For years, while it attracted headlines for its retail and cloud businesses, Amazon has quietly been building an ad business that could make it a big force in digital advertising as early as this year.

Behind Amazon's potential to become a digital ad giant is a powerful trend: more and more consumers are using Amazon as a product search engine.

In fact, by some estimates, more than half of consumers now turn to Amazon first – even before Google – when they want to search for a product.

As a result of this, a growing number of companies are treating Amazon as an advertising channel and taking advantage of its growing suite of ad offerings. 

These companies include large brands like L’Oréal, which is now shifting some of its ad budget to Amazon to capitalize on the fact that more than a third of beauty searches start on the ecommerce platform.

While Amazon ads still only make up a single digit percentage of L’Oréal's ad budget, L’Oréal digital director Nick Buckley says that his company is "buying up all the inventory" it can on Amazon for the beauty terms its makeup brand is interested in. And as it expands to other categories, like skincare, "this will naturally increase the scale."

Interestingly, L’Oréal isn't necessarily expecting its Amazon ads to drive sales immediately, or even on Amazon.

“We're seeing people initially go to Amazon to find out information about a product before then jumping outside of that to YouTube, where they can see how to apply those products," Buckley explained to Digiday. "Then, they're moving on to Google to compare that same product with others. [Amazon is] an ecommerce platform, but we believe it's more than that."

SMBs are still learning the ropes

But while large brands like L’Oréal embrace Amazon Ads, some small and medium-sized business (SMBs) advertising through the retail giant are struggling to capitalize.

In fact, according to a study recently published by search marketing agency NetElixir, 40% of SMBs running paid ads on Amazon say they are ineffective. 

SMBs cited a number of reasons for this. 23.7% of respondents who said their Amazon ads were ineffective cited a lack of know-how as the likely reason why. Almost a quarter (23.5%) cited lack of budget, 20.7% questioned whether Amazon was the right channel for their business, and 15.1% believed they lacked the time to make the ads work.

Clearly, despite its promise to agencies that it will become an "ad platform leader" that delivers "best-in-class service" and "strategic consultation," Amazon has work to do in educating SMBs on the best ways to make effective use of its paid ad offerings.

But that's not unexpected. After all, it took years before there was broad knowledge of Google and Facebook advertising, especially among SMBs.

The good news is that advertisers willing to invest in getting ahead of the curve could very well find that they're rewarded for the effort, just as many early adopters of Google and Facebook advertising were. After all, there's still less demand for Amazon ads right now, and the demand that exists isn't necessarily from sophisticated advertisers, meaning those advertisers that figure out what they're doing first could have a period of time in which to capitalize.

Additionally, as the return on investment for digital ad spend is dropping, there's an imperative for advertisers to explore newer advertising channels, and despite some early challenges, few look as promising as Amazon.

Patricio Robles

Published 9 August, 2017 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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