Amazon’s Retargeting Expansion Could Make It A Bigger Display Ad Player

Amazon’s deal with demand-side platform Triggit will allow Amazon (NSDQ: AMZN) to expand its existing retargeting efforts and despite the numerous odds against it, the e-commerce giant is as well-positioned as any of the established players in the space to take advantage of the continued growth of display and real-time bidding.

Back in April, Macquerie Research analyst Ben Schachter noticed (via GigaOm) that Amazon had been moving to expand its display ad business beyond its considerable ad revenues it gets from banner ads on its site. Schachter pointed to a job listing on Amazon’s site that indicated the company was looking to provide services to third-party sites.

Clearly, Amazon has everything it needs to make display advertising a real business: it has a wealth of consumer data from its “recommendations” across a range of e-commerce categories and it has a very well-regarded brand name. Given the complexity of targeting and real-time bidding for marketers and agencies even at this point, that represents a tremendous advantage.

In terms of how Amazon will structure its business, Schachter surmises that the company will use Triggit’s RTB system to match pools of profiles from Amazon’s consumer data with available display ad impressions offered across a variety of publishers and display ad exchanges.
From there, “Amazon will then bid on inventory and re- sell it as part of a targeted ad buy to third-party advertisers.”

The big question in the minds of most observers, which Amazon is already well-schooled in, is privacy. But the company has always been fairly careful about that. More important than privacy is the issue of annoying consumers by expanding its retargeting efforts. However, that’s an area that Amazon has also learned from — up close.

Last year, online shoes retailer Zappos, which Amazon acquired for $850 million two years ago, was hit with a wave of complaints from customers who complained about receiving the exact same add repeatedly. With retargeting, consumers who go to a marketers’ website and check out merchandise without making a purchase, are sent ads from the marketer on other sites they visit in hopes of convincing them to come back and buy something.

After absorbing the brickbats from users, Zappos subsequently adjusted its system and worked to make sure it wouldn’t bug their customers with repeats of the same ad. Other retargeters quickly took note of the Zappos case and added more levels of sophistication to their respective efforts as well.

So as Google (NSDQ: GOOG) expands its e-commerce offerings, just as it has become the largest display ad player, Amazon’s deeper dive into the business will only add to the pressures faced by former display leader Yahoo (NSDQ: YHOO) and the resurgent AOL (NYSE: AOL).

Schachter estimates the gains for Amazon from display, saying that its expansion would be a substantially higher-margin revenue stream for the company, “with ad network non-gaap EBIT margins in the 20-25 percent range” compared to its current 5-6 percent margins.