Amazon’s video advertisement push aims to turn TVs into shopping carts- QHN

By Spencer Soper

Amazon.com Inc., joining streaming peers like Netflix, Disney and Peacock, will start running ads on its US Prime Video service on Monday. Beside generating new revenue for its $50 billion-plus advertising business, the e-commerce giant is betting it can persuade viewers to shop from their televisions. 
 

For decades, TV commercials have inspired and influenced future buying decisions rather than impulse purchases, and that hasn’t changed in the streaming era. Flo from Progressive still dukes it out with Geico’s gecko to peddle car insurance. She’s just increasingly seen on YouTube or Hulu rather than NBC.

Amazon has the potential to upend the status quo because it’s the world’s largest online retailer, with detailed shopping profiles on Prime Video viewers. The company has an unrivaled delivery network that can ship millions products to much of the US population in a day or less. That combination could make the living room TV screen more than a place to spotlight brands. It could compel people to make purchases via smartphones, remote controls or voice-activated devices. 

“Prime Video might be Amazon’s best hope to make shoppable TV actually happen,” said Sky Canaves, an analyst at Insider Intelligence in New York. “Shoppable video ads will be part of its strategy to get brands that are already selling products on Amazon to advertise on Prime Video.”

Selling billions of dollars in advertising will be the easy part. Brands for years have been shifting their marketing budgets from traditional TV to streaming services, and Amazon is offering low rates to reach a US audience second only to Netflix Inc. But training viewers to use their televisions as shopping carts and compelling advertisers to rethink an 80-year-old format will take time and effort—and could well fail as it has so many times before.

Prime subscribers will see commercials in movies and TV shows unless they choose to pay an extra $3 a month for an ad-free service. In an effort to avoid alienating viewers, Amazon plans to air fewer ads than linear television and other streaming providers. (The company prohibits election and alcohol commercials.) In part because the video service is included in a Prime subscription that offers speedy shipping, music and other perks, most viewers are expected to accept the ads without much protest. Bank of America analysts estimate that 70% of Prime subscribers will opt to watch commercials rather than pay the extra fee to avoid them.

Amazon expects Prime Video ads to reach 115 million US viewers each month. BofA estimates that the new business will generate $5 billion in annual revenue right out of the gate, with $3 billion from ad sales and an additional $1.8 billion from Amazon Prime subscribers who opt to pay the higher price for ad-free content. Amazon will quickly supplant Google’s YouTube next year to be the No. 2 seller of connected TV advertising in the US behind Hulu, according to Insider Intelligence. Netflix has a larger audience, but it let subscribers opt into a lower-cost, ad-supported tier. Amazon is forcing the ads on everyone unless they opt to pay more, which is expected to give it a large advertising audience immediately.

To juice sales, Amazon is offering advertising rates lower than such competitors as Netflix and Disney+ and isn’t requiring large spending minimums that can be typical in television. That’s encouraging most brands to at least give it a try, said Guru Hariharan, who runs CommerceIQ, an e-commerce software platform that oversees $20 billion in sales on behalf of 2,200 brands, including Nestle, Colgate and Whirlpool.

“Nearly all of our customers are buying Amazon video ads,” he said. “Amazon has a very unique advantage because it can thread the shopper journey from the TV screen to the shopping cart in a way no one else can.”

Popular in China, shoppable TV has been an elusive goal in the US for years. Amazon itself has had its share of stumbles. It canceled its QVC-esque shopping show “Style Code Live” in 2017 barely a year after launching it. The daunting odds of success haven’t stopped companies from trying, though. In November, NBCUniversal and Walmart Inc. announced a partnership enabling viewers of Bravo’s “Below Deck Mediterranean” on Peacock to buy items showcased by guests and crew members in the reality show about chartered yachts. Shoppers can use their smartphones to scan QR codes on the screen to buy table settings, cookware and other items on Walmart.com.

Amazon has been experimenting with QR codes during its Thursday Night Football broadcasts. The company is also testing technology that sends inaudible tones from a product promotion to a viewer’s smartphone, which then takes them directly to the item in the Amazon shopping app. The feature, demonstrated at the Consumer Electronics Show in Las Vegas earlier this month, is being tested on live streams featuring products on Amazon.com and isn’t currently available on Prime Video ads, but the potential is clear.

Training customers to shop from their televisions will take time, and Amazon will have to compel brands to get on board with low introductory rates and subsidized discounts until the company can prove the concept is catching on, according to Kaitlyn Caimano, the chief investment officer at New York-based Tinuiti, which manages $4 billion in digital marketing. “The hurdle right now is it’s not standard consumer behavior,” she said. “You don’t have the consumer at that level of comfort, where they’re just clicking and taking action on the ads.”

Amazon began selling advertising space on its web store more than a decade ago, despite initial qualms that doing so could ruin the shopping experience. Investors love the business because it is growing quickly—revenue will top $58 billion this year, according to Insider Intelligence—and is highly profitable. But the site is saturated, and brands’ return on investment has been eroding, according to data compiled by PacVue, a digital marketing firm that oversees $13 billion in ad spending. Amazon needs Prime Video ads to succeed to assure robust revenue growth continues.

Amazon already runs ads on its Twitch and Freevee streaming services, but the Prime Video audience is far bigger and will be the ultimate test, according to Melissa Burdick, PacVue’s president.

“Amazon knows all of your shopping behavior, but the challenge is all of the clunky steps involved in getting people to shop from their TVs,” she said. “Amazon’s pitch sounds good, but the big question right now is what will the performance metrics say.”

First Published: Jan 29 2024 | 4:30 PM IST