Prepare for the ad wars: Amazon is coming!
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Prepare for the ad wars: Amazon is coming!

For years, ecommerce titan Amazon has loomed over the digital ad market – a threatening spectre, biding its time, but in a position of undeniable power. Now, that threat has finally been realised, as the company has announced it is launching mobile ads on its shopping app.

Why is Amazon such a threat? Three reasons: its huge number of users, the incredibly lucrative amount of data it has on those users (after all, it knows purchase history and much more), and – most obviously – when someone is on Amazon’s platform, they’re not just idly surfing the web: they’re primed to buy. These factors, taken together, make the company a potentially disruptive force in the digital ad world… even if market leaders Google and Facebook are in possession of entrenched positions.

Amazon’s share price has soared by 23% so far this year

25 03 amazon

Source: Yahoo Finance

The digital ad market is a big deal, worth $129 billion. One of the reasons for that is how cost-effective digital ads are: relatively cheap, they utilise the reams of Big Data that Big Tech (Google, Facebook, and, now, Amazon) can bring to bear on an audience. It’s not for nothing that advertising guru Sir Martin Sorrell (the founder of WPP, the world’s largest marketing, advertising and public relations company) has previously claimed that Amazon “keeps him up at night”. Its power to disrupt this market is obvious and enormous.

Amazon captures about 50% of all online sales in the US, much of which is through its mobile app. Ads will appear there on iOS imminently, and a role out on Android’s app store is not far behind. Overall, though, Google and Facebook won’t be going bust tomorrow. According to EMarketer, Amazon’s share of the market will increase from 6.8% to 8.8% this year. That will come largely through video ads, as Amazon has made more space on its platforms for video content to avoid people seeking out reviews on YouTube and Instagram.

According to Collin Colburn, an analyst at Forrester Research, Amazon has been working on this for some time, ensuring it doesn’t hamper the shopping experience for users: “They roll out these new experiences slowly to see if it disrupts the shopping experience and see if it’s something advertisers want. This creates a new format for them and another way to sell space on the platform.”

Disclosure

Dominion holds Amazon in its Global Trends Ecommerce Fund.


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