We’ve been referring to it around here as?The Amazon Thing.
It was November 22nd, the day before Thanksgiving, and I had a 10 am call with one of our ecommerce clients to button up our plans for Cyber Weekend.
We were excited to kickoff the holiday season. This was our third one together and all deliverables had been submitted ahead of schedule. The site was mobile optimized, the remarketing audiences set, the ads approved and the campaigns scheduled. We were ready to go. If it wasn’t for this Amazon thing, our holiday season performance would have justified a?Night Before Christmas?parody blog post.
“Oh by the way,” I mentioned as we wrapped up the call, “Amazon has shot up in Search Impression Share in the last week. Seems like they’re getting a jump-start on the holiday. Our Cost-Per-Click is up slightly, but nothing crazy. We’ll keep an eye on it.”
Thanksgiving came and went. I watched our campaigns perform well all weekend and arrived at the office on Cyber Monday expecting a knock out day.
Performance was just as we projected – about 15% over 2016, but part of me hoped we would have done even better. We had an update meeting later that week:
“Remember the Amazon Thing that I mentioned last week? It’s still consistent. They’ve been very aggressive, and we expect it to continue through Christmas.”
I was correct to assume that it would continue, but incorrect in assuming that it would slow down after the holidays.
Starting in mid-November of 2017, our team noticed a significant influx of Google AdWords spend by?Amazon.com. It affected dozens of clients in many different ecommerce verticals. This included instances where clients had never directly competed with Amazon before.
In all cases, Amazon has used aggressive bidding to maintain ad positioning at the top of Google Search Results Pages. As of this writing, this has only been taking place in Google Search, and has not been as significant in Google Shopping (or Bing, Facebook, or other channels).
**NOTE: When we refer to?bids,?we are referring to what an advertiser is?willing to pay?for a User to click on their ad.
When a Google search takes place, an ad auction takes place in real-time. The resulting ads that are shown on the Google Search Results Page, and the order in which they are displayed, depends on a few factors… but one of the primary factors is each advertisers’?bid.?
Assuming these other factors have remained constant (including Amazon’s Quality Score), the remainder of this article references an?aggressive bid strategy,?which is a fancy way to say:?they’ve increased the amount they’re willing to pay for someone to click on a Google Search ad. See?here?for more information on how the AdWords Auction works.
Google AdWords uses a Pay-Per-Click (PPC) advertising model, so advertisers are only charged when a user clicks on their ad. That is, it is essentially free to show an impression on Google.
When we refer to Search Impression Share, we are referring to the percentage of times an advertiser received an ad impression on Google, compared to how many times they?could?have?shown an ad. It’s a measure of frequency.
Think of it this way – We saw three “Dilly Dilly” ads during the Super Bowl this year, but only one Avocados From Mexico ad. Therefore, Bud Light’s Impression Share was 3x over the competition.
The Amazon Thing has disrupted the ecommerce space. Amazon’s ecommerce competitors have since seen increased costs of advertising, lower website traffic and lower sales.
What’s worse, many ecommerce companies and their PPC agency partners have not caught onto this yet.
Well… definitely not ideal. But it’s not the end of the world if we understand what’s happening here.
The impact of deep pockets.
Google AdWords is a viable advertising platform because it levels the playing field. The price of a click is determined by what an advertiser is willing to pay for a click, and so in most markets, the competitive landscape determines a baseline costs of advertising.
That is, your competitors are likely willing to pay about the same as you for a click (similar costs, profit margins, etc.).
Jeff Bezos has famously built up his empire by?never really caring about profit margins. He prefers to tear into a new sector, drastically innovate in a way that will change the sector forever… and then maybe worry about profit.
If you have a competitor that doesn’t care about their cost-per-click, and is willing to acquire new customers at a severe loss, other advertisers in the same space will be affected.
In the Google AdWords marketplace,?Amazon has an enormous budget and is willing to acquire traffic at a negative return on advertising spend.
As such, they’ve been setting their keyword bids at much higher rates than the rest of the competition, securing top-of-page ad position and inflating the baseline cost-per-click for others that compete for those placements.
Search Engine user behavior is changing… again.
Users have become very savvy and are much more likely to comparison shop.?Increasingly, Users are right-clicking on multiple ads and opening up several landing pages in new tabs. You’ll open up four or five new tabs and shop multiple sites at once.
(If you’ve ever been inside your AdWords account and wondered why a single search term could yield two or more clicks with just one impression, now you know…)
If you’re not the kind of person that opens up new tabs, you likely overuse your browser back-button. As you shop, you hear a voice that says?maybe there’s a competitor where I can get this same product for less…?So you hit the back-button, or you open up a new tab and perform another search.
But here’s the x-factor:?It’s 2018 and we all have the Amazon App on our phones.?
