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Amazon is handing out free credits to sellers advertising on its site for the first time during its upcoming Prime Day — a promotion that could entice more sellers to start using its emerging ad service.
Amazon told sellers in recent weeks that first-time advertisers will receive free ad credits worth $200 if they launch their first ad campaign before Oct. 14, the last day of this year's Prime Day event, according to an email seen by Business Insider.
The promotion is intended to "make it even easier to get started" on Amazon's ad platform, the email said.
Sellers typically buy "sponsored ads" on Amazon that make their products show up as one of the first search results on the e-commerce site. For sellers without a mainstream brand, paying for such ads can help win prominent placement and additional exposure on Amazon's marketplace — especially during Prime Day when more sellers and products crowd the site.
"This Prime Day, consider using sponsored ads to help drive visibility for your products as shoppers are looking for deals and gifts," the email said.
The free credit promotion shows Amazon is using Prime Day to not just boost the growth of its core e-commerce business, but other segments, like its advertising unit, as well.
The company's annual shopping holiday, which started in 2015, sees a huge influx of sellers and shoppers as it's considered Amazon's biggest shopping event of the year. Last year's event, for example, was called the "largest shopping event in Amazon history," with sales on the site surpassing those of Black Friday and Cyber Monday combined.
Amazon doesn't disclose the exact sales figures for Prime Day, but eMarketer estimates the company will sell $9.9 billion worth of products over the two-day event, a 43% increase from last year.
The $200 free ad credit could be particularly helpful in drawing in small businesses to Amazon's advertising platform, according to Himanshu Jain, the head of advertising at CommerceIQ, an agency that helps Amazon merchants. Most large sellers are already spending a lot of money on Amazon ads, but smaller sellers may be more hesitant to buy ads this year because many are already seeing elevated sales due to the COVID-19 pandemic, he said.
The $200 free credit could make them give it a try instead.
The long-term benefits could be huge for Amazon. The COVID-driven shift to e-commerce is accelerating the growth of small merchants on Amazon, and they could end up becoming big ad spenders on the marketplace in just a few years. Large sellers on Amazon typically spend 5% to 10% of their sales on buying ads, with many of them spending tens of million dollars every year, Jain said.
"Small sellers will become larger very quickly compared to previous years because of the e-commerce penetration growing," Jain said.
In a statement to Business Insider, Amazon's spokesperson confirmed the promotion, saying it's part of the over $100 million it's spending through Prime Day and the holiday season to help small businesses selling on its marketplace.
It's not the first time Amazon has given free ad credits to first-time buyers. But previous promotions were typically $50 credits, making this one nearly four times larger in size, seller consultants say.
Amazon's advertising business is one of the fastest-growing parts of the company. Last quarter, Amazon generated roughly $4.2 billion in ad sales, a 41% jump from the year-ago period.
As more sellers and brands have bought ads on Amazon's marketplace to promote their products, Amazon saw its ad sales balloon to $14 billion last year, up about 40%. eMarketer predicted that Amazon would account for 10% of US digital-ad spending by 2021, behind only Google and Facebook, which control a combined 60% of the market.
If the promotion gets more sellers to buy ads, it could inadvertently help Amazon charge more for its ads, too. Since Amazon's ad service uses a bidding process, the new pool of likely inexperienced ad spenders could potentially drive up the costs for ad placements, according to Ben Henniges, an e-commerce director for the ad agency Spark Foundry.
That could push up the ad costs to a level that is higher than previous Prime Days, when sellers are already expected to see higher ad costs due to increased competition — and result in more ad revenue for Amazon.
"Prime Day could be more expensive than ever for advertisers," Henniges said.
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