Many marketers — especially as the holiday shopping season approaches — are struggling to decide where Amazon fits into their marketing and distribution strategies.
With Amazon delivering a 60% year-over-year growth rate for Prime Day, it seems unstoppable. Depending on where you sit in the value chain of commerce or services, Amazon is a combination of friend, foe, frenemy or perhaps even a “co-opetititor” (I borrow this term from my professor Barry Nalebuff’s book, “Co-opetition.”)
Stressing the ecosystem
Amazon isn’t the first “partner” that businesses are struggling to define as a friend, foe, frenemy or co-opetititor. Similar scenarios repeat throughout recent marketing and business history. Partnerships between brands and their marketing, advertising and distribution channels become strained when one of the partners evolves to have a disproportionate impact on, or control over, the greater ecosystem.
This asymmetry of power between partners and a marketing or distribution ecosystem creates a huge amount of stress. If you’ve been advertising on Google at any time over the past 15 years, you’ve experienced this effect in terms of CPC (Cost Per Click) inflation, a crowded marketplace, and limited (asymmetric) transparency into many metrics relevant to successful marketing campaigns.
Over the past decade, SEM (search engine marketing) market growth has been driven by a scarce, very valuable asset: search clicks, served up by a “partner” controlling a disproportionately high share of the market. Google’s AdRank algorithm — with its black box Quality Score — combines with hyper-competitive bidding to add a non-removable tax on online-driven business.
Brands and other marketers find themselves in situations where their biggest “partners” have so much power within the relationship or the ecosystem that the brands don’t know what strategy to execute.
Now, before we look at Amazon’s advertising offerings, let’s review the retailers — and even non-retailers — who compete with the retail giant but have very little upside. While it may seem like Amazon’s FBA (Fulfillment by Amazon) program levels the playing field, it really doesn’t.
Why? Because Amazon owns the customer relationship and — other than being a manufacturer using Amazon as a distribution channel — anyone reselling another manufacturer’s product is at a disadvantage against Amazon itself because Amazon has significant negotiating power when it buys for itself. (It has both a pricing advantage and its own the distribution.)
The categories Amazon controls are expanding every month as it moves into new market or solidifies itself in one, as with Whole foods.
If you’re going to advertise on Amazon.com, do it now
From the data I’ve seen — and from personal experience as an Amazon shopper — I see Amazon dedicating a huge percentage of its own product SERPs (Search Engine Results Pages) to sponsored products (Amazon’s version of Product Listing Ads, or PLAs). Right now, the majority of the ads I’ve seen are for products that are FBA (although the title of the good is held by the seller until it ships).
Amazon gets a healthy slice of each of these transactions. Even if the sellers aren’t using sponsored ads, they will pay Amazon not only on a revenue-sharing basis, but FBA warehousing and other fees as well. (Occasionally, you’ll see a brand where Amazon is the merchant and the brand simply wants to juice up visibility much in the same way that supermarkets charge brands slotting fees based on shelf placement and end-cap placement.)
Amazon already dominates e-commerce in many consumer market segments, and this dominance is likely to grow. Brick-and-mortar merchants are already feeling the impact of Amazon’s retail dominance.
For now, the FBA merchants and the manufacturer brands using Amazon’s ads are probably feeling OK about Amazon’s ad platform, but this may well change. I’m predicting that as more and more FBA and manufacturers get aggressive in the Amazon SERPS, the overall costs to those FBA merchants and manufacturer brands will become as challenging as the costs for Google AdWords and PLAs have for e-commerce merchants generally.
If you are a brand/manufacturer or an FBA merchant, my recommendation would be take full advantage of the fact that — just like in the early days of Bing — you can probably make a great ROI on Amazon ads if you have the right price and product.
But if history is any guide, this early adopter advantage will evaporate quickly as the Q4 shopping season arrives (it seems to arrive earlier each year) and Amazon’s advertising market attracts more advertisers with deep pockets willing to bid more for scarce clicks.
My message to you today is clear and simple: Start optimizing your business in preparation for ROI drops as prices for the ads inevitably rise.
Yes, it’s summer, and we all need (and deserve) a rest. But you really don’t have much time to exploit your early adopter advantage. Use the next six to eight weeks to get this job done before the Q4, make-or-break shopping season begins in earnest.
Some opinions expressed in this article may be those of a guest author and not necessarily Marketing Land. Staff authors are listed here.
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Author: Kevin Lee
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