The Auction System
A basic introduction to the Amazon Advertising auction system.
We take a deep dive into advanced auction system theory later in Advanced > Auction System Theory
Sellers Compete
When a shopper searches for something on Amazon, let's say "wireless headphones," there are several sellers who have similar products to sell, and they all want to show their ads to the shopper. These sellers will be in competition with each other to have their ads shown.
Ad placement
Amazon decides where to place the ads on the search results page. They aim to show relevant ads that are likely to be useful to the shopper.
Additionally the search results page will never be completely made up of ads. Amazon will always show a mixture of organic and paid search results.
Bidding
Sellers have to participate in a bidding process. It's like an auction. They decide how much they are willing to pay to have their ad shown when someone searches for "wireless headphones."
Keyword Relevance
Besides the bid amount, Amazon also considers the relevance of the ad to the search query. If the ad is highly relevant to what the shopper is looking for, it might have a better chance of being shown, even if the bid is not the highest.
Winning the Auction
When the shopper searches for "wireless headphones", Amazon looks at all the ads that are relevant to that search and have high enough bids. The ad with the highest combination of bid and relevance is the winner.
Payment
The sellers who win the auction will have their ad displayed on the search results page. When a shopper clicks on that ad, the seller pays Amazon the amount they bid. Amazon decides the order and placement of ads on the page.
Performance Matters
Amazon wants the ads to be helpful to shoppers, so they also look at how well an ad performs. If an ad is clicked on frequently and leads to sales, Amazon may give it more visibility, even if another ad has a higher bid.