August 15th, 2011

Why Amazon Is About to Become a Force in Online Advertising

Advertising Age

Amazon flew under the radar in late June when it announced it was entering the world of advertising by using its consumer data to deliver targeted advertising on third-party sites across the web, but it’s big news for online retailers and advertisers. Amazon will now use its huge supply of data to pool consumers into buckets based on the products they looked at or purchased on the retailer’s website. The company will help advertisers reach these consumers with targeted media, using behaviorally targeted display ads to drive them to any URL.

Amazon has more than a decade’s worth of sales and consumer shopping data, so it’s almost a surprise it took the company this long to capitalize on its data and enter the behavioral-targeting space. It’s a great idea that will help marketers find interested consumers, and other retailers are already trying to copy the model. Every online retailer is a media network, even if they don’t know it yet, and there’s plenty of opportunity for retailers of all sizes to copy Amazon’s model.

Merchants can function as both media properties and audience networks because they already posses a targeting criteria that actually matters: consumer behavior or brand-preference data that can power interest-based advertising across the web. Retailers know which brands consumers interact with on their sites, and that is indicative of consumer desire.

Amazon will compete with most behavioral-targeting networks right off the bat because of the scope of its data. Consumer ad networks or vertical-related networks are often selling contextual advertising, and Amazon has an immediate advantage because it is using proprietary data.

In the most general terms, Amazon is using brand data to build an ad network that delivers relevant advertising. The company has great insight into consumer shopping activity and brand preferences. Brands advertisers can use this data to find potential customers, and possibly offer a discount to push a consumer toward purchase.

Every retailer should think about how to use site data for third-party ad targeting, but not every retailer has what it takes to build a proprietary ad network on par with Amazon. At the moment, the difficulties of entering this space limit the opportunity primarily to the biggest online retailers, for a few reasons.

First among these is scale, which some niche retailers simply don’t have. Ad networks are built on the promise of scalability. The point of creating a network like Amazon is doing is to provide advertisers with a scaled audience. The largest behavioral-targeting networks reach the range 60 million to 150 million consumers in any given month. Any site that attracts fewer unique users isn’t going to be effective, and advertisers can easily buy 10 million unique impressions from dozens of sites across the web.

Then there’s the issue of building a technology platform that effectively utilizes the retail data. This is a two-step process that requires a mechanism to organize and interpret the data and then marry that data to media.

Data is a valuable commodity, but you can’t do much without an infrastructure that collects, catalogs and organizes the data into targeting groups. This is what companies like OwnerIQ, of which I’m the CEO, and Audience Science do when they collect third-party data.

The next step is to merge the data with media and give advertisers access. Amazon is partnering with a demand-side platform to plug into exchanges, selling the data and bucketed interest groups of in-market consumers to advertisers.

Luckily, all retailers have an opportunity to follow Amazon’s lead by teaming with enterprises that have already invested in a white-label version of this infrastructure. This works for both smaller retailers limited by their scale and those prohibited in making a big investment in data infrastructure.

Retailers can gather data about what consumers are shopping for, and then make some estimates about the products they are in market for. By pooling this collected data with manufacturer partners, retailers can quickly gain the scale they need to effectively target in-market consumers, very similar to what Amazon is doing. The retailer makes money off its own data, advertisers reach interested consumers and consumers see more relevant ads as they search the web.

Amazon is going to profit heavily off of this win-win-win scenario. If you take this retailer/ad network model and combine manufacturer data, in a system where open data sharing is encouraged, you’re opening the door to unprecedented ad targeting, something all retailers could profit from.

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