build their unique presence on the platform and make their products more attractive to the customers. “Stores,” for instance, will allow brands to create a multi-page storefront on Amazon. Brands will have full control of the looks of the page so they can bring it closer to their branding strategies and brand identity.
The “Posts” which is still in its beta phase enables brands to curate shoppable product feeds. These feeds can be linked with product pages where customers can read product details and see high-quality pictures.
These two new features should incentivize Brands to invest. In return, Amazon’s advertising sector revenue should increase. It is important to note that it all boils down to customer experience. Amazon is aware that one of the primary goals of brands is to offer a unique customer experience. “Stores” and “Posts” offer precisely that.
Just a couple of weeks ago, Colleen Aubrey, Amazon’s VP of performance advertising, was at an AdExchanger conference. He seized the opportunity to address the “Stores” and “Posts.” “We need to open up the experience beyond 'I need this item today' ", he said.
“Stores” and “Posts” Are Not Advertising Products
However, the advertising platform on the company’s e-commerce website is not going to change. “Stores” and “Posts” are not going to be sold as advertising products. Their primary role is to attract more brands by offering them new means to drive sales growth.
When brands recognize the potential of these features, and the ability to create tailored landing pages, they will start spending more cash on ads. As more customers engage with these product pages, brands will spend more cash on ads.
Sponsored Product Ads Stand In Line of Generating The Most Revenue
If we take a look at the numbers, it becomes clear that Sponsored Products ads have been by far the most popular branding facility for the company.
The chances are that “Posts” and “Stores” are going to accelerate spending towards the ad format. The spending on Sponsored Product ads accounted for 79% of advertisers spending on Amazon ad products in Q4 2019. In Q3 2019, spending growth on the Sponsored Product ads was 35% year-over-year. The growth almost doubled in just a couple of months, given the y-o-y growth in Q4 2019 is 63%.
It is not by chance that Sponsored Product ads are so popular. In Q4 2019, the sales generated by this advertising product rose 106% y-o-y. Since various sections of the Amazon platform support sponsored Product ads, it is quite logical to expect their high performance. More importantly, they can be used to bring customers to landing pages introduced with the “Stores” feature. Amazon also has an excellent platform for marketers supported by OTT video channels. If brands increase their sales thanks to “Stores” and “Posts”, it is likely that they will spend even more money to advertise on channels on Fire TV devices.
The new Amazon strategy is rooted in providing brands with new opportunities to reach more customers, deliver excellent customer experience, and boost sales. As a result, Amazon expects brands to spend more on the company’s advertising products. Let’s see how Q1 and Q2 2020 perform and understand how much the strategy pays off…
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