Look out, Google: Amazon's eyeing your turf

Visit Amazon.com and you'll find a bevy of recommendations to fill your digital shopping cart: books similar to what you've read on your Kindle or clothes and gadgets based on what else you've looked at.

Now Amazon is tinkering with ad technology that would flash ads for you even when you're not on Amazon sites. And those ads might not even direct shopper back to Amazon's sites.

It's still early days, but if Amazon's new strategy plays out, it could become the Web's next advertising giant. Sure, it already serves up ads on its on site for companies such as electronics maker RCA and beauty care company Olay. But gradually, Amazon is extending its ad-serving technology beyond its own sites and, in the process, competing with the likes of Google, Yahoo, Facebook, and Microsoft.

Unlike those entrenched rivals, Amazon has the sort of consumer data over which certain advertisers drool. The company, with 209 million customers who shopped on the site last 12 months, has nearly two decades worth of shopping data. It doesn't just know what you're searching for on the Web. Amazon has a detailed history of what you bought, when you bought it, and how you paid for it.

The Madison Ave. set call it "intent" data -- and marketers can't wait to get their hands on it.

"Amazon understands better than anyone else what consumers want," said Jeff Lanctot, the chief media officer for Razorfish, the Seattle-based digital marketing agency. "And that's a gold mine for advertisers."

For many, ads are more of an annoyance than a benefit. But Amazon may well be able to deliver relevant ads, in the same way that it can encourage customers to buy that book they didn't know they wanted. The company sees ads as an extension of its mission to help customers find and buy anything they want online.

In that way, the potential for Amazon extends well beyond selling ads. Amazon has always grown by keeping prices down and margins so razor thin that rivals struggle to compete. Just as ads allow Web companies to offer music, videos, and even news articles for free, Amazon's ad business may help it drive down prices of other goods.

"It's something that over time could help us lower prices for customers," said Amazon spokeswoman Kristin Mariani.

For Amazon, advertising isn't just about gearing up to take on the likes of Google; it may also be about pressing its advantage against the likes of Walmart.

So far, Amazon's steps into advertising have been measured. Most of the ads Amazon is placing are on its own Web sites and on the Kindle.

It recently worked with Procter & Gamble, for example, placing ads for Crest Whitestrips in front of Amazon.com customers who were "in-market for oral care products and relevant Amazon lifestyle segments," according to an Amazon case study. That targeting gave P&G the ability to pinpoint receptive consumers, adding some $338,000 in incremental sales on Amazon sites, a 26 percent bump from the benchmarks the companies used prior to the ad campaign.

In another campaign, the company worked with Warner Bros. Interactive Entertainment to hawk its Lego Batman 2: DC Super Heroes game, targeting gamers and parents with kids on 1.1 million Kindle electronic readers. Those customers found ads for the game on their Kindle screensavers and on their Kindle home pages that led consumers to a page that let them buy the game directly from the device.

Looking beyond Amazon.com
The success of those campaigns and others is now leading Amazon to reach beyond its devices and Web sites. Last year, the company launched its mobile ad network, which sends ads to apps running on mobile phones and tablets running Apple's iOS and Google's Android operating systems.

"We are bullish on Amazon.com's foray into the advertising business," said Darren Herman, the chief digital media officer at The Media Kitchen, a New York agency. "We have experience working with them on some of our client accounts and have generally seen solid results. ... Amazon has lots of intent data that they are mining from their site and showing relevant ads based on that intent."

The real lure for advertisers may well come when Amazon sells ads broadly across the Web, using its data trove to help marketers target their audience. It's already testing those sales, using its platform to place ads on non-Amazon sites, according to Lanctot. Amazon's Mariani declined to discuss in detail the company's ad business on other sites.

"The opportunity for them is beyond Amazon," Lanctot said.

It's a huge opportunity, but one that's not without risk. For many consumers, Amazon remains among the most trusted online retailers. Customers don't mind Amazon analyzing their search and purchasing data to recommend another book to buy or movie to watch, often with astonishing accuracy. That's part of what makes Amazon so useful.

But seeing relevant ads on other sites based on their Amazon purchasing history might seem creepy if handled poorly. Some consumers could feel stalked, which Amazon is clearly well aware of. "We do take customer trust very seriously," Mariani said.

So rather than targeting ads at individuals based on their shopping history, Amazon uses anonymous, aggregated data to group customers into demographic buckets. A customer that has purchased a Blu-ray DVD player on Amazon and searched for other tech devices, for example, might land in the "Gadget Geeks" category. Another shopper that loads up on haute couture might be a "Fashionista" in the ad network. Advertisers, then, might purchase ads targeting those groups, and perhaps narrowing it a bit farther down with age and gender details as well.

While Amazon lets customers opt-out of receiving personalized or targeted ads, its execs are surely hoping they won't. Even if selling ads for now remain a rounding error for Bezos' $61 billion empire, that could change. And, moreover, these ads should drive new sales on Amazon as they lower prices.

Unlike Google or Yahoo, Amazon arguably has a lot more at stake if it irks its customers by following them around the Web with targeted ads. But the payoff, if handled well, could be huge.

"If we do the right things for our customers, we'll do well for our advertisers," Mariani said.

Correction, 11:39 a.m. PT: This story incorrectly reported the time frame for the customer shopping data on Amazon's site; 209 million customers shopped on the site over the last 12 months.