But losses mount for the home furnishings e-retailer that went public in October.
Rob Shmults of Intent Media argues retailers should expand their search advertising efforts outside search engines.
It's official. Search is happening outside of the search engines. And retailers' marketing dollars are following consumers' moves.
Where are consumers searching? First, look at Amazon.com. Forrester Research Inc. recently revealed that 30% of online shoppers now start shopping-related searches on Amazon versus 19% who begin with Google. Those numbers were flipped just a few years ago.
While most people think of Amazon as a "walled garden"—a place to shop and buy, like any other massive retailer—it is much more than that. It is an open product search engine that other retailers can use to drive consumers to their own e-commerce sites. Remember how Google, for a time at least, was referred to as the "gatekeeper of the Internet," because of the power it held to decide what gets seen online and what doesn't? Well, Amazon is now the "gatekeeper of e-commerce."
The key here is that Amazon's on-site search engine, A9, is not just delivering results for products sold on Amazon, but for products sold anywhere, via paid ads right in its shopping path. Whereas searches on Amazon.com were once limited to products the e-retailer sold and subsequently incorporated marketplace sellers' goods, searchers today will notice results that say "available at external website" or "Product ads from external websites." These results, placed through the Amazon Product Ads program, appear with the other products returned by A9 and are distinct from even more paid search "sponsored links" ad results that run along the bottom of the page. Clicking any of these ads will take you to the advertiser's web site. Checkout occurs there, not on Amazon.
To participate, Amazon allows advertisers to directly target product searches via a cost-per-click model, and recent data show that the performance of Amazon ads is keeping pace with Google Shopping ads. Amazon in the third quarter was the fifth most-trafficked shopping engine for retailer clients of CPC Strategy, a company that helps retailers sell through comparison shopping engines. Retailers spent an average of 39 cents for each click on an Amazon ad versus 30 cents for an ad on Google Shopping, which ranked first in traffic volume. While Amazon trails Google in traffic, and costs more per click, consumers converted after clicking an Amazon Product Ad 2.02% of the time, slightly more often than after clicking on a Google Shopping paid ad, 1.99%.
"It's not a slam dunk, but Amazon Product Ads is definitely one of the top three comparison shopping engines overall," says Rick Backus, CPC Strategy CEO. A number of his e-retailer clients, including Business-Supply.com and MyBinding.com, say advertising on Amazon drives positive returns. "Without a doubt, it is a profitable channel that retailers should try," Backus says.
Combined with Amazon's scale, it is unsurprising that Amazon has built up an ad business that R.W. Baird analyst Colin Sebastian values at $500 million. Sebastian includes Product Ads and Amazon's growing display ad options, such as those shown on Amazon.com or on Kindle e-reader screens, in his valuation.
He cites as Amazon's key advantages its 180 million active customers, its 150 million unique monthly visitors and the data it gleans from browsing and buying behavior, which Amazon then uses to enhance ad targeting. "At this scale, we view Amazon as a legitimate media platform for retail and branded advertisers," Sebastian writes in a research brief.
But in advertising on Amazon, retailers will find themselves advancing Amazon's competitive position. If Sebastian is right, Amazon is earning through these ad programs another $500 million of high-margin revenue to spend on customer acquisition, site experience or to subsidize rock-bottom product pricing.
So should retailers put ads on Amazon? Because of its traffic and ongoing growth, retailers should at least consider adding dollars to their search marketing budget for Amazon, but do so with their eyes wide open that their search spend is going into coffers that will further Amazon's competitive advance. And retailers that do advertise should test their results against Google.
Other ad options
Amazon isn't alone in offering retailers search-based advertising alternatives to Google. Facebook is rapidly moving forward on the search front, too. While searches on Facebook lack the granular commercial intent of sites like Amazon, at roughly 1 billion queries a day, Facebook search clearly has scale. In August it launched search ads as "sponsored results," but at this time only lets advertisers link to other pages within the social network.
In his first post-IPO investor talk at the TechCrunch Disrupt conference in September, Facebook CEO Mark Zuckerberg listed moving into Google's search business as among Facebook's top priorities. Retailers, including The Home Depot and Kohl's, are running paid search campaigns on Facebook.
Who might be next? EBay Inc. has had an on-again, off-again relationship with third-party ads over the past few years. Currently it incorporates some cost-per-click ads from its Shopping.com subsidiary and runs the occasional banner ad. But with Amazon's search business pulling in money, and eBay's own focus on being the more retailer-friendly alternative to Amazon, it seems logical that eBay may re-embrace the massive search opportunity available through its flagship site.
For retailers, the ability to tap into new sources of search traffic lessens their dependence on Google. That's a good thing, especially as Google moves into a variety of commerce verticals, such as selling digital and physical goods via Google Play.
Big enough to count
Also a plus for retailers is that these new pools of search inventory are both granular enough to allow for proper search engine marketing, and at a scale that makes managing them worthwhile. There have been plenty of attempts to provide vertical-specific search ad opportunities in the past. But these typically floundered in the absence of a viable revenue model. Search engine marketers need sufficient scale to make it worth their time to invest in the new channel, something most previous vertical search attempts lacked.