How Advertising Helps Amazon Change the World

Amazon is an advertising powerhouse.

The company is the third-largest digital advertising platform in the United States and the fifth-largest ad spender. But as CNBC noted in a recent article, Jeff Bezos wasn’t always a believer in advertising. Ten years ago, he said, “Advertising is the price you pay for having an unremarkable product or service.” Why the change of heart? Because Jeff Bezos wants to change the world. And changing the world costs money.

How Amazon Is Changing the World

Jeff Bezos is a market maker. As I wrote in Fast Company in 2013, market makers do more than sell products. They influence beliefs and behaviors. Jeff Bezos is changing how people live and businesses operate through voice and cloud computing.

Voice First

Amazon is ushering in a voice-first world along with Google. With astonishing speed, Amazon has unleashed products such as AI-powered smart speakers that rely on voice commands to manage our homes, search for things, purchase goods and services, and navigate our cars.

In the United States, 74.2 million people will use a smart speaker in 2019, according to eMarketer, up 15 percent over 2018. The Amazon Echo smart speaker, introduced in 2014, owns anywhere from 63 percent to 70 percent of the market depending on which source you read. In addition, according to Amazon’s January 31 fourth-quarter earnings announcement, Amazon’s Alexa voice assistant continues to make inroads in the home and the automobile. Meanwhile, Amazon is extending Alexa aggressively into the workplace. Here’s how Bezos’s vision for a voice-first world is playing out:

  • In the home: per Amazon, the number of devices with Alexa built-in more than doubled in 2018. More than 150 products have Alexa built in, ranging from headphones to smart home devices. Consumers can choose from 28,000+ Alexa-compatible smart home devices from more than 4,500 brands.
  • On the go: more than one million customers requested an invitation for Echo Auto, Amazon’s new Echo designed for vehicles, shortly after Amazon announced its availability. Several automotive partners announced support for Alexa at CES 2019. For example, Telenav, a provider of connected car and location-based services, announced a relationship with Amazon that makes it possible for drivers to use the Telenav Alexa-powered navigation system to do the same kinds of functional tasks that they can do with Google Maps.  
  • At work: in 2017, Amazon launched Alexa for Business to begin a voice-first transformation inside enterprises. Amazon wants employees of businesses to rely on Alexa to schedule meetings, manage their personal calendars, and handle a host of other tasks. Brooks Brothers and Conde Nast are among the companies that use Alexa for Business to manage meetings according to Amazon. In addition, businesses are creating Alexa skills to manage several functions. To wit: financial services firm TIAA recently announced a new Alexa skill that helps its customers get financial information and obtain customer service. And now that Amazon has made it easy for anyone to create Alexa skills, I predict that so many more businesses are going to adopt Alexa that the creation of an Alexa skill won’t be news. 

Jeff Bezos is so enamored with voice that he mentioned Alexa six times in Amazon’s fourth-quarter earnings announcement. In fact, Alexa is about all he talked about in a prepared statement:

Alexa was very busy during her holiday season. Echo Dot was the best-selling item across all products on Amazon globally, and customers purchased millions more devices from the Echo family compared to last year . . . The number of research scientists working on Alexa has more than doubled in the past year, and the results of the team’s hard work are clear. In 2018, we improved Alexa’s ability to understand requests and answer questions by more than 20% through advances in machine learning, we added billions of facts making Alexa more knowledgeable than ever, developers doubled the number of Alexa skills to over 80,000, and customers spoke to Alexa tens of billions more times in 2018 compared to 2017. We’re energized by and grateful for the response, and you can count on us to keep working hard to bring even more invention to customers.

Typically in earnings announcements, CEOs don’t dive into the details of how their products are evolving. But not so with Jeff Bezos. His words demonstrate his belief in the power of voice.

Bezos’s comments about making Alexa more accurate might make him sound a bit geeky, but accuracy matters. Amazon needs to make Alexa more effective at recognizing human speech to make us comfortable using the voice interface to buy things — which is what Jeff Bezos wants us to do while we are on Amazon. Right now, for the most part, people use their smart speakers to check the weather and listen to music. Jeff Bezos’s vision for voice is all about commerce, not checking sports scores. The question is not whether, but when, Amazon will realize that vision.

