Amazon has big ambitions in the digital advertising sector and has been honing the AI that it uses in its site, along with the Alexa service, in order to be more efficient in the niche. And with the right strategy, the company is hoping to pose a serious challenge to the dominance of Google and Facebook in the digital advertising market.
Tough competitors in Google and Facebook
As per estimates, Google and Facebook account for nearly 60 percent of the US digital advertising market. Amazon’s share in this sector is limited to less than 2 percent. However, the giant has the highest potential for growth among all companies competing in the digital advertising sector.
For now, its limited AI capabilities are what is holding Amazon down from making a strong impact. While Amazon’s AI is definitely better than the one being used by Facebook, it is nowhere near as efficient as the Google AI. And this is easily demonstrated by the fact that Amazon users continue to receive advertisements for products they have already purchased. This is essentially the height of inefficient advertising and is an area in which Amazon has to improve.
However, given Amazon’s history of going all out in any market it enters, one should expect the company to hone its AI to the point that it will be more efficient when displaying advertisements to users. And this could easily happen within a couple of years, signifying a massive shift in digital ad spending by marketers.
The advantages of Amazon
The reason Amazon is poised for huge growth in advertising revenues is that it is a full-fledged marketplace where people come to buy products. And this gives it an edge over a general search engine like Google or a social media platform like Facebook.
Daniel Salmon of BMO Capital Markets told Yahoo Finance: “A key point of differentiation for Amazon [from competitors] is the massive amount of consumer purchase data it possesses. While Google knows what people are searching for and Facebook knows what people are interested in and who they are connected to, Amazon knows the specific products that customers are purchasing and how frequently they are purchasing these products.”
The huge amount of customer data also ensures that Amazon only needs to continue tweaking its AI until it reaches the stage where all that rich consumer data can be utilized effectively while running advertisements. And the effects of this benefit seem to have already started to manifest.
Having its Alexa AI integrated into thousands of devices in homes across the world is another one of Amazon’s advantages. And the company is reportedly looking at ways to monetize its Alexa service by introducing ads. Considering that neither Google nor Facebook have any product that has achieved success similar to Alexa, the AI could actually prove to be the force that will help Amazon become a big player in digital advertising.
According to eMarketer, the digital advertising shares of both Google and Facebook are expected to drop in 2018 even though the overall ad market will grow by 19 percent. And the main reason for this decline is attributed to increasing competition from players like Amazon. The giant is expected to garner close to 2.7 percent of the US digital ad market in 2018, bringing in US$2.89 billion in revenues. This is projected to more than double in just two years, with Amazon’s digital advertising revenues clocking in at US$6.4 billion by 2020.