Is Amazon Primed for the Data Privacy Era?

As the era of privacy reform rages on, it continues to cause headaches across the ad-tech ecosystem. Not surprisingly, these headaches are felt more by some than others. For example, Apple is leaning into privacy reform as its core hardware business is less reliant on data collection than, say, Facebook’s ad business.

But a less discussed player (at least in privacy terms) could likewise spin data reform in its favor: Amazon. This notion flows from the fact that some privacy restrictions don’t inhibit collecting user data and using it for content/ad targeting on one’s own properties. It’s more about sharing or selling such data to third parties.

In a world that favors first-party networks — especially those with ample web traffic outside of iOS apps — it doesn’t get much bigger than Amazon. The question is if the e-commerce giant can attract advertisers en masse with the reach of its ad network plus the unfettered targeting and first-party contextual relevance of the world’s largest online store.

If so, could Amazon accelerate existing efforts to boost its ad business and challenge the Google-Facebook duopoly for ad spending share? Though the latter collectively accounts for about 52% of U.S. advertising spend, Amazon is quickly gaining ground and recently crossed the 10 percent mark.

Four Walls

Putting some numbers behind the term “quickly,” Amazon’s ad business grew 77% year-over-year in Q1 to $6.9 billion. Moreover, its ad revenue is 2.4x that of Snap, Twitter, Roku and Pinterest combined, and growing 1.7x faster. Some of this growth was tied to Covid-era e-commerce inflections, as digital ads and e-commerce go hand in hand.

To explain that correlation requires examining the types of ads that Amazon sells. For those unfamiliar, its primary ad format is product listings in Amazon search results. Third-party merchants buy these to amplify traffic to their product pages. In fact, a whopping 73% do so — the primary fuel for Amazon’s ad growth.

These ad formats also tie back to the central theme of Amazon’s privacy play. Its shopping data is used to place ads on its own domain, as it can offer a first-party advantage coupled with massive scale. It also buys search ads on Google to amplify traffic, but its ad business is mostly fullfilled on its own domain, where it gets ample traffic.

Beyond traffic and usage scale, Amazon also has data scale to execute all of the above effectively. It has more data than anyone on shopping behavior and other signals to target and optimize ad placements. And again, it passes the privacy test for the most part because it’s all happening within its four (massive) walls.

Adding even more reach are other Amazon endpoints. Amazon.com of course has the most scale, but other first-party distribution comprises a broader network of multi-media and cross-channel offerings. We’re talking streaming video via Prime (now reaching 120 million monthly users), as well as channels like Alexa and Twitch.

Critical Exercise

Amazon notably isn’t alone in fusing e-commerce and advertising. Insider reports that Shopify is planning to roll out an ad product called Audiences. It will let advertisers select the products they want to promote based on insights and activity from Shopify’s 1.7 million merchants. It then targets lookalike audiences on Google and Facebook.

Those 1.7 million merchants will also be the primary buyers of Shopify Audiences, as it can help them drive more traffic to their online stores. This is Shopify’s way to offer its merchants the reach and scale that attempt to rival what media buyers might get as Amazon sellers. But this will be an uphill battle for the David to Amazon’s Goliath.

Back to Amazon, it continues to leverage existing position and scale to carve out new revenue streams. It does this mostly to maintain growth, which is harder to do as companies get bigger and core products mature. But it’s a critical exercise, as it directly impacts Wall Street’s temperature on tech giants.

That’s all to say that Amazon is highly motivated to chase ancillary revenue streams. The best example of that is probably AWS, which has been one of the most successful tech products of the past decade, though it operates independently. But the next-biggest revenue diversification play for Amazon is advertising.

It helps that advertising has adjacency and synergy with e-commerce as a merchant upsell. So, its integration is logical, and its sales proposition to merchants is natural. Expect Amazon to continue exploiting those synergies … and doing so with an inherent framework that offers an edge in the data privacy era.