Cloud Computing

Going hand in hand with voice computing is Bezos’s ambition for businesses and people to manage their lives on a virtual network known as the cloud. Amazon founded its cloud computing business, Amazon Web Services (AWS), in 2006. Today AWS provides the backbone of Amazon’s entire voice ecosystem. When you use Alexa in your home, on the go, or at work, you use AWS.

Bezos envisioned the rise of cloud computing long before voice came along, though, and the cloud powers more than Amazon’s own voice ecosystem. In his 2007 letter to shareholders, he wrote of people using their Kindle e-books to read and record margin notes “on the server-side in the ‘cloud,’ where they can’t be lost.” Eight years later, in his 2015 letter to shareholders, Bezos spoke of the cloud in much more grandiose terms:

Whether you are a startup founded yesterday or a business that has been around for 140 years, the cloud is providing all of us with unbelievable opportunities to reinvent our businesses, add new customer experiences, redeploy capital to fuel growth, increase security, and do all of this so much faster than before.

And he was not exaggerating. By 2015, AWS was providing the backbone for businesses to adapt to the cloud. Today, AWS powers so many companies that it made $25.7 billion in 2018. For example, if you use Airbnb to book a room or Slack to send a message, you’re relying on a business that uses AWS. And Netflix famously relies on AWS to keep its 24/7 content stream going.

Meanwhile, cloud computing, led by AWS, Microsoft, Google, and Alibaba, continues to change how businesses operate – helping them provide services faster and more efficiently around the clock by freeing them from the confines of physical infrastructures. It’s the cloud that makes it possible for Lyft to provide ride-sharing services or Instagram to operate. According to Gartner, the global public cloud services market will grow by 17 percent in 2019 to total $206.2 billion. As with voice, Amazon faces plenty of competition, but Amazon commands the greatest market share.

Where would cloud computing be today without Amazon Web Services?

Vision Costs Money

But building voice and cloud-based products and services costs money. In 2018, Amazon increased its marketing and advertising costs considerably. As noted in CNBC, Amazon reported a $13.8 billion marketing expense for 2018, up 37 percent from the prior year. Nearly 100 million viewers of Super Bowl LIII saw some of that spend in the form of a number of 30-second spots promoting Alexa. Those spots cost $5 million each.

And here is why Amazon’s advertising services, bundled under Amazon Advertising, are so valuable. Amazon Advertising gives Amazon a way to recoup its costs though an increasingly lucrative revenue stream. Through Amazon Advertising, businesses on Amazon promote their products through various forms of display advertising and sponsored product displays that appear in a consumers’ search results on Amazon, similar to how advertising on Google works.

Amazon Advertising is the result of Amazon becoming an increasingly powerful search platform. More people begin their product searches on Amazon than they do on Google. It was only a matter of time before Amazon realized it could monetize that search traffic as Google has done. Businesses are responding. According to a recent study by Nanigans, about one in three marketers are shifting their ad spend from Facebook and Google to Amazon. Amazon Advertising generated $10 billion in 2018.

Amazon’s ambitions for advertising go beyond serving up ads on Amazon itself. As the New York Times reported, Amazon also targets ads to people across the digital world by tapping into the data it has amassed about consumers’ purchases made on Amazon itself. Since Amazon knows exactly what you’ve searched for and purchased on the site, Amazon can advertise for other brands with pinpoint accuracy, as these examples from the New York Times article illustrate:

When a chain of physical therapy centers wanted new patients, it aimed online ads at people near its offices who had bought knee braces recently on Amazon.

When a financial services provider wanted to promote its retirement advisory business, it directed ads to people in their 40s and 50s who had recently ordered a personal finance book from Amazon.

And when a major credit card company wanted new customers, it targeted people who used cards from other banks on the retail site.

The advertisers found those people by using Amazon’s advertising services, which leverage what the company knows better than anyone: consumers’ online buying habits 

Just the Cheese, a brand run by Specialty Cheese Company in Reeseville, Wis., makes crunchy dried cheese bars that have taken off as a low-carb snack. By using algorithms to analyze how Just the Cheese’s search ads performed on Amazon’s site, the ad agency Quartile Digital noticed that people who searched for keto snacks and cauliflower pizza crust, both low-carb diet trends, also bought a lot of cheese bars. So Quartile ran display ads across the web targeting Amazon customers who had bought those two specific product categories. Over three months, Amazon showed the ads on websites more than six million times, which resulted in almost 22,000 clicks and more than 4,000 orders.

