Amazon is set to introduce ads on its US Prime Video service, joining streaming giants such as Netflix and Disney. The company is now working on turning your TV screen into a shopping portal.
This strategic shift is expected to boost Amazon's already substantial advertising business, which is valued at more than $50 billion (via Bloomberg).
What's Next for Amazon Customers?
TV commercials have been designed to influence future purchasing decisions, but Amazon believes it can change this dynamic.
As the world's largest online retailer, Amazon has detailed shopping profiles for Prime Video viewers and a delivery network capable of reaching much of the US population in a day or less.
This combination can transform a TV from a mere source of entertainment to a gateway for making purchases using smartphones, remotes, or voice-activated devices.
"Prime Video might be Amazon's best hope to actually make shoppable TV happen," says Sky Canaves, an analyst at Insider Intelligence. The company intends to incorporate shoppable video ads into its strategy, encouraging brands that sell on Amazon to advertise on Prime Video.
More Details
Starting Monday, Prime subscribers will encounter commercials in movies and TV shows unless they opt for an ad-free service at an extra $3 per month.
To avoid alienating viewers, Amazon plans to air fewer ads than traditional television, excluding election and alcohol commercials.
Most viewers are expected to accept these ads, with Bank of America analysts estimating that 70% of Prime subscribers will opt for the ad-supported content.
Lucrative Ad Revenue
Amazon projects Prime Video ads will reach a staggering 115 million US viewers each month, with an estimated $5 billion in annual revenue. The revenue breakdown includes $3 billion from ad sales and an additional $1.8 billion from subscribers opting for the ad-free experience.
If successful, Amazon is poised to become the second-largest seller of connected TV advertising in the US, surpassing Google's YouTube.
To entice brands, Amazon offers lower advertising rates than competitors like Netflix and Disney+, eliminating large spending minimums typical in television.
What Experts Think
Guru Hariharan, who runs CommerceIQ, overseeing $20 billion in sales for brands like Nestle and Colgate, notes, "Nearly all of our customers are buying Amazon video ads."
Kaitlyn Caimano, CIO at Tinuiti, managing $4 billion in digital marketing, acknowledges the hurdle: "The consumer isn't at that level of comfort, where they're just clicking and taking action on the ads."
Amazon's strategy involves compelling brands with low introductory rates and subsidized discounts until customers become accustomed to shopping through their TVs.
Amazon's advertising journey began over a decade ago, selling ad space on its web store. Now, with Prime Video ads, the company seeks to ensure robust revenue growth continues, especially as its web store faces saturation and eroding returns on investment for brands.
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