Amazon Aims to Skewer Google's Cash Cow
Aug 26, 2014 1:41 PM PT
Amazon appears to be readying an advertising platform to compete with Google's AdWords.
It has started talking up its new Amazon Sponsored Links platform with potential partners and is anticipating a launch later this year, The Wall Street Journal reported Monday.
Ads from the new platform would replace those from Google currently found on Amazon Web pages. They also would be sold outside the Amazon universe. The platform would make it easier for marketers to reach Amazon's 250 million active users.
Competition is nothing new between Amazon and Google. In recent moves to cut into Amazon's business, Google has launched product listing ads that look similar to those found on Amazon's pages -- complete with star ratings and reviews. Further, it has taken a swipe at Amazon's delivery business with Google Shipping Express.
Amazon has taken shots at Google, too. It has introduced tablets and a smartphone that use a modified version of Google's Android operating system, and both companies compete in the cloud storage arena.
If Amazon decides to go head-to-head with Google AdWords, the stakes will be high for both companies. Amazon net ad revenues worldwide have been flat or declined since 2012, according to eMarketer, although it estimates they will crack the US$1 billion mark this year.
On the other hand, Google's ad business had more operating profit in the first six months of this year than Amazon has had since its founding 20 years ago, S&P Capital IQ estimated.
"Amazon is unprofitable," said Greg Sterling, vice president of strategy and insight at the Local Search Association.
"It needs to continue to build revenue sources," he told the E-Commerce Times.
"It's been enormously ambitious and audacious in many respects, but it needs to continue to find revenue sources -- partly because of all those ambitious initiatives," Sterling added. "Its ambition is both its strength and undoing."
Amazon Sponsored Links is the kind of program that could calm investors who have been disquieted with Amazon's performance of late, according to David E. Johnson, CEO of Strategic Vision.
"Investors have been questioning when is Amazon going to start making money," he told the E-Commerce Times. "This could persuade them that the company is on the right track."
Crossing the Backlash Line
Google isn't the only one who should be anxious about Amazon expanding its online ad presence. "If I were Facebook or Microsoft, I'd be concerned," Johnson said. "Amazon, with the data it has on its buyers and the amount of buyers it has, will appear to a lot of advertisers as a better bet than Microsoft and Facebook."
Amazon is also in a good position to create a strong advertising platform.
"Amazon is in a good place for acting as an ad broker," Ezra Gottheil, a principal analyst at Technology Business Research, told the E-Commerce Times.
"While Google dominates Web-based advertising, mobile advertising is still somewhat fragmented, and now is the time to claim turf," he explained. "Amazon knows a large number of potential end-customers through its online store and also knows a large number of potential advertisers, to whom it provides a wealth of business services."
While Amazon's strong customer base would be a boon to its advertising aspirations, their data must be handled with care, maintained Martin Utreras, a senior forecasting analyst with eMarketer.
"Amazon will have to balance how much they leverage customer data," he told the E-Commerce Times.
"Google, Facebook and others are not shy about collecting data to help advertisers target their users. If Amazon becomes too intrusive on its customers, this could backfire," Utreras cautioned.
"I wonder if it will increase the creepiness factor," said John Carroll, mass communications professor at Boston University.
"Amazon knows a lot about you and a lot about the people you know. This adds another dimension to that," he told the E-Commerce Times. "The question for Amazon is where's the line that you don't want to cross because things will become counterproductive, and you start to get backlash."