If a User performs a search on a mobile or tablet device (which accounts for more than 60% of searches), and then clicks on an Amazon ad, they will see an?Open in “Amazon”??prompt.
When a user opts to open the Amazon app, the User is now completely removed from Google altogether. All AdWords strategy goes out the window, and any attempt by the User to hit the back-button will just bring them to the Amazon home page.
It’s too much of a hassle to go back to the browser app, so they’ll just stay here and continue to shop.
The Amazon App
The Amazon app is currently?#21 in the iOS store, ahead of Uber, WhatsApp and Pandora Music. What’s more, Business Insider and ComScore?report?that?the Amazon App was the most used app by Millennials in 2017.
35% of Millennials list the Amazon app as a top three app that they “couldn’t go without.”
Amazon knows this, which is why they don’t care that they’re overpaying for AdWords traffic. By forcing you into their app, they’re training you to rely on their internal search features.
Eventually, you won’t be starting your shopping on Google. You’ll start your search inside the Amazon App.
Developing your own app isn’t the answer. It could help, but this only works for Amazon because most Users already have the app on their phones. This wouldn’t be the case for you.
You need to seriously evaluate your unique selling propositions. It’s time to look yourself in the mirror and ask, “why would anyone actually ever buy anything from us?”
It’s a question we ask a lot of our clients, and it’s surprising how often they struggle to find an answer.
In many cases, Amazon will be offering similar products at a fraction of the cost that a customer would pay on your site, AND they’d get free 2-day shipping.
Many of you are thinking,?Well, our customer service is unmatched. That’s what our customers love about us.?
You’re going to have to do better than that because Jeff Bezos has you beat there too. Their returns are faster, and most of us already know the policies and procedures.
You also cannot forget that?customer service?means much more than just having someone to talk to if a customer is having an issue.
The best customer service is delivered when the customer never has to speak to or interact with anyone. It’s when the site is easily navigable and when the customer gets answers to all her questions in one simple location. It’s when their credit card information is already on file, and when they trust that their credit card information isn’t going to be jeopardized. It’s when they have easy access to reviews and suggestions, and an overall sense of comfort while shopping.
It’s when, in just one-click and two-days, you’ll have that product on your doorstep. So don’t try and tell me you have better customer service than Amazon.
If you can’t beat Amazon on price, you need to add value by offering something they can’t. Perhaps you need to position yourself as an expert on the products you sell, or deliver an emotional shopping experience that goes beyond what Amazon can offer.
The following reports show Auction Insights data for three very different ecommerce clients. The reports show Search Impression Share over time – a metric displaying how often Amazon showed a Google AdWords ad in relation to how often our clients (and their competitors) received an ad impressions for that same keyword.
The drastic increase in November is primarily due to a massive increase in Amazon’s AdWords budget in each vertical. This is also due to an increase in their keyword bids.
The Cost-Per-Click (CPC) metric is unique to our account and is measured by the dotted line below.?Amazon’s Impression Share is in blue for each of the following reports. Our clients’ Impression Share is in black.
Home Goods Ecommerce Client?
Baby/Toddler Apparel Ecommerce Client
Party/Event Supplies Ecommerce Client
In this case, Amazon’s Impression Share was already growing over time, but still took a significant jump in November.
And for the record, these are not the only three clients where we’ve seen this.
Continuing into 2018, and how we’ve reacted.
Here’s our Home Goods client again, showing a snapshot of October 2017 through the week of February 5th, 2018:
Our Cost-Per-Click (CPC) trend really stands out here. While we had anticipated a slight bump due to the holiday rush, an 18% increase was dramatic. This was clearly an impact of Amazon’s aggressive bidding.
Since then, we’ve continued with a lower bid strategy and have been shifting more of our budget toward Google Shopping. It’s paid off. We had a strong January and are off to a great start in February.
While Amazon’s Impression Share seems to be tailing off at the end, it’s not significant enough. For the first 10 months of 2017, Amazon averaged 30% Impression Share against this client. Since their peak of 53% in mid-December, they have leveled off to an average of 44%.
This is?a percent change of 47% from their 2017 average.?
As of this writing, we have not seen a drastic increase in Impression Share for Google Shopping ads. This supports our theory that Amazon’s goal is to train us to use their internal search functions, as opposed to starting our shopping searches on Google.
A Google Shopping ad is very transactional. You perform a search for Ski Googles, you see an ad that features a product image, price and title before you even click.
When you do click on a Google Shopping ad, you land directly on the product page (as opposed to the home page or a product listing page), and you can add the product to your cart and complete checkout in just a few clicks.
You spend less time interacting with the site and? familiarizing yourself with the brand, and are therefore less likely to come back directly to this site in the future. If Google Shopping delivered an easy, effective shopping experience, you’ll continue to utilize it.
