Performance Marketing World published this analysis of mine recently, and it generated quite a bit of discussion.
We’ve all seen the massive growth numbers from Amazon’s ad business. And we’ve seen the impact on The Trade Desk (TTD), as analysts have started to migrate to the point of view that the open internet is getting eaten by walled gardens. Yet the “walled gardens will eat advertising” thesis fails to understand the needs of the most important constituent of all: advertisers.
In order to understand the needs of advertisers, we must first do a segmentation exercise.
US digital advertising is expected to be a $450bn market by 2028. This includes Google, Meta, Amazon, Walmart, email, text, and so on. The vast majority of this digital spend will be tied to outcomes, not brand KPIs. This segment is driven by marketplace-based models, including search, programmatic, and social.
Importantly, CTV is expected to be $45bn in 2028, representing the re-channeling of linear brand ad dollars into CTV. And TTD has benefited from enabling these dollars to shift so far, but here again they are vulnerable to Amazon, due to tech giant having critical CTV inventory for brands that marketers must use Amazon DSP to buy. This has fueled TTD’s recent troubles as their CTV advantage gets eroded. But it’s ultimately a distraction.
The issue on which the future of advertising will turn is performance. And the real reason for skepticism about TTD’s business is their inability to deliver for performance advertisers. But that same skepticism can be trained on Amazon, too.
The dominant segment of advertisers is the roughly nine million search and social advertisers. These advertisers represent approximately 76% of US digital ad spend today, and as they move to new channels like retail media and performance CTV, that percentage will only go up.
So, the engine of the digital ad economy is not big-brand or holdco CTV buyers who may currently be transitioning from TTD to Amazon. It is the search and social performance advertisers, including e-commerce brands and SMBs, that care about outcome measurement and ROI for every dollar spent.
In essence, advertising is undergoing a major transition from being a brand CMO economy to a performance CFO economy.
As a result, when considering whether Amazon will eat the world, we must look deeply at how these CFO-driven advertisers view the e-commerce giant. And that’s where humpty dumpty falls off the ledge.
To be clear, Amazon represents a must-buy channel for merchants that sell anything online. For obvious reasons.
But does that mean these merchants are loyal to Amazon and want to do more with it? I believe that answer is a hard no for the following reasons:
1. Amazon does not help merchants or advertisers understand anything about their business or customers. It’s like a massive blind transactional machine – you put up a storefront, play by the Amazon rules, and stuff sells. Do you know who buys the stuff? No. Do you know what marketing worked and why? No.
There are analogies about Walmart going to vendors and saying, for example, we need your jar of pickles for $x. If you don’t sell it to us, we’ll go to your competitor and you will lose massive market share. This happens all the time.
And the pickle brand really has no choice.They don’t get customer lists, loyalty programme participation, nada. Just sales at low, no, or negative margins.
The same is true for Amazon. You get access to a massive audience, but it’s a necessary evil.
2. Amazon continually squeezes merchants. Whether it’s increased transaction fees, fulfillment fees, or mandated advertising spend, Amazon is about squeezing merchants to the point of them going negative.
3. Amazon competes with their merchants using merchant data.
4. Amazon is not a partner to merchants. If you don’t play by Amazon's rules, you get shut off or demoted. Not selling your product at the lowest available price at amazon? You are in the penalty box. Not meeting their adspend suggested tiers? Penalty box. Have an issue? Good luck on resolution.
So, yes – advertisers have to deal with Amazon, but the very inconvenient truth is they don't like it. At all.
Consequently, they all have open web storefronts. And these storefronts feed their business in a totally different way. They get to own their customer data; decide on what marketing channels they want to invest in based on ROI; and they are not operating under the ever-present threat of being squeezed, shut off, deprecated, or put in the penalty box with no escalation path or rational arbitration for any business issue.
Amazon is an e-commerce platform operating as a totalitarian state. So, marketers must have their open web business and also their Amazon business, but they do not broadly want to rely on the latter to sell all their product, let alone to market all of it.
What are the implications of Amazon’s bad behaviour?
Merchants and advertisers will spend on Amazon because they have to, not because they want to. Amazon is a necessary channel to get in front of customers, and advertising with them has become increasingly necessary, too, due to their access to customers and their content investments.
But advertisers will not simply put all their ad budget into a platform that actively competes with them, uses their data to benefit competitors, and provides them little transparency. Advertisers, especially those focused on performance (who need data to measure and optimise that performance), will continue seeking more democratic, transparent alternatives to the giants.
That is the big opportunity for the so-called open internet: unleashing performance through transparent means at fair prices. Amazon will never compete on those terms. So, despite the e-commerce giant’s advantages, it’s not going to devour advertising.
Inside Performance Advertising with Jason Fairchild delivers unfiltered insights, strategic perspective, and hard truths from inside the evolving world of adtech—cutting through the noise to focus on what really drives outcomes. Subscribe here.