Amazon gears up for advertising services push in Asia

Much has been made globally of Amazon’s growing advertising services, which by some estimates could soon be a US$30 billion business. (The company’s ‘other’ revenue, which includes advertising, amounted to around $10 billion last year.) Typically framed in the media as a company to be feared, Amazon’s advance into this space has caused consternation everywhere from other tech giants to brands to advertising agencies.

In its Q1 earnings call in April, chief financial officer Brian Olsavsky pointed out that Amazon is “early on” in its advertising venture, but brands (in western markets at least) already feel under pressure to develop an end-to-end strategy for the platform.

The right strategy is not easy to define, because Amazon’s advertising business itself still lacks definition. This is especially true in Asia-Pacific, where Amazon is less prevalent as an ecommerce platform than in North America and Europe. The fragmented ecommerce ecosystem means advertisers face a challenge in deciding how much weight to put into Amazon as opposed to competitors.

As Amazon’s fourth-largest global market, Japan has led the way in terms of advertising in Asia-Pacific and offers an indication of the direction things are likely to take in other markets in the region. Japan was one of the first countries in which Amazon installed creative people to work on behalf of clients, and the company caters to two distinct groups: brands that sell on Amazon and “non-endemic” ones — including those in the financial and automotive sectors — that treat the platform as a pure media rather than sales channel.

At this stage, companies in both endemic and non-endemic categories are still testing the water. A branding-oriented stunt some years ago involved delivering Nissan cars to customers in giant Amazon boxes, but one of the main reasons seemingly unconnected brands use the platform is to gain insights into potential customers.

“We may not be selling Nissans but they are often very interested in understanding what behaviour our customers are performing that may look similar to observations they see that suggest someone may be in the market for a vehicle,” explained Seth Dallaire, Amazon's vice-president of global sales and marketing, before moving to Instacart earlier this month.

“We can’t necessarily see when someone stepped into a dealership to make a purchase, but we can create adjacencies to other products that may be appealing to these customers.”

Amazon might not be “an intuitive place” for a cruise ship brand or other travel company to invest, for example, but “we may be able to do interesting things like working with them on customer segmentation, how it may overlap with ours, and how we can help them understand more about how a potential travel customer may be shopping around the Amazon site or using a device.”

For companies such as UCC, a coffee manufacturer which does sell on the platform, activities have revolved around positioning the brand in the context of lifestyle trends while segmenting audiences and linking the creative assets to transactions. This sort of client “may come to us with a very broad sort of objective of finding ways to speak to customers in an ecommerce environment, so we then work with them on the entire funnel of the customer experience journey,” Dallaire says, adding: “We’re conscious of starting with the retail customers and working backwards from there.” The aim is to elevate the advertiser into something more than a “pedestrian product”.

As Amazon’s marketplace grows, advertising could be essential to distinguish brands

Brands have good reason to be concerned about the growth of Amazon and ecommerce in general: standing out is set to become even more difficult, and advertising on the platform is likely to become an essential part of doing business there.

“Amazon is trying to go as upstream as possible,” observes Josh Gallagher, MediaCom’s regional chief product officer. “I wonder if brands will let that happen and relinquish control of the path to purchase. We talk to our brands about retaining branding, but my fear with Amazon is that they are also a brand and have brands. When they are creating and controlling media, how does your brand become differentiated?”

In Asia, Amazon's competition is fierce

But with the exception of Japan and to some extent India, Amazon’s advertising product does not yet seem to register strongly on the radar of most marketers in Asia-Pacific. Amazon’s insight into shopper intent is obviously “incredibly valuable” for advertisers, says Lee Walsh, regional vice-president of media activation at Essence. But he sees two stumbling blocks. The first is the fact that local competitors are stronger in a number of markets. Amazon has been a nonstarter in China, and in Southeast Asia struggles against Alibaba’s Lazada and Tokopedia from Indonesia.

Lazada in particular is busy building itself into something more than a “transaction site”, according to Gallagher. “It feels like they want to be a destination for people as well, build a broader ecosystem which is what China is used to,” he says. “They are the ones everyone talks about because they have even more coverage across Asia.”

Amazon also doesn’t have the same breadth of services in Asia as it does in the US, where Alexa, Prime Video, Amazon Pay and Whole Foods dominate their categories — making doing business with Amazon much more attractive. “That huge wall around their garden isn’t as big here,” Gallagher notes.

