Assessing Amazon’s Alexa Advertising Advantage

The big news from Amazon’s direction this week is that the digital powerhouse (“e-tailer” doesn’t really suffice) has been having conversations with some major companies about how it might rev up its advertising efforts in Echo devices. Because Echo is driven by the voice-recognition tool Alexa, we’ve been seeing this whole process referred to as “Alexa advertising” for short, and that’ll get the point across.

Reportedly, the companies involved in these talks are the likes of Procter & Gamble, Clorox—CPG players that would be obvious advertisers if Amazon were to carry through with Alexa advertising. It’s not clear whether Amazon will carry through. The company hasn’t made any statements on the topic yet, and as it stands, advertising via Echo devices is pretty limited. That is, streaming services can have their own ads, as long as they don’t sound like Alexa’s voice. There are also sponsorship opportunities for brands—Alexa might suggest a particular brand if the user is searching for a product—but they’re not connected to the user’s shopping history.

The revenue opportunity for Amazon is clear enough. The voice market is booming, Amazon is one of the largest retailers (not just e-tailers) in the world, and advertisers want in on the action. In theory, Alexa advertising would be analogous to search advertising—advertisers would pay for higher placements in search results if the user searched for a type of product they sell. Or Alexa might suggest the user try purchasing a different product sold by a company the user has bought from in the past. Top search results are not as easy to scroll past in voice than they are in a “traditional” web search, which is a tasty opportunity for advertisers.

Voice came up at the last Publisher Forum, in Nashville this past November. In a keynote talk, entrepreneur and tech investor Eric Franchi pointed out that voice is projected to account for 40% of searches in coming years, and my colleague Gavin Dunaway pointed out that chatbots are already quite popular in Asia. (WeChat, which is ostensibly a chat app, allows for in-app shopping and search.) There are huge opportunities in tech that allows users to get away from screens as we know them: “You’re not going to be sitting there with a phone for the rest of your life,” Franchi said.

Now let’s look seriously at how Amazon is uniquely positioned in all of this: Amazon currently commands 71% of the market for voice-enabled speakers. And Alexa-driven devices are flying off of shelves, as this past holiday season demonstrates.

For some context about how significant it could be for Amazon to launch a comprehensive advertising effort using voice, compare the current state of Alexa to where Google was when it launched AdWords. At that time, in 2000—now, I know I was pretty young, but I still had a Hotmail account and used MapQuest for directions. Google had not yet penetrated into just about every aspect of our digital lives. Amazon in 2018 is pretty much universally used here in the U.S. to purchase every possible product, and it has data on many of us going back years, or over a decade. Arguably, Amazon’s position in voice is comparable to where Google’s was in 2000 with plain old regular search—and Amazon touches more disparate corners of our lives than Google did then.

The big questions are, then: How and when might advertising budgets shift over from traditional search to voice, and what’s Google going to do in response? Google has the number-two spot in the voice-enabled speaker market, but we’re talking about 23.8% compared to Amazon’s 70.6%. Gavin, in an early POV on chatbots and AI, suggested Google might go on an acquisition binge, hungry for newer companies that specialize in the tech it needs to go up against Amazon in voice. I think that’s the likeliest outcome—the shortest line between two points for a company that can spend gazillions of dollars. But it’ll be hard for even a Google to beat Amazon’s incredibly deep insights around users’ purchase history. It won’t be as simple as just transferring budgets over to this emerging realm—nothing ever is, and marketers will want to be sure they’ll hit their desired outcomes before they start spending heavily in a new space.

That said, the users in sheer numbers are leading the way, and Amazon so far has been keeping up with them as they turn to voice assistants. Whenever the opportunity comes to bring advertiser dollars into this space, Amazon appears to have a running start in the race for market domination.