Brief:

• Amazon is in talks with major packaged goods companies including Clorox and Procter & Gamble about promoting their products on its best-selling Echo devices through the Alexa voice assistant, unnamed sources told CNBC. Early discussions are said to be focused on whether marketers should pay for higher placement if an Alexa user asks for product listings on Amazon's e-commerce platform.
• Amazon has previously hinted about plans to sell search ads through Alexa as it seeks to grow an ad business across its various online and offline platforms. The latest talks with marketers show that Amazon is preparing to delve into the ad market as early as this year, CNBC reported last week.
• Amazon is reportedly testing different promotional opportunities, such as letting brands target users based on past shopping behavior or having Alexa suggest a specific product. For example, Alexa might try to cross-sell disinfecting wipes to a shopper who previously bought Clorox's Pine-Sol, CNBC said.

Insight:

Amazon selling Alexa audio ads to major consumer packaged goods brands would mark a significant shift in how the company treats its voice-activated search capabilities which, to date, have been used by marketers in a fairly limited capacity. Amazon presents a bit of conundrum for CPGs, as its own products are providing stiff competition, but at the same time, companies also welcome the additional platforms and competitive pricing the Seattle-based giant offers. CNBC reporting that early discussions for Alexa audio ads are centered on marketers paying a premium for higher placement in product listings underscores the sort of "frenemy" relationship that could be forged as these advertisers attempt to ramp-up voice search capabilities and Amazon tries to expand what its digital assistant has to offer consumers. 

While the widespread prevalence of transactional voice, where users can order products simply by speaking to their connected device, appears a little ways off, companies like P&G and Clorox being able to advertise through Alexa opens a new window for these brands to reach their target consumers directly in the home and on-demand. As long as consumers aren't concerned by the idea that a device is formulating ways to tailor a promotional message to them when they're most receptive, smart speaker ads are likely to become an effective and innovative way to provide information about products, services and special offers. 

Voice-activated devices are growing more popular, especially with Amazon's efforts to slash prices on its Echo smart speakers that act as another gateway to its e-commerce platform. The U.S. user base for voice-enabled speakers more than doubled to 36 million last year as Amazon led the market with a 71% share, researcher eMarketer estimated in May. During Christmas week, Alexa was the most downloaded app in Apple's App Store, a strong indication of the device's popularity as a gift since the app is required on a user's smartphone for the device to function. Amazon said it sold "tens of millions" of Alexa devices during the holidays.

Amazon dominates e-commerce, but its web ad business ranks fifth among U.S. companies, according to a September estimate from eMarketer. Its ad sales mostly come from sponsored listings on Amazon.com, but the company is forecast to boost ad revenue 42% from a year earlier to $2.4 billion in 2018. That still puts the company behind Google at $40.1 billion and Facebook at $21.6 billion, eMarketer said.