Operational machine learning: Unlocking Amazon-like monetization for retailers and marketplaces

Key takeaways:

• Amazon's unprecedented success isn't only due to its large user base; its strategic implementation of operational machine learning significantly boosts performance and outperforms competitors.
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• Operational machine learning can equip retailers and marketplaces with tools to reach Amazon-like monetization levels, harnessing autonomous, real-time, and scalable decision-making capabilities.
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• Although complex and resource-intensive, operational machine learning can unlock high ROAS and access to always-on budgets, offering a significant competitive advantage.

In digital commerce, Amazon commands a remarkable 40% of the U.S. e-commerce market. But it stretches even further in advertising, where Amazon drives nearly 77.7% of U.S. retail media digital ad spend. And in 2022, Amazon's ad platform churned out $38 billion, making up 7% of its gross merchandise value (GMV).

Approximately two million active merchants power the Amazon ad platform, the core suppliers in the Amazon Marketplace. Among these, 75% are advertisers who use Amazon pay-per-click advertising. These are small to midsize advertisers who use simple and automated tools to promote their products. The capabilities that enable this go beyond just campaign creation; it also includes serving highly relevant ads informed by real-time user events and real-time bidding optimization. This allows for impression-level decisions that deliver the right ad, to the right user, at the right time, and at the right price.

The result? Measurable returns and an always-on ad budget.

‍The true secret to Amazon’s retail ads worldwide success

Amazon is not just taking a larger piece of the pie in U.S. retail media digital ad spend but playing a different game. Consider another measure: Average Revenue per User (ARPU). They monetize their users at a rate sometimes over 3 to 20 times more than others. And they achieve this by tapping into an always-on ad budget. Clearly, Amazon's ad revenue isn't just because they have more users.
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Amazon advertisers view this ad spend as Cost of Goods Sold (COGS), not marketing spend. These budgets are limitless as long as the Return on Advertising Spend (ROAS) delivers. This is the potential of untapped performance marketing, an open secret for those in the know. And the truth behind this success? Advanced machine learning technology.

‍The operational machine learning advantage

While machine learning is ubiquitous, not all machine learning is created equal. Within advanced machine learning technology, ‘operational machine learning’ is what Moloco refers to as models that use real-time data to self-learn and act autonomously in decision-making, speed, and scale — unlike typical machine learning, which is a batch process and predicts based on historical data and often relies on pre-programmed linear models needing manual inputs.
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Creating these complex models in operational machine learning demand talented engineers and a considerable investment in cloud computing to operate on a large scale in real time. But it’s how platforms like Amazon with advanced machine learning can tap into:

• Self-serve tools that activate at scale: This makes it easy for many sellers to become advertisers.
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• Automated bidding and targeting that makes it easy to optimize: This makes it easy for advertisers to manage campaigns successfully.
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• Real-time click and conversion predictions that deliver high ROAS: This can provide unique data to deliver hyper-relevant ads and drive measurable outcomes for advertisers.
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• Budgets that are dynamic based on performance threshold: This can help activate always-on “growth-based” budgets.

In addition, more data means better models. For operational ML, the larger the model means better performance — which is why retail media is an ideal candidate for this advanced technology.

‍The untapped potential of operational machine learning in retail media

While operational machine learning is undoubtedly complex and challenging, those who can wield its power are set to unlock true value. Like Amazon, through advanced machine learning technology, retailers and marketplaces can tap into always-on budgets, deliver high ROAS, and outpace competitors. The potential it offers for generating Amazon-like monetization is enormous and is an untapped treasure trove — the winners will be those who can successfully access the power of advanced machine learning.
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Learn about Moloco Retail Media Platform (RMP), an advanced enterprise software solution, to deliver relevant ads, drive measurable ROI, and automate your systems for scaling and streamlining operations. Connect with our Moloco team today to embrace the power of machine learning and maximize the profitability of your own ads business.

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‍Disclaimer: The content presented in this blog is based on Moloco’s observations and analysis and is not endorsed or sponsored by Amazon in any way.