That 20 percent conversion rate — a sale to one out of five people who clicked on the ads — was “amazing,” Mr. Knijnik said. “That is the kind of powerful granularity for building the target audiences that just Amazon can give you.”

Like other ad networks, Amazon uses cookies and other technical tools to track customers from its site onto other websites. They let the company know that a person who recently bought a diet book is now reading news on CNN and could be targeted on that site with an ad for a protein bar. Amazon does not tell the advertisers who that user is, but it does serve her ads on the brand’s behalf.

And, just like that, Amazon is upending the digital ad industry while creating a mini-industry of companies such as Quartile Digital that offer services related to Amazon’s advertising products. And herein lies an undeniable reality: Amazon giveth, and Amazon taketh. With advertising, Amazon takes business away from established players like Facebook and Google while spurring the launch of new companies that capitalize on Amazon. 

“Amazon Is Not Too Big to Fail” 

Advertising has helped Jeff Bezos pull off a feat that is extremely hard for a publicly traded firm to do: invest for the long haul while rewarding shareholders in the short term. He also does not take Amazon’s success for granted. As he told employees recently, “Amazon is not too big to fail. In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.” 

Whether Jeff Bezos is correct about Amazon’s future remains to be seen. In the meantime, he has helped unleash technologies whose impact is incalculable.

Shareable Custom Alexa Skills Bring Us Closer to a Voice-First Future

Amazon continues to create a voice-first future.

In April, Amazon launched Alexa Skill Blueprints, which makes it possible for anyone to create their own Alexa skills and responses, with no coding required. And now Amazon has made Alexa Skill Blueprints shareable through channels such as Facebook, text, Twitter, and messaging apps.

With Alexa Skill Blueprints, voice becomes a source of user-generated content, such as creating skills that help the babysitter find things in your home or skills that help you learn new subjects through your own voice-based flash cards, among many other potential uses. Here’s an example of how to create your own family trivia game:

Empowering people to create their own Alexa skills without any coding experience is important to Amazon’s vision for making voice the connective tissue of commerce and everyday living. Alexa fuels an entire voice-based commercial ecosystem that includes, for example:

  • The use of Echo smart speakers to manage our smart homes, listen to music (preferably by streaming Amazon Music), and order products and services. Echo is Alexa’s primary vessel, enjoying a commanding 70 percent marketshare.

For Amazon to achieve its vision, consumers have to become comfortable using their voices to accomplish tasks that we’re accustomed to doing with our fingertips. So far, Continue reading

Voice Looms Large for Apple and Mary Meeker

Apple and Mary Meeker agree: we’re living in an increasingly voice-first world. But how well is Apple adapting?

On May 30, Kleiner Perkins venture capitalist Mary Meeker, one of the most influential pundits in digital, released her annual Internet Trends report. The uptake of voice-based digital interfaces was a significant theme. She identified voice as one of nine areas where innovation and growth are occurring as U.S. internet usage continues to growth.

“With voice, we’ve hit technology liftoff with word accuracy and we’ve certainly hit product liftoff with Amazon Echo’s install base estimated to be around 30 million plus,” she said, as she presented her report at the 2018 Code Conference. And she presented slides to illustrate her point.

It’s worth noting that in her 2016 report, she quoted Andrew NG, chief scientist at Baidu, who said, “As speech recognition accuracy goes from say 95% to 99%, all of us in the room will go from barely using it today to using it all the time. Most people underestimate the difference between 95% and 99% accuracy – 99% is a game changer . . . “

According to Meeker’s 2018 report, we’ve now approaching that point where accuracy rates will trigger widespread adoption.

As Meeker noted, sales of the Amazon Echo have been phenomenal – an example of a technology company identifying a need that people did not know they had.  And the Echo is an important, but not the only, barometer of voice’s uptake. Businesses such as Amazon, Continue reading

Why Amazon Prime May Be the Future of On-Demand Living

Amazon fed investors a smorgasbord of impressive performance statistics in its quarterly earnings announcement April 25 – such as a 43-percent increase in year-over-year revenues and the generation of $1.4 billion in operating income for Q1 2018.

