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Amazon: Advertisers Break Down Ad Prices - Business Insider

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An Amazon driver carrying packages.
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  • Amazon's advertising prices have gone up as more advertisers shift to e-commerce during the pandemic.
  • Amazon made $8 billion from advertising during the third quarter.
  • Insider asked four experts to break down how much Amazon ads cost.

Amazon's advertising business continues to grow, leading ad prices to spike for advertisers.

Amazon reported $8 billion in ad revenue during the third quarter, up 50% YoY. 

Ad prices skyrocketed on Amazon this year as advertisers' demand outpaces Amazon's available ad space. 

"The pandemic forced more businesses online in 2020 so there are more players online competing for ad space, and we continue to see elevated e-commerce demand from consumers," said Melissa Reilly, associate director of performance media and marketing communications at Merkle.

Insider asked four ad agencies and adtech firms how much ads cost on Amazon during the third quarter. We focused on the prices for four of Amazon's most popular ad formats: Sponsored Brands, Sponsored Products, Sponsored Display, and the Amazon demand-side platform.

For the performance-driven Sponsored Products, Sponsored Brands, and Sponsored Display, we used the common ad-buying pricing mechanism of cost per click, or CPC, which prices ads based on how many people click on them. With Amazon's DSP, which charges advertisers based on how many people saw the ad, we used the ad-buying pricing mechanism of cost per mille (CPM), the cost advertisers pay to reach 1,000 people.

We also looked at return on ad spend for each format — the most important metric that e-commerce advertisers use to calculate how much each dollar in ad spend translated to sales. For three of Amazon's top ad formats, return on ad spend decreased during the third quarter, showing how it's getting harder for advertisers to cut through the clutter.

Below is a breakdown of ad prices by format.

Sponsored Products

CPC costs: $1.21, a 13% year over-year increase, according to retail advertising firm Pacvue

Sponsored Product ads represent the bulk of Amazon's ad revenue that comes from search formats. Advertisers target these ads by terms that people use while shopping like "coffee" or "dark red lipstick."

66% of Amazon advertisers' spend in the third quarter went to Sponsored Products, according to Merkle. The agency also reports that advertisers spent 24% more on Sponsored Product ads in September compared to July to reach early holiday shoppers.

Separately, retail adtech firm Teikametrics reports that the price of Sponsored Product ads has increased by an average of 2% each month since April.

The return on ad spend for Sponsored Product ads was $4.60, down 6% year-over-year, according to Pacvue.

Sponsored Brands

CPC costs: $1.37, a 1.4% decrease year-over-year, according to Pacvue

Amazon Sponsored Brands search format is designed to help brands build loyalty and drive repeat customers. Sponsored Brands displays the brand's logo above images of its products. Clicking on the logo sends users to the advertiser's Amazon-hosted digital store or a customized landing page. 

Teikametrics reports that prices for Sponsored Brands have grown 4% month-over-month since April.

In the third quarter, the return on ad spend for Sponsored Brands declined 13% year over year to $4.02, per Pacvue.

Sponsored Display

CPC costs: 86 cents, up 22% from the second-quarter, according to adtech firm Perpetua.

These display ads target people who looked at a product but didn't buy it. They appear on Amazon and other sites.

Perpetua noted that Amazon rolled out new targeting for display ads during the third quarter, leading to more demand and higher prices.

Yet, return on ad spend for Sponsored Display dropped during the third quarter to $3.36, down 11% from 2Q.

Amazon DSP

CPM costs: Between $3.03 for mobile ads that run on publishers' websites and $7.59 for mobile ads that run within Amazon, according to Perpetua.

Amazon's DSP places programmatic ads on Amazon and on publishers' websites.

Ad prices vary by type of ad inventory, according to Perpetua. Amazon charges a premium for programmatic ads that run on its own website and app, for instance. The firm did not have enough data to calculate the year-over-year price change.

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