Amazon doesn’t just make money from product sales on Prime Day: advertising will earn it a ton of cash too.
Last year, Amazon Prime Day broke records for the e-commerce giant, with people buying more than 100 million products during the 36-hour sale starting July 16.
In 2019, the shopping event on July 15 and 16 will add Prime subscribers and is an opportunity for Amazon to push companies to spend more on advertising, some experts told CNBC. Amazon made $2.72 billion in its “other” segment in the first-quarter of the year, consisting primarily of advertising sales, though the growth rate in revenue slowed compared to the same period last year.
Debbie Ellison, the chief digital officer at marketing agency Geometry U.K., said that one of its clients was asked to at least double its ad spend for Prime Day.
“One of our CPG (consumer packaged goods) clients was asked recently by Amazon to increase its budget by a minimum of 100% to ensure that it did not lose market share during this key sales period. In the case of this client, its products are not natural deals for Prime Day so taking part would only reduce their overall margin,” she told CNBC by email. Geometry advised the client not to increase its ad spend for the shopping event.
“Brands which over-invest in ad spend during Prime Day tend to sit in the electronic & computing and beauty & personal care categories, where they typically achieve between a 50% and 60% sales uplift during this time,” Ellison added.
Companies can advertise on Amazon in a few ways, including sponsored listings in search results (like Google’s paid-for search results, labeled ‘Ad’) or with display ads or videos that run the full width of the site. Amazon also has a “demand-side platform,” (DSP) software that automatically chooses the most relevant ads to show shoppers, as well as where they are placed. Brands using the DSP can have ads appear on other sites owned by Amazon, such as movie database IMDb.
Jim Cridlin, global head of innovation at media agency Mindshare, noted that Amazon will boost the visibility of advertisers who spend more on the platform — and those who push people to its deals on Amazon via advertising elsewhere.
But while Amazon’s pitch to advertisers has got “more sophisticated,” Mindshare has not yet seen the level of “additional support” advertisers provide Alibaba around Singles’ Day, he told CNBC by email. “We are starting to see advertisers (to whom Amazon is a critical partner) doing more on their owned and social channels to support the sales event,” he added.
Advertising is becoming “a far more crucial” part of a company’s overall sales performance on Amazon, according to Malcolm Pinkerton, vice-president of ecommerce and digital insights at Kantar. While Prime Day is an opportunity for Amazon to encourage more ad spending, businesses are using it strategically, by promoting exclusive offers or launch products, he told CNBC by phone. “But what they are seeing is that if they do start to invest more heavily through Amazon advertising, there’s a noticeable halo effect after Prime Day,” he added.
Sellers are likely to increase budgets for sponsored listings, according to Jake Schwarzbaum, co-founder of Velocity Sellers, a company that helps businesses sell on Amazon. He also expects companies that have invested in Amazon Storefronts, a new part of the site that highlights small businesses, and those with extra product information — known as A+ Content — to do well this year. “Prime Day is not about profit for Amazon sellers. It is primarily an opportunity for new product introductions, expanding online market share, as well as helping sellers find new customers to increase brand loyalty,” he told CNBC by email.
Toys, beauty, computing, apparel and kitchen goods were the most-shopped on Amazon during Prime Day in 2018 and some of them are also products that Amazon sells under its private label brands. People can buy AmazonBasics USB cables and water filter cartridges or fashion under its Find by Amazon label, for example, although in April it scaled down promotions of private-label brands following regulatory scrutiny and calls of unfair advantage.
“Brands should focus on pushing products that do not directly compete with Amazon’s or promote those products on other platforms,” said Inbal Lavi, chief executive of marketing company Webpals Group, in an email to CNBC. She advocated using Amazon’s lighting deals and coupons features to encourage people to shop.
As well as heavily promoting Prime Day on its website, Amazon is also investing in ads of its own — some of which will appear on Google Shopping, Google’s retail search function. While this means Amazon is paying to advertise with Google, the online traffic that goes back to Amazon means it is likely to benefit because people will click on ads on its website.
Amazon had not responded to CNBC’s request for comment at the time of publication.
Guests pose during the Amazon Music Unboxing Prime Day event on July 11, 2018 in Brooklyn, New York.
Kevin Mazur | Getty Images