But by the tine Amazon announced its Q1 earnings, the company had already disclosed an even more intriguing statistic via CEO Jeff Bezos’s April 18 letter to shareowners: 100 million. That’s the number of Amazon Prime members, a figure Amazon had never before shared. Amazon Prime is bigger than Costco. Amazon Amazon Prime also represents the future of Amazon and possibly the on-demand economy

Prime Is Amazon’s Future

For a fee (which is increasing to $119 annually), Amazon Prime members enjoy a number of advantages unavailable to non-Prime customers, such as free two-day delivery on orders and access to exclusive entertainment content via Prime Video.

With Amazon Prime, Amazon is redefining convenience as a premium service by creating an on-demand lifestyle. Just as Starbucks convinced people to pay more for fast coffee, Amazon wants us to pay more to get access to an even more exclusive tier of on-demand services. Continue reading

Boom! Amazon Makes Voice a Whole Lot Bigger

Amazon just extended its influence on how everyday people live.

Today Amazon announced the launch of Alexa Blueprints, which makes it possible for anyone to create their own Alexa skills and responses with the popular voice assistant – and no coding is required.

In doing so, Amazon has found a way to build on its lead in the smart speaker category, where Amazon is crushing its competitors with a 70-percent market share through its Echo product powered by Alexa. But Alexa is more than the heart of the Echo. Alexa is helping to change the way people live through voice-based experiences.

Not long ago, the idea of using our voices to play music, organize recipes, manage our smart homes, and order pizzas seemed far-fetched in a world dominated by text-based searches and commands. But Amazon, Apple, Google, and Microsoft have been steadily developing assistants intended to get people to use our voices to manage machines. Now nearly half of Americans use voice assistants on their mobile phones alone. By 2022, 55 percent of Americans will have installed a voice-powered smart speaker in their homes.

Amazon is leading the way in the adoption of voice. Alexa is the most widely used voice assistant and enjoys higher rates of engagement than competitors such as Apple’s Siri. In fact, Alexa is the heart of a rapidly evolving network that relies on voice commands to manage our lives. Home base consists of the Alexa-powered Echo smart speaker, which reside principally in our homes. Since launching Echo in 2014, Amazon has sold an estimated 20 million Echo units on its way to achieving a commanding lead in the market for smart speakers.

But Jeff Bezos wants Alexa to go beyond our living room. It’s already well known that automobile manufacturers are incorporating Alexa into their vehicles, and Amazon recently launched an offering to extend Alexa into the workplace. At CES 2018, businesses showcased a number of products integrating Alexa – ranging from smart glasses to bathroom fixtures.

These applications of Alexa do something important: make people more comfortable with the voice interface. As Bezos told Billboard, “Alexa is primarily about identifying tasks in the household that would be improved by voice.”

But Amazon needs Alexa to perform more skills for the assistant to become the common fabric of our lives. According to Amazon, Alexa performs 25,000 skills including checking your bank account balance and cooking thanks to interfaces with  third parties. And with Blueprints, Amazon puts the tools of production into the hands of the owners. By empowering end users to create personalized Alexa skills and responses without needing how to code, Amazon has created a compelling way to accelerate the uptake of Alexa. Now anyone can create their own content and customize the product to do what we want. The Amazon website offers a number of suggestions such as helping the babysitter find things in your home, mastering subjects with your own voice-based flash cards, and creating stories.

Making tools more accessible is a common approach employed by technology companies such as Apple and Google. Apple, of course, made smartphone adoption explode by opening up the iPhone to third-party app developers. More recently, Apple released ARKit for developers to launch augmented reality products. Google has taken an even more democratic approach over the years by releasing tools that you don’t need to be a developer to use, such as Google Analytics. Google is now ambitiously trying to make virtual reality more popular by launching tools to create VR experiences.

Apple and Google face bigger challenges making AR and VR more mainstream although Apple less so because AR is easier and less costly to adopt. On the other hand, voice-based experiences are becoming more intelligent and accessible. Plus, it’s far less expensive for people to use voice assistants especially as they become more embedded in products we own already.

With Blueprints, Amazon is widening its lead in the marketplace for voice assistants by changing how we live. Amazon is now Amazon Everywhere.

 

Amazon: One Industry to Rule Them All?

