Amazon patents system for cutting prices as users watch ads
Amazon is developing a system that drops product prices as a reward for customers viewing adverts. The online retailer has patented the "content-based price reductions" system, which would allow users to receive discounts or other benefits in return for consuming video, audio or interactive content. The move comes as part of Amazon's efforts to compete with YouTube and various other social media platforms, which have seen it testing video content on the site.
User-generated Amazon reviews are one of the most important ways that consumers find products and decide what to buy. So much so that Amazon has consistently shown itself to be Google’s competitor in e-commerce search. Almost all Amazon product reviews are written but, as business research firm L2 wrote, Amazon is now pivoting to video.

It’s a broad strategy with Amazon inviting some of its 2 million merchant partners to join the test program, where videos will be posted to the site in mid-December. According to L2, “this feature is a logical step given how often consumers watch how-to and product review videos before making purchases. By adding the feature, Amazon clearly aims to keep shoppers on its own site, preventing them from migrating to YouTube or social media platforms.”

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There’s potentially another reason for Amazon to promote the use of video in e-commerce. It now has a way to offer customers discounts for watching ads. In October, Amazon was awarded a patent for “content-based price reductions and incentives.” The patent says that “customers in an electronic environment can be presented with the option to receive advertising, such as audio, video, or interactive content, in order to receive discounted pricing or similar benefits.”

One example of how Amazon sees this working is that a customer can watch a video ad on an item’s detail page, such as a product review. As the customer watches more of the ad, the displayed price for the item drops.

Depending on how strong Amazon’s patent is, no online retailer outside of Amazon’s ecosystem can offer this benefit to customers.

The background to this patent is informative as it helps explain how far reaching Amazon’s thinking could be, and how they plan to keep lowering prices for consumers. One major difference between e-commerce and in-store purchasing is that loss-leading—selling goods cheaper than what they cost—doesn’t work in e-commerce. When customers visit a physical store, they have invested their time to get there so stocking up on additional items is worth it. This doesn’t happen online. So this patent levels the playing field, allowing sellers to offer discounts to online customers based on their investment in time.

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With this patent, Amazon has signaled that it is taking on YouTube, Facebook, Instagram, Snap, and other media platforms for digital ad spend. And customers will now also know the value of their time. And potentially whether their time gets more or less valuable depending on their purchasing behavior. One person’s time is inevitably more valuable than another’s, so with dynamic pricing, it’s not hard to imagine a personalized price based on a customer’s attention span and spending behavior.

Perhaps most importantly, Amazon had a lock on low-friction e-commerce with its original patent for one-click checkout, which has expired this year. The question is, with the shift to video-enabled e-commerce, is dynamically priced, attention-incentivized video advertising the next big thing that secures Amazon’s advantage for years to come?