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Amazon Ads: Skyrocketing Growth in Q1

5 Strategies Every Amazon Seller Should Be Following in 2020

As advertising platforms continue to post initially healthy gains derailed by COVID-19 in Q1, many were interested to see where Amazon would net out during the pandemic.

Unlike other platforms, Amazon acts as both advertising and fulfillment mechanism for many ecommerce brands. This means changes in distribution or fulfillment can affect those sellers in different ways.

The mandates to shelter in place meant an increased reliance on delivery of goods, poising Amazon to be the servant many consumers would rely on. This, in turn, had the potential to continue the sharp year-over-year gains its advertising business had witnessed.

Amazon’s Role in the Q1 Decline

Like what we’ve seen with other Q1 platform analysis, Amazon’s pattern was similar: a strong Q1 that hit a wall right at the end.

However, unlike the other platforms, Amazon showed meteoric growth year over year, muscling its way to a seat at the table that’s predominantly owned by Google and Facebook.

Amazon announced a cutback on fulfillment of non-essential and third party fulfillment at the start of the pandemic. Commonly referred to as “FBA,” Fulfillment By Amazon acts as the warehouse and shipper for ecommerce brands that elect to use them for order fulfillment.

This created an interesting situation for sellers who were hoping to capitalize on the inevitable increase of online ordering – now they couldn’t get their items fulfilled.

While some categories were exempt if they were deemed “essential,” there was speculation about what this could mean for their overall ad revenue for Q1.

Lack of fulfillment means there’s no reason for brands to advertise their wares on Amazon, resulting in budget cuts to spending until the restriction was lifted.

Ad Revenue Gains & Losses

Q1 started off with major gains year-over-year for Amazon Ads, with 44% growth to $3.9b.

Analysis from Merkle outlined the rise and fall they’ve witnessed with their clients, estimating a drop in spend by about half in the latter part of March vs. typical spend in January.

Tinuiti also saw similar patterns with the $400m in client spend they analyzed. Search advertising on Amazon grew at a 25% clip or more for Q1, and then slowed to 6% in the final week of March.

This collided with a reduction in conversion rates, an average decline of 10% as reported by Tinuiti.

All of this added up to cheaper ad rates, but in an environment where demand couldn’t be met by suppliers.

“It’s been a strong quarter in ad revenue, but we did start to see some pull back from advertisers and downward pressure on price.” – Brian Olsavsky, CFO of Amazon

Merkle saw impressive gains year over year, something analysts are believing will continue as the gears of ecommerce start to turn more freely again. Year over year, Merkle saw growth in the following ways:

  • Sponsored Product ads up 70%
  • Sponsored Brand ads up 131%

The Dichotomy of Demand vs. Ability to Supply

The challenges faced by ecommerce sellers aren’t solely due to Amazon’s temporary fulfillment cutbacks. Most production of items takes place in China, the epicenter of the COVID-19 pandemic.

This rendered “business as usual” out the window, with reduced staffing and shelter-at-home mandates disrupting the labor force. As production rate slowed in China, this created a gap in fulfillment for sellers who typically rely on predictable system.

China has recovered and started to produce again, but then there was a new issue:

Coronavirus had moved to the United States, affecting everything from worker staffing in warehouses, to staffing at shipping docks.

Combine that with Amazon cutting back on fulfillment, and it’s been a challenging time for logistics with physical inventory.

Many who follow Amazon are very curious to see what happens in the second quarter. Inevitably, Amazon will start to catch back up with shipping times, and FBA will start to return more to normal. The question will then be how much brands will be ready to start putting back into ads, and how quickly they will do it.

Susan Wenograd Consultant

Susan is the Paid Media Reporter for Search Engine Journal. A marketing veteran of almost 20 years, she has managed ...

Amazon Ads: Skyrocketing Growth in Q1

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