Amazon is Quietly Using This Brilliant Strategy to Grow Its $7 Billion Ad Business

Amazon is Quietly Using This Brilliant Strategy to Grow Its $7 Billion Ad Business

A new report from the ad agency Merkle shows that as Amazon approaches Prime Day, it's using an interesting strategy to grow its own advertising bus

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A new report from the ad agency Merkle shows that as Amazon approaches Prime Day, it’s using an interesting strategy to grow its own advertising business: it’s buying ads on Google. 

It might seem counter-intuitive to pay another company for ads when you’re already the third-largest digital advertising platform, but it’s actually brilliant when you think about it. Google’s Shopping Ads allow businesses, like Amazon, to place ads that link directly to individual product pages in their online store.

According to Merkle’s report, as much as 40 percent of clicks on Amazon’s own ad product, known as Amazon Sponsored Products, originate from other product pages. That means that as Amazon is driving traffic to product pages by paying for Google Shopping Ads, it’s helping its own advertising business in a big way.

Think about the math for a minute. The Merkle report suggests that Amazon’s ad business was worth roughly $7.4 billion in 2018 and owns almost seven percent of the US digital ad market. That’s up 122 percent from the previous year, which means that Sponsored Products is aggressively expanding.

An unconventionally brilliant strategy.

Now, it looks like one of the most effective ways the company is growing its ad business is through what might seem like a totally unconventional method. 

But it actually makes total sense when you consider that Amazon’s Sponsored Product ads require traffic to product pages. Those are the individual product listings that Amazon and third-party sellers create to describe whatever it is they are selling. Amazon’s algorithms then show relevant ads based on what the company thinks you might be interested in. 

Certainly, a large amount of traffic to those pages comes from organic search results, and a great deal comes from people searching Amazon’s site. But it makes sense that Amazon would also drive traffic to those pages with paid ads, as Google is still the largest platform for paid ad traffic.

Digital advertising is basically just a numbers game. Even if the conversion rate is relatively small, it tends to be consistent meaning that you can usually predict the return on your investment based on the amount of traffic you can generate. That means that if Amazon can make more money from the ads on an individual product page than it costs to drive the traffic to that page, it comes out ahead.

Here’s why you should pay attention.

I suspect Amazon has done the math or is at least attempting to figure out whether or not this is a viable long-term option for boosting its ad business. The fact that it’s actually leveraging the biggest competitor to its own ad business in order to build that business is totally brilliant and a lesson worth considering.

And that lesson? Sometimes the most effective way to compete with a bigger player is to find out how to use their biggest strength as your strategic asset. 

Most of us probably won’t topple Goliath with one stone. But if you’re willing to be creative, you might figure out how to hitch a ride on his back behind enemy lines. It’s probably a lot easier to slay him when he sleeps then to face him on the battlefield anyway.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

This article is from Inc.com

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