Snap, Amazon, the Growing Importance of E-Commerce-Related Advertising and Industry Implications
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Last night’s reporting from The Information that Snap would sell Amazon shoppable ads (which presumably would be sold on to third parties primarily), following on news last week about a similar arrangement with Meta and earlier this year with Pinterest alongside many other publishers (Buzzfeed, Hearst, and some Ziff Davis brands among others) was certainly well received by Snap’s investors today, even if it’s unclear how much activity from Amazon might be incremental (i.e. because of potential cannibalization of spending or because it might cause a shift of the nature of Amazon’s own spending. No specific revenue figures, incremental or otherwise, have been provide by Amazon, Snap, Buzzfeed or Ziff Davis so far as I am aware).
However, presuming at least some of that spending is incremental, it highlights several interesting and important issues for those of us who spend a lot of time thinking about the growth of the advertising industry:
First, presuming that a product such as this helps Amazon compete for ad spend that otherwise goes through Pinduoduo’s Temu before Temu itself spends with publishers, it likely drives more cross-border spending from manufacturers based in China. Cross-border advertising is still a relatively new phenomenon that at least partially upends models correlating a country’s GDP with its advertising business, as the economic health of third countries more directly has impact elsewhere.
Second, when we track the state of the overall ad market, what appears to be the rising presence of ad networks and audience extension-based inventory means that simple addition of revenues generated from advertising by publishers and platform owners presents a growing possibility of double counting activity, over-stating the growth rate and size of the advertising market.
Third, even after we back out potentially double-counted activity, it remains true that the rise of retail media through e-commerce channels drives additional growth for the overall advertising industry. In simple numbers we can look at data from the IRS through 2020 which shows us that non-store retailers (primarily but not exclusively e-commerce) spend more than 4x the amount that other retailers spend for every dollar of revenue they generate, at least in the United States. This means that the shift of consumer spending towards e-commerce and other non-store channels contributes meaningfully to overall advertising growth. To the extent that there is an ongoing broadening of the presence of e-commerce-related advertising, as illustrated in the Snap-Amazon news, the overall advertising industry will grow faster than might otherwise occur, producing more challenging growth benchmarks for media companies who don’t otherwise participate in this trend.
Source: Madison and Wall analysis of IRS data, M&W estimates