Amazon advertising is steadily growing into a vital part of the total business accounting for almost $10bn of revenue in Q3, and is – along with AWS – one of the most important sources of profit for the company; as an inspiration for other similar retail advertising business ideas, some are questioning whether this points to a whole different theory about how money is made online.
Why it matters
At Cannes Lions Festival this year, Amazon’s advertising presence was embodied as more than just another beach but as a whole “Amazon Port” and was widely read as a statement of its seriousness about the advertising business.
But Amazon’s retail advertising proposition is quite different from most other advertising companies in that it sells advertising not just against media (and therefore people’s attention) but on its search listings to audiences that are there to buy, signed-in to the system and probably beyond the search phase.
For media buyers, this is the attraction: you can see how dollars spent relate directly to dollars in sales. So it’s not just a case of sales, but the data to help improve tactics and justify spending.
But the question is whether it remains an investment or is becoming a necessary cost.
Technofeudalism?
So what’s this got to do with the organisational system of mediaeval societies?
The idea of tech feudalism (or technofeudalism) posits that what really powers modern companies (wealth creation) is shifting away from making and selling at a profit and instead toward the creation of an infrastructure-like entity that becomes a kind of cost of doing business.
As the economist and former finance minister of Greece, Yannis Varoufakis put it in the summer of 2021:
“[V]alue extraction has increasingly shifted away from markets and onto digital platforms, like Facebook and Amazon, which no longer operate like oligopolistic firms, but rather like private fiefdoms or estates.”
The idea, which casts the modern internet advertising (and increasingly e-commerce) economy as a rentier over user behaviour, has its detractors that resist the notion that this is a new phase, or even the end, of capitalism, but it does present an interesting way of reading the retail media boom that Amazon has done much to inspire.
Is that so?
Increasingly, some sellers that once reported a healthy business through Amazon –around 58% of products sold come from third party sellers – find that in order to sell at a similar rate, they must spend between 10 and 20% of their sales on Amazon ads, according to six sources that spoke to Recode.
While advertising has typically conferred an advantage on a brand, it hasn’t always been a necessity of doing business. Of course, there are other places where sellers can take their products but cutting ties with one of the biggest retailers on the planet isn’t really an option for most businesses.
The other question surrounds whether it means Amazon can continue to provide the same customer experience, with some former executives questioning whether it’s possible for the best products to surface.
Deep currents
Ultimately, though, advertising on Amazon is going nowhere, and with deeper changes like Apple’s Tracking Transparency, and the deprecation of the democratic (if deeply flawed) third party-cookie, sellers with significant first party data behind their website traffic are putting in place similar ad businesses.
The trend is only growing. The trick will be to continue to provide an experience that people can trust, rather than one in which they feel they must dodge the promotions to find what they’re really looking for.
Sourced from WARC, Project Syndicate, NY Mag, Recode
ENDS
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This article first appeared https://www.warc.com
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