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Amazon Retail Ad Service: What It Means for Retail Media

Published 27th Jan 2025 by James Taylor

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Amazon's Retail Media Play: Party Over?

Amazon recently announced the launch of its Retail Ads Service, a new initiative aimed at extending its advertising capabilities to third-party retail websites.

Linkedin feeds are full of people that are both 'unsurprised' and highly opinionated on what it means from their vantage point. Those that appear to have the most to lose are Retail Media technology platforms.

Amazon Retail Ads Service is positioned as a solution to help retailers monetize their online properties, the service integrates Amazon's demand-side platform (DSP) with its ad-serving technology.

This move has sparked debates about its potential impact on the retail media landscape.

While the announcement has generated significant buzz, the offering itself appears to be limited in scope (three media types, legacy technology), primarily targeting smaller retailers who lack (or need) sophisticated advertising infrastructure. The value to Amazon is also dubious relative to Retail Media activity on their owned properties, so is it just investor relations corporate PR or is this the beginning of a larger opportunity for Amazon?

In this post, we provide an overview of previous initiatives by Amazon (and Google) to offer technology otherwise provided by dedicated technology vendors, we consider inherent conflicts, and analyze the gap between Amazon Retail Ads Service and the technology powering Amazon's own Ads business. This post presents a vision encompassing the dichotomy of consolidation and fragmentation. Ultimately we conclude that the whole market stands to benefit from Amazon as a Demand Side Platform (DSP), and that supply side considerations are more complex by an order of magnitude. The debate is a nuanced one, enjoy!

Past Proof Points: Precedent

Amazon, like Google, has long offered search and recommendation technology for retail websites as part of their respective cloud services. Note: Amazon's Retail Ad Service also requires retailers to use Amazon Web Services. However, the reality of domain specific implementations, the need for customization, complexity, support and ongoing optimization has prevented either company from taking significant market share from specialized search and recommendation vendors. Ironically, many of these vendors use Google Vertex and Amazon SageMaker as underlying technology within their SaaS products, highlighting the symbiotic rather than competitive nature of these offerings. SaaS vendors generally solve for specific users in ways that ancillary projects from tech giants do not.

Inertia and Switching Costs: Will Everyone Really Jump Ship to Amazon?

The assumption that retailers will switch en masse to Amazon’s Retail Ads Service overlooks the significant inertia and switching costs involved. Enterprise retailers have deeply embedded systems and workflows tailored to their unique needs. Migrating to an entirely new platform—especially one owned by a competitor—requires not only financial investment but also cultural and operational shifts that retailers are unlikely to undertake lightly.

Conflicts of Interest: Retailers & Amazon

1. Reluctance to Enrich Amazon: Retailers of scale are typically uncomfortable lining Amazon’s pockets. As a competitor in the retail space, Amazon’s success often comes at their expense. 2. Trust Issues: Retailers can’t trust Amazon to prioritize their interests over its own. If forced to allocate ad spend, why would Amazon direct dollars to third-party retailers instead of its own marketplace? 3. Technology Disparity: Retailers worry that Amazon will always keep its proprietary tools a step ahead of what it offers others, maintaining a competitive edge.

Complexity in Enterprise Requirements: Mo' Money Mo' Problems

Enterprise retailers require bespoke solutions that Amazon’s current offerings cannot match:

1. Customer Experience: Every retailer’s brand and customer journey differs significantly from Amazon’s. This uniqueness demands a high degree of customization. 2. Varied Supplier Relationships: Supplier agreements and rebate workflows vary significantly not only across retailers, but within retailers where every supplier relationship is unique, necessitating tailored systems.

Hybrid Decisioning: Effective retail media requires seamless integration of trade, merchandising, own-brand promotion, site conversion optimization, and advertising—a level of nuance Amazon’s off-the-shelf solutions lack.

Legacy Tools & Limited Scope: A Golden Cage?

Kiri Masters’ exposé on Amazon’s Rufus AI patent highlights the limitations in Amazon’s Retail Ad Service technology as compared to the tech Amazon is benefitting from concurrently. The tools being offered are legacy systems, not the cutting-edge technology Amazon uses internally. This reinforces the challenges Amazon faces in making its latest innovations broadly accessible.

This blog post on Particular Audience’s website further explores these challenges, noting that Amazon’s own Rufus AI is tailored to its unique ecosystem. Adapting such technology to meet the diverse needs of each unique enterprise retailer is \[currently\] a monumental task, one that Amazon has yet to tackle effectively.

Consider the domain specific nature of training an AI search model as Particular Audience outlines in the 2023 Adaptive Transformer Search whitepaper available here.

Corporate PR: Spinning for Stock Price?

According to eMarketer " Amazon Ads is closing the gap with Google and Meta. The newest digital ad powerhouse is making the duopoly sweat, capturing 12.9% of the US digital ad market this year (behind Google’s 27.1% and Meta’s 19.5%)"

Public companies like Amazon have teams dedicated to spinning narratives that enhance their stock price. They've already expanded ads through owned ecosystems (Prime TV), and they need to keep the growth alive.

So let's unpack the opportunity Amazon Retail Ad Service has for Amazon...

Andreas Reiffen’s analysis on LinkedIn underscores the low revenue opportunity for Amazon’s Retail Ads Service, despite the media hype. As Andreas points out, the incremental revenue potential is limited (his back of the envelope calculation suggests Amazon might grow Retail Media Ad revenue by just 0.52%), which raises questions about the strategic focus of these initiatives.

At the time of writing, The Trade Desk's market capitalisation stands at US$ 58.8 billion, demonstrating the massive size a dedicated Demand Side Platform (DSP) can achieve.

Brand Advertisers are screaming out for consolidated entry points in an increasingly fragmented market. Lauren Livak of The Digital Shelf Institute recently shared at NRF in New York that brands, on average, will engage with up to seven retail media networks They simply cannot manage campaigns across more. Retail Media teams and budgets are not scaling linearly with the growth of Retail Media networks, Amazon's DSP could offer tremendous scale for an Advertiser, akin to Skai, PacVue and Criteo; it is unlikely that Amazon will restrict demand flows only to its limited onsite technology, when it can take a slice of the Open Web too.