Third-party sellers on Amazon’s marketplace are significantly outspending established brands on bottom-of-funnel advertising, according to new data from e-commerce analytics firm SmartScout. The analysis, which examined brands generating over $1 million in annual revenue, found that third-party (3P) brands spend 127% more than first-party (1P) brands on Amazon Sponsored Products ads, 34% more on Sponsored Brand ads, and 146% more on Sponsored Video advertising relative to their revenue.
This spending disparity illuminates the intensely competitive landscape smaller brands face as they try to compete with established names on Amazon’s platform.
A Tale of Two Selling Models
SmartScout’s analysis is based on tens of millions of top-selling Amazon ASINs, examining advertising performance across several million keywords during a 30-day window in August 2024. The study focused exclusively on brands generating over $1 million in annual revenue on Amazon.
The analysis reveals stark differences between the two types of sellers. First-party brands—typically established names like Apple and Adidas that sell directly to Amazon—command significant market presence. The average 1P brand generates $1.4 million in monthly revenue and has accumulated over 128,000 customer reviews, reflecting their long-standing position on the platform.
In contrast, the platform hosts more than 40,000 third-party brands meeting the million-dollar revenue threshold. These sellers, who market directly to consumers through Amazon’s marketplace, average $427,176 in monthly revenue and have been on the platform for 2.8 years.
Smartscout confirmed separately that aggregating the total spend on advertising across the three ad formats (Sponsored Product, Sponsored Brand, and Sponsored Video) showed that 3rd party sellers spent 123.53% more on advertising compared to 1P vendors over a one-month period — more than triple the total spend.
Why 3P Brands Bet Big on Amazon’s Performance Ads
“Amazon is their ride-or-die. It is their only business model and what they invest into,” explains Scott Needham, Founder & CEO at SmartScout, highlighting why 3P brands allocate more of their revenue to immediate-conversion advertising. Unlike established brands that view Amazon as one channel in a broader strategy, many 3P sellers are fully committed to the platform.
This dependency drives aggressive advertising spending, particularly on bottom-of-funnel ads designed to capture ready-to-buy customers.
“These other challenger brands, they have to spend more on advertising to get attention,” says Needham. “They’re challenging these existing 1P brands that have been around for decades.”
The competitive pressure is evident in the pricing data – for Amazon’s most performance-oriented ad type, Sponsored Products, the cost-per-click of that ad unit rose 7% year-over-year in Q3 2024, reaching $1.20, according to ad platform Skai. Yet 3P brands continue to increase spending despite rising costs, highlighting their dependency on performance advertising.
The 1P Advantage: Brand Recognition Reduces Ad Dependency
First-party brands’ lower relative ad spend reflects their inherent advantages. Take the diaper category, where household names like Pampers and Huggies benefit from decades of brand recognition. “Amazon is just a channel for them,” notes Needham, explaining why these established brands can maintain visibility with less aggressive advertising.
This dynamic is again reflected in advertising costs – Skai reports that Amazon Sponsored Brands, which feature brand logos and custom headlines, command a 26% premium ($1.51 CPC vs $1.20 for Sponsored Products) in Q3 2024. Established brands can either justify this premium for brand-building placements, or spending on the awareness stage of the marketing funnel is simply something their media buying teams are accustomed to. Meanwhile, challenger brands often focus their budgets on product-level promotion.
New Tools Level the Playing Field
Recent changes in Amazon’s advertising ecosystem could reshape this dynamic. At its recent Unboxed event, Amazon announced advanced advertising tools within Amazon’s DSP (Demand-Side Platform) and its clean room solution AMC (Amazon Marketing Cloud) that will become available to 3P brands.
Such tools were previously restricted to larger 1P brands, with DSP having a $30,000 monthly minimum spend requirement when it first launched.
The democratization of DSP access comes as the format’s costs have actually decreased – Skai reports DSP click costs dropped 49% year-over-year in Q3 2024, making it more accessible for 3P brands to experiment with upper-funnel advertising.
This democratization presents both opportunities and challenges. 3P brands can now build more nuanced, full-funnel campaigns that balance brand building with immediate conversions. However, this could intensify competition in the upper funnel, where 1P brands have traditionally faced less pressure from smaller brands.
Strategic Implications for Brands
For 3P brands, the data suggests maintaining significant investment in performance advertising remains crucial for marketplace success. Their higher year-over-year growth rate (8% compared to 4% for 1P brands) indicates this aggressive strategy is working.
However, with access to advanced tools, 3P sellers should also consider allocating some Amazon Advertising budget to brand-building campaigns.
Meanwhile, 1P brands may need to reassess their advertising strategies as 3P competitors gain access to more sophisticated tools. While their established brand equity provides some buffer, the increasing sophistication of 3P advertising could erode this advantage over time.
Looking ahead, Amazon’s evolving advertising ecosystem suggests the platform is becoming more competitive across all funnel stages. Brands of all sizes will need to carefully balance performance marketing with brand building, using data to optimize their approach as the landscape continues to shift.
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