As Amazon finds new ways to monetize its consumer relationships, its core business is starting to show the strain
Photo: David Ryder/Getty Images
By Jeff Bercovici
Twenty-three years ago, Jeff Bezos founded Amazon.com with the mission of building “the earth’s most customer-centric company.” The mission hasn’t changed, but the definition of what constitutes a customer sure has.
With dizzying speed, the online-retail behemoth has been turning itself into one of the world’s biggest sellers of advertising. It’s already the №3 ad seller in the U.S., behind only Google and Facebook (albeit well behind them). Analysts say ad sales, which are expected to hit $5.83 billion this year, will overtake cloud services as Amazon’s biggest profit center within three years.
But you won’t have to wait that long to see how the new focus will affect the company’s approach to e-commerce. It’s already happening. And for those consumers drawn to Amazon by the ease and convenience of shopping there, it’s not a welcome change.
While Amazon has sold sponsored product listings since 2012, in the last few quarters it has become markedly more aggressive about showing them to shoppers, even those searching for a specific product, reports Recode. In many popular categories, from breakfast cereals to phone chargers, every listing that appeared in the initial search view in Recode’s tests was a paid promotion. Marketers know shoppers are loath to scroll past the first page of results, so they’re responding by paying whatever they need to get their brands there: Sponsored product spending on Amazon jumped 165 percent year-over-year in the second quarter.
That’s great news for Amazon’s shareholders. But it’s a bummer for shoppers who’d rather see products with the best prices or ratings than those with the biggest marketing budgets. And it’s not the only way Amazon has been tailoring its platform for advertisers. Expectant parents who create baby registries there recently began noticing that Amazon was sneaking sponsored listings in with the products they’d chosen, leading many to receive gifts they hadn’t asked for and didn’t want. After the Wall Street Journal highlighted the practice, Amazon said it was “phasing out” the listings.
Amazon didn’t respond to an inquiry from Inc., but when the company comments on this sort of thing, its usual line is to say that ads improve the shopping experience by showing shoppers items they might want but didn’t know about. It could also point out that making money from ads is a way of subsidizing its core e-commerce business, allowing it to maintain its commitment to low prices. That would be true enough, as long as you don’t think too hard about how brands pass along their marketing costs to consumers.
But as advertising moves from a peripheral business to a central one for Amazon, there’s a risk that the profit-rich tail could start wagging the low-margin dog. Already, there are signs that the company’s relentless push to discover new and novel ways of monetizing its customer relationships threatens to break the basic experience of online shopping. There’s the disorienting proliferation of camouflaged house brands, the deceptive pricing strategies, the nudges to fill a box or add a Dash button or subscribe to save. Take it all together and, as Buzzfeed recently declared, Amazon is “falling short of its basic business: running a website that sells stuff.”
For now, Amazon is not just the major tech company Americans trust most, it’s also the most trusted retail brand and even one of the most trusted institutions overall. Human psychology being what it is, there’s a chicken-egg question there: Do people give Amazon their credit card numbers because they trust it, or do they trust it because it has their credit card numbers? Either way, the transactional nature of the relationship sets Amazon apart from the likes of Google and Facebook. People like what they understand, and they understand what Amazon does with their money better than what Facebook and Google do with their data. All that trust could get squandered if Amazon becomes just another digital giant that has “users” instead of customers.
If there’s one thing to like about Amazon’s rise as an ad seller, it’s that it presents a counterweight to the existing duopoly of Facebook and Google, which together control 61 percent of U.S. digital ad spending, according to eMarketer. Marketers are hoping that Amazon’s influence will restore some competition to the market and give them more power in price negotiations.
But speaking of outsize market power, Amazon now grabs one out of every two dollars spent on e-commerce in the U.S. If Bezos has chilled out a little with his “customer obsession,” maybe it’s because he understands there is effectively no competition for what his company offers: millions of products, at low prices, with fast, free shipping and no need to pull out your credit card. It’s hard to imagine Amazon asking shoppers to wade through pages of ads, confusing prices, and mystery brands back when it was a scrappy startup merely hoping to win their trust and business.
Amazon’s not about to walk away from its promising ad business anytime soon. There’s too much money on the table. But leaning into it could prove costly in an entirely different way.