This article originally appeared on Real Money on Dec. 8, 2016.
Amazon (AMZN - Get Report) isn't exactly a name that's considered synonymous with advertising technology, or even advertising in general. Nonetheless, with the help of its e-commerce empire and the mountains of shopping data produced by it, Jeff Bezos' company has developed into a formidable online ad player.
Amazon's two newest ad services probably won't do much to boost its ad sales in the near-term. But they should help it make inroads with online publishers who could become valuable clients down the line, and in doing so open up a new front in Amazon's far-reaching battle with Alphabet/Google (GOOGL - Get Report) .
One of the services, known as Transparent Ad Marketplace, is related to an increasingly popular ad technology known as header bidding. Header bidding allows a website to sell ad inventory for a page a user has loaded by simultaneously auctioning it to multiple ad exchanges that connect publishers with ad-buyers. This can act as a more effective way to sell ads (and boost ad prices) than the traditional approach, in which inventory is pitched to ad exchanges individually until a "winning" bid is obtained.
Header bidding solutions from ad tech firms such as AppNexus (recently filed for an IPO, Index Exchange and Verizon's (VZ - Get Report) AOL are becoming a headache for Google's DoubleClick display ad unit. DoubleClick both runs a popular ad exchange (known as AdX), and also provides an ad-serving solution (known as DFP). The fact many DoubleClick clients use both services often confers an advantage to AdX, since a lot of publishers select a DFP option that lets AdX get the last bid.
Using header bidding eliminates this edge, and puts AdX on an even playing field. Google is believed to be prepping its own header bidding solution to deal with the challenge. Facebook (FB - Get Report) , meanwhile, wants to integrate its mobile ad network (the Audience Network, it relies on Facebook user data to deliver targeted ads) with existing header bidding platforms.
Amazon is trying to differentiate its offering in this crowded environment by having its header bidding code run on its massive cloud infrastructure, rather than publisher web pages that are processed by browsers. That can yield both better performance and less strain on a publisher's servers.
The service is being provided for free, but there's an opportunity to profit if Amazon can convince some of the publishers using its header bidding platform to rely on it to sell ad inventory via the Amazon Advertising Platform (AAP), which shows e-commerce ads that leverage Amazon's customer data and appear on third-party sites. Ad tech exec Dan Wilson thinks pairing Amazon's e-commerce data with a publisher's data about its readers could yield superior ad bids. At the same time, Amazon will need to get major third-party ad exchanges to support the platform to win over big publishers.
The other ad service Amazon just launched, Shopping Insights Service, is a little easier to explain. It uses Amazon's customer data to give publishers a better feel for the demographics and shopping interests of their audiences. This data, in turn, can be used to both pitch advertisers and optimize what kind of content a publisher works on.
This service is also free, and it also gives Amazon some cross-selling opportunities. Just as publishers can use the insights turned by the service to convince marketers to buy ads, Amazon can use them to convince publishers to make their inventory available for AAP ad campaigns involving products likely to appeal to the publisher's audience.
In addition to selling ads on third-party sites and apps, Amazon does plenty of business selling ads on its own, via "sponsored" listings that appear in product search results and on pages for individual items. This business, of course, benefits a lot from the huge growth seen in Amazon's e-commerce sales and Prime subscriber base.
Research firm eMarketer estimates Amazon does close to $1 billion in ad sales in the U.S. alone. Amazon's third-party ads compete with offerings from Google and independent ad tech firms such as Criteo (CRTO - Get Report) , while its internal ads indirectly compete with Google since Amazon shoppers are more likely than those of other online retailers to bypass Google search and go straight to the site or app of their preferred retailer.
As both Google and Facebook can vouch, there's no substitute in the online ad world for having superior data about what your users like and are interested in. When it comes to online shopping, Amazon's data is arguably as good as anyone's, and the company now seems to be getting more aggressive about using both this data and its cloud resources to grow its ad sales.