In its latest bid to close the gap with Google and Facebook in digital ad sales, Amazon plans to dramatically increase the available space for one of its most important formats, Sponsored Products: It could let brands run them across the internet, not just within its own properties.
Amazon is talking with top agencies and brands about participating in a test that would expand the scope of product ads, delivering them to outside websites by retargeting consumers who visit Amazon, according to ad industry executives familiar with the strategy. They spoke on condition of anonymity because they are not authorized to discuss the details publicly.
"This brings the ad unit off Amazon and retargets users when they're on other sites," says one of the agency executives. "The ads click back to Amazon—a shoppable format outside the Amazon ecosystem."
Sponsored Products is one of the main ad formats on Amazon's platform. It lets brands run campaigns pegged to the terms that consumers search for, similar to the search ads that made Google fantastically rich in the open web. Brands target the ads based on keywords that reveal exactly what Amazon users are in the market to buy. They appear sprinkled within search results and individual product listings.
Now, those ads will also appear on websites within Amazon's advertising marketplace, which connects to top publishers. People who click on the ads will be delivered to brands' storefronts back on Amazon.
"This is a direct shot at Google, because what Amazon has that Google doesn't is the ability for the consumer to click through to purchase on Amazon.com," the agency executive says.
Sponsored Products accounts for the majority of ad revenue, 88 percent, that Amazon makes from search-based advertising, according to a report last week from marketing technology and data firm Merkle. Another format, units called Headline Search that appear atop search results, comprises the rest.
An Amazon spokeswoman declined to comment specifically on the test. "We continue to build and improve our products and tools so we can better support agencies and all of our advertisers as our business scales," she said in an email.
Amazon also delivers display, banner and video ads to its properties and through its ad marketplace to outside publishers.
Amazon's ad business is growing rapidly, starting to compete more intensely with Google and Facebook, though those two still make up two-thirds of digital ad revenue in the U.S., according to eMarketer.
In the first quarter of this year, Amazon generated more than $2 billion in ad revenue, on pace to surpass even the rosy forecast that it would hit $3.7 billion in ad sales for the whole year. By 2020, Amazon is expected to leapfrog Microsoft and Verizon's Oath (built from AOL and Yahoo) to become the No. 3 digital ad seller in the U.S., according to eMarketer.
Amazon has been making deep changes to how it runs its ad business, building out its platform and marketplace. People familiar with its strategy have said it is changing how it works with most brands, encouraging smaller advertisers to work through agencies to plan their ad buying, instead of needing Amazon's in-house managed services specialists.
The Sponsored Products ads are expected to start running on sites outside Amazon in the coming weeks.
One advertiser who was considering trying the new ads says they could be a more powerful search resource.
"Retargeting with search ads is going to be pretty interesting," the advertiser says. "Like if you search for sneakers on Amazon, [the ads] will appear on other sites. And these ads already proved to work for brands."
A recent report from Merkle said Sponsored Products ads were Amazon's most valuable ones, and already compared favorably to Google's shopping ads. Advertisers pay for them on a cost-per-click basis. Amazon's Sponsored Products and Headline Search ads convert at about three-and-a-half times the rate of Google shopping ads, Merkle says.