A trailblazer in the world of online shopping, Amazon – the king of e-commerce – has been changing the way we buy things since day one. And now, its advertising model is rubbing off on retailers too.

According to eMarketer, Amazon became the third largest advertising platform (in the US) behind Google and Facebook last year, surpassing the likes of Bing and Oath. You could argue that this is a natural progression for a site with such a large digital footprint. The traditional publisher model of monetising visit numbers by selling space to third parties for display advertising does not align with Amazon’s ethos of keeping users within its ecosystem. Instead, Amazon has taken the bold step of allowing sellers to buy sponsored placements that drive users through to their listings on Amazon.  Think of this less as traditional advertising for your site, more akin to the traditional supermarket model, where brands pay for premium space on shelves. Progressively, retail websites are starting to copy the Amazon model and monetising their platforms through advertising and premium placements, including the likes of Walmart and Target in the US.

What does this mean for traditional advertising platforms?

Google and Facebook are starting to see the effects of this as advertisers move budgets away from these platforms. The secondary, less direct implication being that users are spending more time on Amazon, or rather starting their searches on Amazon as opposed to traditional search engines, which will mean less inventory for Google. Less inventory – perhaps inevitably – leads to an increase in advertising costs as more advertisers clamber over fewer available impressions, which in turn results in greater inefficiencies and long-term reduced investment.

As Amazon invests more in fulfilment, making it cheaper for brands to fulfil via Amazon, margins often look better than actually selling through their own website!

How are the engines fighting back?

Of course, there is Google Shopping, which has changed the face of search for many advertisers, increasing inventory almost overnight and bringing with it increased efficiencies. However, for the longevity of this platform, Google is reliant upon driving traffic to the advertisers’ websites, which are out of their control. Conversely, Amazon’s ad program runs completely within its own ecosystem, driving traffic to pages via features such as Prime and Subscribe & Save. Constant optimisation in these areas always ensures the optimal user experience.

Other meta engines within Google across verticals are being launched to futureproof themselves against bigger vertical players from cornering more user searches; for example, their recently launched flight search functionality.

Final Thoughts

The irony is: the likes of Amazon have significantly squeezed margins for retailers; however, they are now leading the way in demonstrating how to extract greater value by monetising their online real estate outside of e-commerce. This looks certain to erode Google’s monopoly in retail search – will this shift to Amazon, or will there be a far more fragmented market across thousands of different retailers where brands can invest? As for agencies, the larger groups – WPP, Omnicom, Publicis and IPG – have gone as far as to set up specialist online retail divisions to capitalise on the trend. Whatever happens, there’s certainly room for greater innovation within retail.