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Deep Dive 14 Apr 2021 - 8 min read

Where’s the juggernaut? Amazon’s booming US $15bn online ad business is just $22m in Australia – here’s why

By Sam Buckingham-Jones - Senior Writer

Amazon's ad business made $22m in 2020

Amazon hasn’t quite steamrolled into the Australian e-commerce market like many predicted and its advertising business here is even less stellar – so far. In the US it’s stormed to 10% of the digital ad market but it’s tracking in Australia at less than one quarter of one percent. 

What you need to know:

  • Amazon Australia earned less than $22 million from digital sales in 2020, which amounts to 0.23 per cent of Australia’s roughly $9.5bn digital ad market.
  • Experts say the lower portion of digital ad revenue reflects Amazon’s slower e-commerce start more broadly, but expect it to become a much bigger player in the sector over time
  • E-commerce has grown exponentially during Covid-hit 2020, and more retailers – Woolworths, Coles and more – are investing in their retail media assets

“There was an enormous amount of expectation. But Amazon doesn’t have a history of explosive entry. They tend to build sustainable growth over a five-year plus curve.”

Kristiaan Kroon, Omnicom Media Group Chief Investment Officer

If the US$152 billion in digital advertising spent in the United States in Covid-afflicted 2020 was slashed to $100, more than $10 went to one company: Amazon.

The e-commerce juggernaut has grown into one of the biggest media companies in the world, and one of the only viable challengers to the duopoly of Facebook and Google. Of the nominal $100 US ad market, Facebook would hoover a little over $25; Google about $29.

Amazon earned US$15.7 billion from digital ads – 10.3 per cent of the US market, according to research firm eMarketer. The site has enough data, enough granular information about who buys what there, that a sizeable portion of the country’s digital ad budget is spent targeting its users.

But in Australia, a very different story is playing out for Amazon, unlike another US tech titan which landed and launched with a bang – Netflix.

Amazon Australia made just A$21.8 million in 2020 from its advertising services, according to financial records filed with the corporate regulator ASIC. As a share of Australia’s A$9.5 billion market, that puts Amazon at just 0.23 per cent.

So why the disparity? Why is Amazon Australia so far behind its US corporate headquarters?

“They’re being very strategic. They’ve got good usage, good uniques [users], they’re growing.”

Jason Tonelli, Publicis Chief Product Officer

If you build it (even slowly)… they will come

When Amazon launched in Australia in late 2017, one economist described it as “a ‘fizzer’ Down Under”. He conceded it was, however, very early days.

Amazon had global brand recognition. But it either wasn’t selling brands Australians  were familiar with, or the delivery times or prices didn’t match local competitors.

“The problem in Australia is that for a few years after their local launch, Amazon struggled to beat local retailers on price,” says Dentsu’s Executive Director for Digital Growth Mark Byrne.

“Because of the limited range of first-party products (products shipped from its own Australian warehouse), they were forced to rely on third-party shipping from the US.

“This meant longer delivery times and overall, more expensive prices. This in turn means less traffic and less third-party sellers.”

“Grocery companies have been monetising shelf space for a long time – it’s the old school way of monetising eyeballs, except now it’s on a screen. Lo and behold, people end up buying those products that they see.”

Brad Moran, CEO and co-founder of CitrusAd

Omnicom Media Group’s Chief Investment Officer, Kristiaan Kroon, said Amazon had an unusually slow, but not unsurprising, start in Australia.

“There was an enormous amount of expectation,” he said. “But Amazon doesn’t have a history of explosive entry. They tend to build sustainable growth over a five-year plus curve.”

Launching in late 2017, its Australian revenues for the year was $17.4m. In 2018, its first full year in Australia, it grew to $292m. In 2019, it was $562m.

In 2020, it doubled – again – to $1.12bn, according to ASIC filings. From 2019 to 2020, its digital ad revenue rose exponentially too – from $5.4m to $21.8m.

“I suspect this massive difference is less around Amazon’s local advertising solutions and more down to the fact that their much celebrated ‘flywheel’ has been slow to get going in Australia,” Dentsu’s Mark Byrne says.

“The Amazon Flywheel is centred around price value. The lower and more competitive the prices, the more traffic to the platform. This in turn means more third-party sellers and brands wanting to sell and advertise on the platform, which increases product range, drives down costs, and further increases traffic.”

E-commerce in Australia

Australia has traditionally been slower on the digital e-commerce uptake, experts say, but Covid has quickly changed that.

“We’re coming from a much lower base,” Kroon says. “Covid has then accelerated e-commerce across Australia at the right time for Amazon.”

Each year since 2015, Australia Post has used its extensive parcels data to analyse the e-commerce industry. The events of 2020 “saw a shift in the industry that we could never have foreseen”, Ben Franzi from AusPost wrote.

“Last year, 9 million Australian households shopped online – that’s 82% of all households.”

Australians spent more than $50bn online, a jump of 57 per cent compared to 2019.

