Retail, search and Amazon’s $40B ‘advertising’ business

So, what are the ads doing for Amazon? Some people think they’re degrading the experience - certainly, it’s hard to shop without wading though them. But you could also ask whether this is ‘advertising’ or ‘marketing’ - indeed, you could ask the same about Google’s search ads. Is paying for placement an ad, or trade dollars, or end caps, or a slotting fee? Does that distinction break down? Does it matter?

On the other hand, you could look at this as price discrimination. Which of the brands on offer on Amazon have enough of a margin that they could be paying Amazon more? How would you know? Sure, you can squeeze them one at a time, but one-at-a-time of anything isn’t the Amazon way. Offering brands the chance to buy their way to the top is scalable bargaining - an auction model for the retailer’s cut. Let the brands decide on the ROI and bid against each other instead of trying to manage that yourself. 

This is also the role of Marketplace: infinite scaling. Instead of having to hire buying teams one-at-a-time to source and range everything you might want to sell on Amazon, you open up the APIs so that those teams can do the job without actually working for you. Now you sell placement not just as price discrimination but as a filter. After all, if anyone can now list anything on your site, and you have hundreds of millions of SKUs, how can you surface what people might actually want to buy? One signal might be seeing what the vendors are willing to put money behind. (In a sense, Amazon Marketplace is not just a ‘two-sided marketplace’ between consumers and vendors, but also or alternatively a one-sided market in which Amazon is the buyer and Marketplace vendors compete - and bid - to be ranged.)

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