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Amazon Advertising: An Important Pillar Connecting Sellers and Customers on Amazon’s E-Commerce Platform

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With a smile on its logo, Amazon is a powerful data engine leading radical innovation at the forefront of a data-driven era. As an MBA student, I had the opportunity to listen to a guest talk given by ASB alumnus, Ricardo Acosta, who shared his journey of working at Amazon as part of the MBA course, ‘Platforms, Auctions, & Competition Through Games’. Ricardo first joined Didi Chuxing after graduating from the ASB MBA program in 2019.

Since then, he has been with Amazon Mexico City for more than a year as Group Manager under the Amazon Advertising business (formerly known as Amazon Marketing Services or AMS), an essential pillar of the Amazon ecosystem. Read on for some takeaways I gained from this talk:

Amazon: An omnipresent ecosystem of full-spectrum services that delight customers in different ways

Amazon is well known as one of the largest marketplaces in the world. But Amazon goes beyond e-commerce alone and is also a music, video streaming, games and entertainment, artificial intelligence, and smart device giant. Brands including Kindle and Alexa are all different pieces of Amazon’s commerce business. In 2017, Amazon added Whole Foods into its shopping cart, extending its presence into the offline grocery business. 

By offering a large selection of products and services for customers, the e-commerce platform now enjoys a customer base of 300 million active users. As we learned from platform theory, the thickness of a platform has significant implications on the yields over time. The increasing number of customers helps attract more sellers, creating a reinforcing loop that is critical to the sustainability of the business.

Amazon Advertising’s unique advantage to sellers

Within Amazon’s complex ecosystem, the Amazon Advertising business plays a critical role in connecting brands with consumers. Amazon Advertising is a demand-side platform that enables advertisers to buy products programmatically on and off the site. Amazon’s leadership position in e-commerce goes hand in hand with the high competition among its sellers, translating into their growing expenditure in ads on marketplaces.

Sellers will have to strategize their ad plan to put themselves in an advantageous position and achieve the best ROI possible. Compared with Facebook and Google, Amazon advertising’s unique advantage is its presence in a diversified product portfolio in Amazon’s ecosystem. Amazon is not competing directly against Google as a search engine or Facebook as a social network. Even though Facebook knows a lot of people, Amazon knows exactly who is buying what and is able to report that data back to third-party sellers.

Valuable consumer insights can be collected from the e-commerce platform and its hardware devices such as Fire TV and Alexa, helping sellers optimize their decision-making in campaign design and customer acquisition strategy using data. It is fascinating how all the input from different pieces of the Amazon ecosystem comes into the equation.

It’s all about learning from data

Information about the customers forms an essential part of Amazon’s business. Amazon’s advertising business started about ten years ago when it discovered that people were not only coming to Amazon to shop but also to discover new products. The company realized that there was an interesting business opportunity to help brands make the right choices, even if they do not end up purchasing from Amazon.com.

Around 2018, the international expansion team for ads started to focus on understanding consumer behavior on Amazon.com. When customers come to Amazon and search for a product, the records are kept. Amazon not only collects data from the e-commerce website but also through smart devices. For instance, what music you listen to and what video games you are playing.

Amazon defines a customer as ‘in the market’ when they are actively searching for something. Even if the customer is not ready to buy, Amazon anticipates what the customer might want. Amazon also analyzes how people are searching throughout time. Customer profiles are mapped and categorized as frequent shoppers, gift-givers, new-shopper, etc.

The algorithms will analyze which ads are clicked more and are more likely to be converted into sales. The ads placed helps brands to gain deeper insights about the consumers and make sure that their first options are in the catalog for each search and each person. Ricardo considers Amazon Advertising an important pillar that connects Amazon as a platform with two other sides – the users and the seller brands. Most platforms are two-sided.

When you have three sides or four sides in a multi-sided marketplace, maintaining all these relationships and making them work simultaneously can be challenging. In the context of COVID-19, digital innovation continues to disrupt many industries. Companies in the platform business will need to stay adaptable in the fast-changing environment while constantly adding value to each side of the platform.