A Search ad is the opposite. You perform a search for Ski Goggles, click on a vague headline for “Shop Ski Goggles” and you land on a product listing page where you will begin to scroll through dozens of products. You’re now using Amazon as your curator of products, as opposed to Google.
If you are happy with your experience, you may come back directly to?Amazon.com, or their app, and they won’t need to exert additional advertising budget on bringing you back to the site.
We have to realize that we are going to lose a percentage of our customers to Amazon anyway, regardless of whether or not they’re bidding on our search terms on Google. Every day we are paying for traffic that is going to browse our products, and then go directly to Amazon to purchase.
How many times have you been standing in a physical retail store with a product in one hand, smartphone in the other? You’re checking the price of that product on Amazon, aren’t you? The same is happening when you’re shopping online.
I would argue that Amazon is doing us a favor by showing an ad in the first place. Consider these scenarios for an ecommerce store that sells active lifestyle merchandise, bidding on the AdWords keyword for?insulated water bottles:
Scenario 1:?User performs a Google search for insulated water bottles. You show an ad at the top of the search results, and Amazon is?not?among the other ads shown.
The User clicks on your ad, finds a product she is satisfied with and begins the checkout process. At some point, probably when she has to fumble through her purse for her credit card or when she sees that standard shipping will take an entire 5 days (5 days!?), she thinks,?Hmm, I wonder if Amazon has this product?
They do. Doesn’t matter if the product is cheaper, more expensive, or the same price. Her credit card is saved within her Amazon account and she’s one click away from purchase. She’ll have that thing in two days, and she knows that if she doesn’t like it she can return it without any issues. You’ve lost your chance at ever converting that User into a customer.
Yes, you would still lose this customer?even if?your product is cheaper. Most would assume your product is lower quality, so it’s worth paying a slight premium to buy from Amazon. Psychologically, they trust that they’re getting a better product on Amazon.
To make matters worse, you’re going to spend the next 14 days aggressively remarketing your water bottle to this?Cart Abandoner, never understanding why your remarketing conversion rates are so low. (If this applies to you, check out?this post?for remarketing tips).
Scenario 2:?User performs a Google search for insulated water bottles. You show an ad in the search results, as does Amazon. In fact, Amazon’s ad is probably in position 1… with their stupid?Amazon.com Official Site | Huge Selection and Great Prices?ad copy.
The User is a loyal Amazon Prime Shopper, but they still start their product searches on Google out of habit. If an Amazon ad comes up, they’ll click the ad and buy from Amazon most of the time.
We never stood a chance, but here’s the difference: We spent $1.35 in Scenario 1 on that first click, plus another $2-$4 on our failed remarketing efforts.
We spent $0 in Scenario 2. Sure, our click-through-rate was lower and our cost-per-click for other Users will likely increase, but overall, this is likely the more profitable outcome for our business.
Not every consumer is as loyal to Amazon as… um… I am.
It’s not crazy to suggest that the Amazon Thing has a silver lining. If your business has a unique product offering and delivers an experience that Amazon cannot, then yes, you can use this to your advantage.
Let’s go back to the Home Goods client. In the Auction Insights report above, you see Amazon surge from 30% Impression Share to a consistent 40%+, while our Cost-Per-Click does its best impression of the Kingda-Ka rollercoaster.
Meanwhile, you’ll see that over that same period, our non-branded search campaigns had a stable Conversion Rate and an improved Return on Ad Spend (reflected in the chart below as the orange?Conv. Value / Cost?line):
I would conclude that we are now more profitable because we are not investing in users that we would have ended up losing to Amazon regardless. Also, there is a possibility that the Amazon Thing has also knocked out a few of our direct competitors.
Every account is unique and there are going to be different short and long term ramifications from the Amazon Thing. What’s most important is to understand what is actually happening here, and to attempt to apply an intelligent strategy to your AdWords account to ensure that your ecommerce business is able to react to industry disruptions like this in the future.
This phenomenon is a brilliant attempt by Amazon to train us all to habitually rely on Amazon products and services only. They are heavily investing in Google Search advertising now, with the goal of making Google Search an obsolete aspect of our shopping habits in the future.
Eventually, fewer and fewer people will start their product searches on Google. Amazon will be that first touch point.
When Amazon has successfully pulled off this vertical integration, comparison shopping on non-Amazon sites will become less relevant. If we are all less likely to leave Amazon to comparison shop on other sites, Amazon is rewarded with greater pricing flexibility. They’ll be able to charge more than the next site and get away with it.
At that point, Amazon will finally reap the profitable benefits from this insane advertising investment… And there’s no doubt in my mind that it will work.
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