June 14, 2021
The surge in online shopping due to COVID-19 allowed e-commerce giant Amazon to raise its advertising rates in May 50+ percent from a year earlier. The leap, as reported by Marketplace Pulse, is more grist for lawmakers trying to require Amazon to pay higher taxes. Amazon is expected to reap about $578 billion this year, according to eMarketer. The increased competition is leading even big brands like Procter & Gamble and Clorox to spend “billion-dollar advertising budgets” on Amazon to fend off smaller rivals.
Bloomberg reports that, “the cost per click for Amazon search advertising was $1.16 in May, up from 75 cents a year earlier, according to Marketplace Pulse.” As a result, “the average advertising cost of each Amazon sale [has risen] to more than 30 percent of a product’s price, up from about 20 percent a year ago,” and, notes eMarketer, “Amazon’s advertising revenue in the U.S. alone will surpass $20 billion this year.”
“Prices will continue to rise over time,” said Marketplace Pulse founder and chief executive Juozas Kaziukenas. “Smaller brands trying to enter the market, it will be increasingly expensive to do it when they are up against established brands who are willing to pay to protect market share.”
Companies aggregating popular Amazon brands are also struggling, with “Thrasio, Perch and Branded hav[ing] announced debt and investor funding exceeding $2 billion to buy and expand Amazon brands, with advertising a key tool for growth.”
Elevate Brands founder and chief executive Ryan Gnesin said that, “by far, we’ve found that Amazon is the most effective and profitable way to drive traffic to our products.” However, Amazon’s higher rates have made Elevate a bit more selective.
With rising advertising rates, some Amazon merchants feel forced to raise prices. “We’re just more picky with our key words and we can’t be as aggressive,” said one such seller, Chuck Gregorich, who plans to raise his prices as much as 10 percent this year “to cover higher shipping and advertising costs.” But former Amazon merchant Jason Boyce noted that, “it’s becoming very expensive to sell products on Amazon.”
“The long-term risk is merchants bring their inventory to Walmart and Target where they can sell for lower prices,” he said.
CNBC reports that, “the major growth in Amazon’s advertising unit means its revenue contribution is now 2.4 times as large as Snap, Twitter, Roku and Pinterest combined, and it’s growing 1.7 times as quickly, according to Loop Capital.” Its “Other” unit, primarily advertising, “grew revenue a massive 77 percent year-over-year to more than $6.9 billion in the first quarter.”
Loop analysts wrote that, “performance ads on the e-commerce sites fueled by Amazon’s high-intent traffic and unparalleled user insights are providing significant value for sellers and brands.” Amazon also revealed that, “its ad-supported streaming video content now reaches more than 120 million users every month, driven by platforms such as Twitch.”