Invest3 publishers3 min readPublished
Amazon takes its near-zero DSP fee into OpenAI's ChatGPT ad pilot
Amazon's DSP has been charging close to nothing on guaranteed buys where The Trade Desk historically took 15 to 20 per cent. It carries that spread into a ChatGPT pilot that names one advertiser and no volumes.
The Investor · Invest desk
What happened
- From September 10, advertisers using Amazon Ads, including its Amazon DSP buying tool, can buy ads inside the ChatGPT app.
- The arrangement is a pilot limited to select US advertisers, with Delta Vacations the first brand Amazon and OpenAI have named.
- Amazon cut its Netflix supply deal last September and its ChatGPT deal this September, a year apart in a continuing run of premium inventory agreements.
- OpenAI is reportedly aiming for $100bn of ad revenue by 2030, a target Digiday says requires compound growth above 200 per cent a year, every year from here.
- The FTC is suing Amazon over allegations it duped advertisers into overpaying for inventory, and the case has drawn little visible pushback from buyers.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- cost An advertiser that keeps guaranteed conversational spend with an independent DSP pays the intermediary's cut out of working media, and that bill lands on the media plan rather than on the platform.
- exposure The Trade Desk is the party with something at stake, since Digiday attributes some of Amazon's ad growth to budget that used to route through it.
- constraint Weak measurement, awkward tooling and thin format choice keep conversational budgets at test size, capping what any DSP integration can book this quarter however many advertisers get access.
- decision A planner weighing whether conversational deserves a line item in Q4 has one competitor's pilot to reason from, which makes the decision a bet on Amazon's targeting rather than on published performance.
The interesting term is the unpublished one, which is what Amazon keeps on the way through. Its DSP has been landing near zero on programmatic guaranteed deals while The Trade Desk historically took 15 to 20 per cent and Google took something close to it [5], so on a $10m guaranteed buy the difference is $1.5m to $2m that reaches inventory instead of a broker [1]. Kelly MacLean, Amazon's vp of ads, spent this year arguing exactly that, that the best supply costs less and targets better on Amazon's rails [6], and every deal since has been offered as evidence for the claim rather than a test of it.
ChatGPT is the eighth premium name Amazon has attached in roughly 18 months, after Netflix, Roku, Spotify, SiriusXM, Disney, Hulu and ESPN [4][3], and Chris Conetta of the Amazon DSP calls conversational ads the fastest growing engagement opportunity for brands [7]. The mechanics differ from streaming in a way that framing skips. Ad breaks in a Netflix show are countable and rationed, while chat impressions are produced on demand, and OpenAI has already wired in Criteo, StackAdapt and the major agency holding companies [10], which leaves Amazon with non-exclusive access to supply nobody has to ration. That is a distribution win for OpenAI before it is a supply win for Amazon.
OpenAI's side of this is demand it cannot yet sell on its own. The arithmetic behind that 2030 number is unforgiving: tripling every year for five years is a factor of 243, which implies a base of roughly $412m today [11][2]. That is a believable size for a business that only started testing ads in February [12], and it is also the yardstick, or rather the only yardstick on offer, for integrations like this one, because deals with buying platforms are how several hundred million becomes several billion, and one named travel advertiser in a US pilot says nothing about the two orders of magnitude that follow.
Buyer tolerance is the one thing I would call settled, and Digiday puts it plainly, that advertisers have shown again and again that a platform offering performance inventory can get away with a great deal [14]. My read on the rest is narrower than the announcement invites, since Amazon has taken a cheap option on a channel of unproven scale and is spending nothing scarce to hold it. Two findings would move me: an exclusivity or first-look term on ChatGPT supply, which would mean Amazon paid something real and expects volume worth defending, and evidence that conversational impressions clear near streaming prices, which would make this supply worth rationing and the fee argument only part of the story.
What to watch
- Whether the pilot opens past select US advertisers, and how many named brands are actually running by the end of Q4.
- Any disclosure of what the Amazon DSP charges on ChatGPT inventory, since a near-zero fee on guaranteed streaming buys need not carry over.
- The Trade Desk's next reported take rate and any commentary on spend lost to Amazon Ads.