Amazon Retail Ad Service Launch: What you need to know

At the recent Consumer Electronics Show (CES) in Las Vegas, Amazon unveiled its latest chess piece in the digital advertising space. The new software offering, Amazon Retail Ad Service, aims to enhance the advertising capabilities of retailers, by repackaging a version of its homegrown onsite ad-tech. 

There are many questions about this new offering, which is still in “beta” with a few select retailers. But looking at Amazon’s launch partners, it’s no surprise to see that large, sophisticated retailers have chosen not to participate. 

“No one is surprised that Amazon productized their media network platform, but it’s not appealing to larger, more established organizations. It does however provide access to a growing space for smaller, regional players.” — GM Retail Media, Specialty Retailer

Perhaps this focus on the medium- and long-tail is intentional. Amazon knows which retailers and marketplaces are on AWS, and it’s not the large ones. This new ad-tech offering helps Amazon roll up and aggregate inventory, while providing retailers access to performance-enhancing tech and native demand – a strategic move that consolidates Amazon’s competitive positioning vs. other big techs and major retail media networks (RMNs), and puts the onus on retailers to “up their game” on performance or continue losing share to Amazon.

“If a large number of retailers adopt ARAS they increase the already large risk AMZ poses to their existence and profitability - for example, additional profit for AMZ can be reinvested in lower prices and take traffic away from retailers!” – Head of Product, Retail Media

While the lure of Amazon’s technology is compelling, it also comes with significant risks and drawbacks that every leading RMN must consider. It puts retailers in a jam: opt for elite adtech with inherent conflicts of interest, or legacy tools that have failed to deliver. Fortunately, a proven third way of machine learning-powered retail media ad solutions are helping retailers finally scale.

Let’s take a closer look.

1. What exactly does Amazon Retail Ad Service do? 

Amazon Retail Ad Service offers a suite of features aimed at enhancing the shopping experience, while providing better ad monetization for brands and retailers. Key features include: 

• Contextually relevant ads: Amazon’s ML models factor in product availability and price, and contextual information, such as search queries and browse behavior, to match relevant ads to each shopper.
  
  
• Native demand integration: Allows retailers to tap into Amazon's existing network of advertisers, helping bring demand to their platforms.
   
• Ad management tools: Amazon’s new software supports ads across Search, Browse, and Product pages, provides retailers control over their formats and placements, and configurability around the post-click experience.

At launch, it is only available for Sponsored Product ad formats.

2. Why is Amazon leaning into onsite commerce media? 

According to our recent analysis, Amazon drives 68% of its overall profits from advertising, which largely comes from ads across its owned-and-operated websites. The launch of Amazon Retail Ad Service highlights the increasing significance of onsite advertising for other retailers as well. Onsite ads, which appear directly on a retailer's website or app, offer several benefits over traditional offsite ads, including higher profit margins, improved brand safety, and more precise targeting using first-party data. Closed-loop attribution, the ability to tie specific ads to actual sales, is also particularly valuable in today's fragmented digital advertising landscape. It helps retailers achieve higher conversion rates and enhanced customer loyalty. 

Amazon could have leaned more directly into offsite via its Amazon DSP, a demand-side platform that programmatically manages ads across many third-party apps and websites. But, it knows onsite retail media is where the power of personalization and performance is greatest. 

3. How much will Amazon’s native demand matter?

Amazon claims that its existing relationships with advertisers can help retailers by providing additional demand and reducing the need for advertisers to manage multiple media networks. While these factors can be beneficial, the reality is that most large RMNs prefer to maintain direct relationships with their key suppliers, can build automation and self-serve into their retail media programs, and already have choices like Skai, Pacvue, and Criteo that offer demand aggregation without conflicts of interest.

Amazon will also have a strong economic incentive to privilege its own ads business at the expense of third-party retailers. For every $1 of advertising, Amazon will enjoy 5x the margin on its owned-and-operated inventory vs. other retailers. While it may claim to maintain neutrality, its clearest incentive will be to stem the flow toward other retailers in favor of its own ads business. In the past year, we’ve seen other big tech companies in court for the very same conflict of interest, from Google's ad ecosystem to Apple's App Store.

Amazon Retail Ad Service has an inherent product-market conflict: retailers whose best customers overlap with Amazon's advertisers have the strongest incentive to remain independent from the e-commerce giant. 

4. Can retailers trust Amazon to safeguard their data? 

A major concern for retailers using Amazon's ad software is allowing access to their valuable first-party data. ML recommendations that power ad systems like Amazon and Moloco rely on sensitive customer-level data, including search, browse, and purchase information. For retailers who have invested in building their own consumer touch points, turning over their most valuable consumer data is a non-starter.

This intelligence is crucial for maintaining a competitive edge, especially as customer acquisition costs rise. As noted in Amazon’s announcement, the new retail service will be built on AWS, where retailers will have to login to manage their data. Ad measurement will occur in AWS Clean Rooms. While these are highly secured environments, they nonetheless pose large potential data leak exposures and vulnerabilities to retailers’ most valuable digital assets. 

5. How can retailers get automation and real-time ML without the conflicts?

Legacy RMN solutions have failed to deliver for retailers. At the same time, as AI capabilities accelerate, the gap widens between what big tech and legacy ad networks can offer. Are retailers stuck between elite ad software with major conflicts or legacy tech? 

Fortunately, there’s a third way with the rise of independent AI-native platforms. Moloco offers ML-based automated systems like the ones Amazon built for itself, while protecting your data, providing flexibility and control over ads operations and user experience, and building direct relationships with advertisers. Moloco brings a flexible architecture, one-to-one personalization, and automation to scale advertiser adoption – without the risk of providing the family jewels to your largest competitor. 

For retailers, an independent technology partner is the best way to build a sustainable retail media advertising operation, while minimizing risk to their core business and customers:

• Data privacy and competitive neutrality: Moloco's solution ensures that retailers retain full control over their data, without the risk of it being used by a competitor.

• Maintaining critical relationships: Moloco's platform allows retailers to develop stronger direct partnerships with their advertisers and better business outcomes (without Amazon as the middleman).

• No competitive rivalry: Moloco is solely focused on empowering retailers and marketplaces to build and grow their own advertising businesses, ensuring our goals are fully aligned with our retail partners.

While Amazon's new ad software may tout its technological benefits, finding the right independent ads partner continues to be the smarter play for retailers. In evaluating alternatives, look for a robust platform with a commitment to ML, automation, privacy, and neutrality. These are the keys to growth in this new wave of digital marketing. 

Get started and maximize onsite ad revenue with Moloco.