It will face tall hurdles as it competes for viewers and revenue against the established TV business as well as tech players such as Hulu, Google, Roku, Netflix and others. And it's an entirely different animal than Prime Video, the compay's subscription-based, ad-free streaming service. But Free Dive, as The Information says the planned service is currently called, should also pack some serious assets, courtesy of the rest of Amazon's business.
The potential seems vast: Amazon's ad biz is the company's fastest growing segment, totaling roughly $2.2 billion last quarter, up 130 percent over the period a year before.
Worldwide traditional TV revenue totaled $185 billion in 2017, a 3 percent uptick from the previous year, according to Magna's Advertising Forecasts.
Perhaps the first and largest obstacle will be finding enough demand to fill the new ad inventory, says Ari Paparo, CEO of Beeswax, a bidder-as-a-service company that allows users to customize their programmatic buying, among other things. Amazon will likely use its own sales force to start rather than link up with programmatic sources, which let marketers to make ad buys through automation, Paparo suggests.
If it goes that route, Amazon will likely wind up showing "the same ads over and over again, which consumers find really annoying," Paparo says. Heavy repetition is still the dominant feature of commercial breaks in existing ad-supporting streaming, but not any more popular for its familiarity. It also suggests thin demand from brands.
"They may not have sufficient load on every piece of content or program to enable the economics to work," Paparo says.
Although Amazon has a history of building outstanding ad tech, such as its header bidding solutions and other ad serving technologies, another challenge is also clear: The TV business comes with requirements that can differ significantly from online norms.
Amazon cannot, for example, run a pod of commercials that include ads for both Coke and Pepsi, Paparo says. "Doing that sequentially is very different from the way someone might build a normal desktop ad server, where the ad slots are called on the same page at the same time," he says.
Audience measurement is perhaps the third major complication. TV buyers want unified measurement across any TV-like environments they use.
"Marketers obviously want to measure their ads, and the ability to leverage a Nielsen or a ComScore to give them cross-device ratings is not as robust as anyone would like it to be, and that holds back all advertising in all those environments," Paparo says. "I don't think Amazon will be in particularly different position until they get sufficient scale in any ad-supported video."
Amazon may not even want to open itself and its data to outlets such as Nielsen and ComScore.
"The preference is to maintain the walled garden and keep all the profits and data," he says. "Buyers will need leverage to negotiate use of their prefered buy-side platform." But there have to be enough buyers first for that to happen.
An executive from one of the major video streaming platforms, who asked to remain anonymous to protect industry relationships, says any company building a proprietary advertising platform from scratch will also face challenges with interoperability.
"There are so many partners within the ad ecosystem that Amazon will need to work with or integrate with to be successful," the person says. "Completing a high number of these integrations will be challenging and they'll need to cooperate and partner with a high number of vendors. They'll also need to be agnostic when it comes to devices if they want to scale."
But it's Amazon
Then again, nobody gets good odds betting against Amazon. The company already has ad-supported video on Twitch, IMDB and the NFL games it carries on Prime Video. Most important, it's filthy rich with top-shelf data on hundreds of millions of consumers. It knows what its customers are searching for, what music they're listening to and what books they're buying.
An Amazon-run, ad-supported TV service should be able to to tell whether a person who saw an ad for a given product actually ordered the product within a set period of time. That ability could potentially also be applied to purchases at Whole Foods, which Amazon bought for nearly $14 billion last year.
"That sort of data set is extraordinary and no one can do that type of attribution in any television-like format," Paparo says. "In the traditional TV world, coming up with a correlation like that is possible, but is often a highly custom piece of research that is expensive and cumbersome to execute."
That capability could, in turn, attract ad budgets that normally wouldn't touch TV, or streaming TV.
Amazon should also enjoy a fast start out of the gate when it comes to highly targeted TV advertising, because it knows which Amazon online shopper is watching which Fire TV device.
"From there they could target that consumer based on behavior across other Amazon products," says Michael Connolly, CEO of ad tech platform Sonobi.