For once, Amazon is playing catch-up.

The great disruptor is just another player in the entertainment space. Amazon Studios, its TV and movie arm, is still looking for a blockbuster like Game of Thrones to compete in an elite league defined by HBO, Hulu, and Netflix. Amazon Music is a follower behind Spotify and Apple Music.

But recently Amazon has made some moves in a bid to transform itself from a follower into a leader. Let’s take a closer look. Continue reading

Jeff Bezos and Mark Zuckerberg Want to Change How We Live

Recently Amazon and Facebook announced new products that will extend their reach into the corporate world:

  • Amazon’s Alexa for Business, unveiled November 30, is a platform for a business’s employees to use the Amazon Alexa voice assistant (in Amazon Echo speakers) to manage everyday tasks such as scheduling conference calls and managing calendars. Amazon believes that with Echo smart speakers embedded in corporate conference rooms and offices to manage the mundane things, people will be freed up to focus on more productive work.

  • Facebook’s Oculus for Business, announced October 11, is a bundled set of Oculus products designed to help businesses apply virtual reality (VR) to do everything from train employees to design cars. In fact, although VR has experienced slow adoption among consumers, the corporate world is a different story, where VR is penetrating industries including entertainment, financial services, healthcare, manufacturing, and retail. Facebook believes that by making it easy to purchase hardware, accessories, and associated services needed to employ VR in the workforce, more companies will adopt Oculus over competing products.

These announcements are more than landmark moments for Amazon and Facebook. Alexa for Business and Oculus for Business are also manifestations of something else: the ambitions of Jeff Bezos and Mark Zuckerberg to be market makers with artificial intelligence-based voice assistants and virtual reality.

Continue reading

Let Us Now Praise Jeff Bezos

Jeff Bezos is the Abraham Lincoln of the business world: he doesn’t let critics stop him from making history.

The success of the Amazon Echo encapsulates his resiliency perfectly. eMarketer recently reported that Echo owns more than 70 percent of the market for voice-assisted devices, whose usage grew nearly 130 percent in 2016. During 2017, 35.6 million Americans will use voice-activated assistants at least once a month, which means 25 million of them will use Echo. And during the 2016 holiday season, Amazon sold nine times as many Echo devices as it did the year before. But the ascendance of Echo was hardly assured when Amazon launched the product in November 2014.

In fact, Amazon’s Echo caused a good deal of criticism, ranging from concerns about violations of personal privacy to skepticism over its value to do anything useful for its owners.

Echo Faces a Rocky Start

The Echo surfaced at a time when Bezos was fielding taking heat for the failure of the Amazon Fire phone, which Amazon had released earlier in 2014. And although the Echo made some positive impressions coming out of the gate, the product didn’t exactly overwhelm the media influencers. The voice-activated speaker inspired bemused reactions from publications that were not quite sure what to make of it, including The Verge, which described Echo as “a crazy speaker that talks to you.” An analyst at Wedbush Securities told Bloomberg, “I think it’s just a two-way speaker, but why isn’t there an app that lets me do the same thing without having to spend $99 on hardware? I think this is a solution that is seeking a problem.” And Consumer Reports criticized the Echo for being too rudimentary.

Continue reading

Why AI Is the Future of Music

The music industry finally has some reason to celebrate, thanks to artificial intelligence.

The Recording Industry Association of America (RIAA) recently announced that music revenues in 2016 grew 11.4 percent to $7.7 billion — the highest year-over-year growth rate since 1998. Although the industry is only half the size it was in 1999, double-digit growth is encouraging after years of either declines or flat results. Why the growth? According to the RIAA, the answer is simple: streaming is taking hold. And streaming services — especially Spotify — are lapping the field with AI.

As the RIAA noted, the biggest contributor to growth was a doubling of revenues from paid streaming services such as Apple Music, Spotify, and Pandora. In fact, for the first time ever, streaming music platforms generated the majority of the U.S. music industry’s revenues.

Younger streaming platforms such as Tidal are still too new to contribute significantly to the $3.9 billion that streaming services generated in 2016. Rather, the established streaming leaders, especially Spotify, are hitting their strides by offering better products fueled by AI.