We were behind, Covid has been helpful to Amazon, it drives more e-commerce,” Kroon says.

“It’s still going to take some time... with their global playbook, it would be extremely surprising to see them not become an extremely strong player.”

Publicis’ Chief Product Officer, Jason Tonelli says don’t underestimate the Amazon machine as it clinically builds out its business.

“As you start to look at the depth of what [Amazon] can do, around audio, video, as well as its traditional marketplace work – it’s is quite broad,” he said.

“I think it’s time in market. You have to look at the Australian population, we’re very East coast centric. We’re a very big landmass for the population.

“They’re being very strategic. They’ve got good usage, good uniques [users], they’re growing.”

Data from SimilarWeb, seen by Mi-3, comparing major Australian retailers’ e-commerce sites demonstrate enormous traffic going to Amazon: 385 million visits over the year to March 2021, or 44 per cent of the total traffic going to Woolworths (275.2m), Coles (164.9m) and Aldi (49.6m).  

Likewise, Australian figures from Nielsen show Amazon steadily growing its Unique Audience and the number of hours spent on the site.

In 2018, there were 8.1m unique users. In 2019, 10.1m, and in 2020: 11.7m.

In 2018, Aussies spent 9 million hours on Amazon’s website. In 2019, 13 million hours. And in 2020, more than 17.1 million hours.

“They’re scaling, and with that scale, you’re going to get more product,” Tonelli said.

“Australia’s on a different commerce journey.”

Australia and the Retail Media sector

Amazon’s relatively low digital advertising revenue stream highlights Australia’s slower adoption of retail media revenue more broadly.

“Take the US market. It's much more mature in almost every way, including retail media - at which Amazon has been at the forefront of its monetisation of its sponsored search results,” says Brad Moran, co-founder and CEO of CitrusAd, a retail media tech platform used by some major retailers in Australia, the US and UK.

“A lot of Amazon revenue in the US is derived from national 'media' or 'search' dollars which used to go to Google and Facebook," he said.

"These ad dollars are controlled by the ad agencies which have been very slow to adopt in Australia and the successful retailers can just go direct to the brands, saving the brand 20 per cent or more in media fees in the process.

“Grocery companies have been monetising shelf space for a long time – it’s the old school way of monetising eyeballs, except now it’s on a screen. Lo and behold, people end up buying those products that they see.”

Amazon, Moran says, is not an essential service for most Australians. They don’t have the numbers to justify enormous retail media figures, like they do in the US.

“Australia’s also got some big players who know what they are doing and are out in front of Amazon," he said.

"It’s going to be an uphill battle if bricks and mortar can get back on its feet. If not, Amazon will focus on non-perishable industries like electronics, fashion, pet and beauty.”

“They are building in a controlled fashion. That will create momentum. My feeling is, they are working to a well-trodden plan, they have rolled out in multiple markets, to be a very strong player, and I don’t see anything significantly different in Australia. The question is not if, it is when.”

Kristiaan Kroon, Omnicom Media Group Chief Investment Officer

Unlike Facebook and Google, Mark Byrne says, Amazon allows consumers to discover, research, and purchase products – bypassing the use of other platforms. 

“It’s this ability to purchase on the platform that makes Amazon a closed buyer’s marketplace, meaning advertisers are able to directly attribute the effectiveness of their spend to sales,” he says

“Most savvy advertisers understand the potential of a closed buyer marketplace – from both a targeting and measurement perspective, however the question is scale. Once Amazon can attract more consumers to the platform, the media spend will quickly follow.

“There’s no doubt that retail media networks like [Woolworths’] Cartology and Coles have done a good job in capturing some of this opportunity. Marketplaces like Amazon (and eBay) are the other obvious e-commerce contenders.”

Jason Tonelli says advertisers are beginning to seriously invest in retail media.

“It’s definitely growing both in advertisers that are trialling it, to those that are always on. You’ve got two things playing out at the moment.

“Big banks, big retailers, big CPG… now distribution is starting to lift. Deliveries are going to get faster.”

“I suspect this massive difference is less around Amazon’s local advertising solutions and more down to the fact that their much celebrated ‘flywheel’ has been slow to get going in Australia."

Mark Byrne, Dentsu Executive Director for Digital Growth

Kristiaan Kroon says while Amazon has strong local competition as it sets up its Australian operations and, progressively, its retail media side, it will undoubtedly become a major force in the domestic retail landscape.

“[Amazon] can now deliver to all Australians within two working days,” Kroon says.

“They are building in a controlled fashion. That will create momentum. My feeling is, they are working to a well-trodden plan, they have rolled out in multiple markets, to be a very strong player, and I don’t see anything significantly different in Australia.

“The question is not if, it is when.”

One keen observer of Amazon’s retail media rollout predicts it will eventually secure a significant portion of the Australian digital ad market.

I think Amazon could get to five or six per cent,” he says.

Amazon Australia did not respond to Mi-3's requests for a response or a statement.

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