Jeff Bezos and Mark Zuckerberg are smiling a little more as the fourth quarter of 2023 plays out, thanks to a striking new deal between Amazon and Meta: Instagram and Facebook users can now shop products directly from Amazon ads in their feed without having to exit the app.
Shoppers will have the ability to link their two Amazon and Meta accounts “for a more seamless shopping experience,” says Meta in a statement in November. “For the first time, customers will be able to shop Amazon’s Facebook and Instagram ads and check out with Amazon,” said the company too in a statement.
Source: Maurice Rahmey, Co-Founder and Co-CEO at Disruptive Digital
As retail and e-commerce experience decreasing sales, small businesses and enterprises will be looking at this new partnership intently to see how it may affect their sales strategy. Despite the possibility of some good news for brands and retailers, who may be eager about the news of this collaboration, Omnia sees other factors that may be at play: Is it more about increasing ad sales and consolidating advertising market power, or is it about the end seller?
Setting the stage for the Amazon-Meta partnership
Over the years, social commerce has matured to rival e-commerce in its sales and reach. The line between a successful e-commerce marketplace or retailer and an in-app storefront on social media is blurring, and no other example than TikTok Shop’s launch in the US in September displays this phenomenon so well.
However, despite social commerce’s rise to success with a valuation of $1.2 trillion by 2025, the industry’s largest player, Meta, has still struggled to rebound after Apple’s iOS privacy updates in 2021 largely cut off its ability to mass target customers and collect data from them. Forbes wrote in 2022 that Facebook took a $12 billion knock to ad revenue after the change. As a response, Facebook and Instagram simultaneously increased advertising costs for brands and retailers and squeezed their reach and engagement levels to initiate more ad spending, which created an unprecedented scenario for themselves where advertisers chose other platforms to advertise on.
When it comes to Amazon, as it has grown bigger and more brands have chosen to sell their products on the behemoth marketplace, the more saturated each category has become. And as brands - big and small - obviously want to be seen by shoppers on Amazon’s apps, the competition for attention thickens, making for a ripe scene for Amazon to take advantage of this competition. Getting vendors to advertise their products has been the e-commerce giant’s strategy for some time now, with the push to lure in ad expenditure from sellers accruing $12.06 billion at the end of the third quarter. That’s a 26% increase compared to the same time in 2022.
Looking ahead, Amazon has ramped up their agenda to boost ad sales, offering enterprise ad agencies the chance to advertise via Amazon Prime Video in 2024, asking for between $50 - 100 million. It may seem out of left field for a retail company to focus so much on building an advertising department, however, this is how Amazon plans to consolidate growth and power in the industry.
How will this affect brands, enterprises and other marketplaces?
There are pros and cons to this deal that will have ripple effects. For brands who already sell on Amazon wanting to increase sales volume, being able to advertise and convert directly within Facebook and Instagram will be largely beneficial to them. The ease of the process will also be improve the customer’s shopping experience and, in turn, will build a network of return customers.
For enterprises, the pros are quite similar, however, a glaring con is that larger enterprises also want to direct traffic to and sales from their own websites using their own pricing strategies that aren’t dictated by Amazon. The Amazon-Meta partnership may send enterprises down a path where they see less sales from their own platforms and find themselves relying more on in-app sales from their Amazon stock. If this takes place, Amazon will be able to indirectly control the price of an enterprise’s product.
For marketplaces, especially those in niche categories, this partnership may leave them out in the cold. As the Amazon-Meta coalition grows, more and more vendors will turn toward it to make sales and grow their brand. In turn, more shoppers will go where there is variety with a competitive price and an easier shopping experience. As a result, other marketplaces may feel the effects of consolidation by losing vendors, shoppers and overall sales.
A new era within e-commerce
This is a surprising partnership for the e-commerce industry and is being described as “the most significant ad product of the year” by Founder and CEO of Disruptive Digital marketing agency Maurice Rahmey. When speaking to CNBC, Rahmey said the partnership shows “these two-walled gardens are kind of coming together.”
According to a Duetche Bank report quoted by Fast Company, 75% of Facebook’s billions in revenue comes from small businesses, making Facebook (and Google) the chosen place for small-to-medium businesses to advertise and sell. If Meta has done such a good job in cornering the SMB market, it’s no surprise that Amazon would want in. And if Amazon has done well to expand profits through ad sales, it’s no wonder Meta would want a chance to recover from their $12 billion knock from Apple’s iOS privacy changes.
However, these may be short-term goals for the two companies, and it’s all about the long game for both of them: For Meta, this unlikely partnership is a giant leap towards increased ad sales and market penetration through social commerce. For Meta, this collaboration means forging towards a commerce-first platform, beyond the early years of selfies and poking. Combining their resources on tracking, data and user experience, a new era of shopping and marketplace expansion is upon us.