Pandora and the Power of Personalization

Streaming services such as Pandora and Spotify have always created customers by personalizing their vast inventories of music. If you stream music, you already know how well Pandora and Spotify create engagement by offering you customized listening choices based on your personal tastes. I still remember how exciting it was when I first started using Pandora years ago and created my own Pandora radio stations based on names of artists or songs that appealed to me. If I wanted to create a station based on my love of Massive Attack, I could do so. If I wanted to create a station of music inspired by the Cure song “All Cats Are Grey,” I could do so. And Pandora refined my stations even further when I gave a thumbs up or thumbs down to songs that Pandora suggested to me based on my listening tastes.

Continue reading

Amazon Dashes to the On-Demand Economy

Sometimes change wears an awkward smile. When Amazon launched Dash buttons for instant re-ordering of products in 2015, the idea seemed so goofy that some considered the announcement to be an April Fool’s Day joke. Amazon actually expected people to affix WiFi-enabled hardware devices to any object in our homes so that we could restock on diapers and detergent with the simple touch of a button?

But Amazon was deadly serious. The Dash buttons, available to Amazon Prime members, have taken off. According to Amazon, Dash button orders occur over twice a minute, and for many popular items, more than half of orders are done via Dash buttons. The list of brands signing up for the program include Campbell’s Soup, Cascade, Clif Bar, Mentos, and Quilted Northern, to name but a few. All told, more than 200 Dash buttons exist. They give consumers convenience; and for brands, revenue and access to consumer purchase data.

As it turns out, people find it useful to turn their appliances into smart objects. For instance, if you place a Tide Dash button on your laundry machine, you make it easier to restock on detergent at the precise moment when you realize you are running low, presumably when you are doing laundry with the machine nearby. All you need to do is click on the Dash button, which triggers the instant order. No muss, no fuss, no online shopping cart.

On January 20, Amazon officially expanded the use of Dash buttons on the Amazon home page. (Note the irony here: a business that started as an online retailer launched a physical product and brings it to the online world). You can create your virtual Dash button by choosing an “Add to Your Dash buttons” option on a product’s detail page — but Amazon is also creating them automatically for products you order often or have ordered recently. The buttons are available for both desktop and (more importantly) mobile use — thus turning your mobile phone into an all-purpose dash button.

The Dash buttons are succeeding because Amazon has tapped into a broader trend toward on-demand shopping and living. Uber famously triggered the advent of the on-demand economy with its convenient app that made traditional taxi services look antiquated. Now businesses ranging from Nordstrom to Walmart have been incorporating apps, drones, ride-sharing services, and other forms of on-demand ordering and delivering. According to the Harvard Business Review, the on-demand economy generates $57.6 billion and attracts 22 million consumers annually.

And mobile is crucial to the uptake of on-demand living.  Since 2013, consumers have preferred using their mobile devices over laptops and desktops to interact with retailers online. As Google has reported, we are increasingly using our mobile devices to decide what to do, where to go, and what to buy — and in on-demand fashion. For instance, half of consumers who conduct a local search on their smartphones visit a store within 24 hours.

Google calls these moments of instant decision making “micro-moments.” Amazon intends to capture its share of those micro-moments by making it easier to order products with our phones, which is where Dash buttons on our mobile phones come into play.

Apps such as Instagram and Pinterest have incorporated their own equivalent of Dash buttons, but none of succeeded like Amazon has. Why? Because Amazon had already established itself first as a strong product discovery shopping platform long before incorporating the Dash buttons. And it took years for Amazon to ingratiate itself into our buying habits. The Dash buttons would come later.

Amazon patiently embedded itself into our everyday routines by becoming a user-friendly platform for finding and buying things on our own terms. Dash buttons are just part of its strategy for making shopping an even more natural part of our lives:

  • Dash buttons on our laptops and home appliances for ordering via touch.
  • Alexa in Amazon Echo, automobiles, and phones for ordering via voice.

With Dash — and the much bigger Alexa — Amazon is leading the uptake of the on-demand economy everywhere through natural actions such as clicking and talking. No longer is Amazon a retail engine. It’s a lifestyle brand for the on-demand economy.

Related:

Why Voice Search Is the Future of the On-Demand Economy,” June 14, 2016.

This Is the World Uber Has Made,” June 7, 2016.

Welcome to a New Era of Convenience Shopping,” June 29, 2015.