Recognising this, Amazon has recently begun to reach out to agencies and brands in the region to train them on its advertising products: “Where their approach was ‘do it yourself’ before, they are starting to do more training with agencies on how to use the platform. They are becoming a lot more active, likely because they are not so strong and don’t have as much history in the region,” Gallagher says.

VMLY&R's group lead of commerce Southeast Asia and India Sujay Kar said that while Amazon's marketing services offering is "not currently very organised" compared to the likes of Google Ad Words or Facebook Ads Manager, recent moves such as the acquisition of Sizmek indicate it will start competing more aggressively in 2020.

“Amazon has struggled a lot in the Asia region, but 2020 looks like a time when it will start competing with the likes of Lazada in retail, and Google and Facebook in advertising," he says.

Sizmek acquisition plugs gaps in its offering

The second hurdle is that Amazon’s advertising is still mostly a direct response medium that is only strong in certain categories, Walsh says. “For Amazon Advertising to achieve scale in media revenues, they would need a major acquisition or to radically develop their advertising products.”

Amazon representatives declined to speak about the implications of the recent acquisition of Sizmek’s ad serving and dynamic creative optimisation business, which is currently operating independently. Gallagher says “it shows intent for advertising to become a much bigger part of their business” and a desire to muscle in on conversations that have so far concerned only Facebook and Google.

Walsh sees the acquisition as “a positive step” that will aid the serving of creative messaging based on first-party data and contextual signals. But he adds: “It’s easy to read too much into one acquisition. What will determine Amazon’s success is the ability to develop an ecosystem that identifies shopper intent at a large scale. The acquisition means they are less reliant on third parties to build this ecosystem, but it is just one piece of the puzzle.”

He anticipates a challenge integrating Sizmek’s technology and thinks it might take “a year or two” for Amazon to render it fit for purpose. Ultimately, he thinks it will result in “an appealing proposition” for advertisers, although it’s unclear how much data Amazon will be allowed to use for targeting and to what extent privacy regulations will limit data usage beyond Amazon and its DSP.

Agencies think they're being muscled out; Amazon wants them to upskill

Some see Amazon’s push into creative and media services as a move to cut agencies out of the picture. “Amazon is looking for a solution that has minimal third-party play,” says VMLY&R's Kar. “Brands have built relationships with Amazon so it is difficult for agencies to bargain in that relationship because they are competing with Amazon’s in-house teams and brands’ in-house merchandising teams. I have not seen many agencies that have come up with an integrated solution to partner with a brand.”

However, Dallaire stresses that agencies have an integral role to play in helping brands to get the most out of the Amazon platform, and that the company plans to “continue to invest in developing relationships with agencies of all sizes”. Even in Japan, which he describes as a “mature locale” in terms of advertising sales, agencies continue to be important in helping brands, especially the non-endemic ones, understand the value of being on the platform and how to use it. Still, agencies’ own understanding could be better.

“I would say we’ve done a reasonably good job of creating awareness of ecommerce marketing in Japan," says Dallaire. “If you were to ask people at Dentsu about the importance of ecommerce marketing I think you would get a positive response and someone would say, ‘you’re right, it is important and we are building teams that are aligned to understanding ecommerce’. Where there is room for improvement is helping advertisers and agencies understand how to be successful with ecommerce marketing.”

To that end, Amazon plans to put more weight on the abundant data that its advertising efforts generate. “We have billions of observations that we may see over a given media campaign,” Dallaire says. “Helping customers make sense of those so they can create more effective media plans and messaging, that’s where the business is headed in the future—how do we help them get really smart about ecommerce marketing.”

Even if Amazon’s presence in Asia-Pacific is patchy, the data it offers is seductive. But Gallagher points out that it could lead to problems in terms of consumer trust when used in an advertising context. People “want more personalised ads but don’t want to be followed around,” he says. Linking to separate properties like Amazon-owned hugely popular video streaming platform Twitch could also be seen as breaking trust. “Connecting random sources of data will be a challenge from a responsible standpoint.”

Complex as the situation is, advertising is likely to feature much more prominently in brands’ Amazon strategies in the region soon, particularly as Google and Facebook become more active in the commerce space. This means “agencies have to rediscover their edge”, Kar says.

In what might or might not be a case of wishful thinking, he sees them becoming more involved in “experience building”—building brand store UX—on the platform, and helping to unite performance marketing with brand awareness to create “a connected consumer experience”.

“Agencies need to strengthen how to tell brand stories, create product and tech innovation in this ecosystem, and how to manage it off the platform,” he says. “And if a brand wants to have a database of customers and a multichannel play, this is where agencies can come in and help them.”