Amazon’s Advertising Business is Growing Like Weed

Amazon Advertising

Here is a great new business for the new default shopping search engine. Business Insider:

According to Amazon’s latest earnings, the “other” revenue from its North America business — believed to be mostly comprised of its online advertising sales — saw the biggest year-over-year jump of any part of Amazon, at 60% in 2016. It recorded $1.3 billion in annual revenue.

Although that’s tiny compared to Google’s $80 billion in ad revenue, it shows Amazon has been quietly ramping up its online advertising offerings, and could one day be a major threat in the industry. […]

[Amazon CFO Brian Olsavsky] also said “sponsored product” ads are “off to a great start” and a “very effective way” to reach interested customers, while adding the company’s working on some pre-roll video ads as well. […]

During the earnings call, Darin Manney, Amazon’s head of IR, cautioned against making a big deal out of the jump in “other” revenue, stressing that it includes revenue from its co-branded credit card arrangements and other types of advertising deals.

Every search engine, after getting to a certain size, leads to search engine optimization and the opportunity for search ads. Amazon is no exeption, with both.

What is so promising about this is the fact that selling ads has a far higher margin than, say, mere online retail.

In other words, being the default marketplace and shopping search engine allows Amazon to take a larger chunk of the whole market. (Amazon is not just taking the retail margin or the marketplace fee but is also getting increasing percentages of ad budgets.)

Bloomberg a few days ago looked at Amazon’s ad business:

While Amazon’s annual ad revenue is relatively small at an estimated $1.2 billion, the company has assembled a Google-like set of advertising tools and services that could become Amazon’s next big thing. […]

Away from its own websites, Amazon harnesses its trove of information about people’s buying and browsing habits to help other companies find potential customers everywhere they go online. The company can help a digital camera company find tech gadget enthusiasts, based on those people’s Amazon habits. The company also created its own ad-selling system to help website owners auction off their slots to the highest bidder. That’s wading into the territory of Google’s DoubleClick, a marketplace for web video and digital billboard ads. […]

people in the marketing world are buzzing that Amazon has big ambitions in online advertising. Veteran ad executives regard this with excitement and trepidation. Ad buyers would like an alternative to what they call the digital ad duopoly of Google and Facebook; on the other hand, Amazon could become a formidable competitor if it bypasses agencies and goes right to brands.

​This is why the default position is so valueable. Besides the overall GMV, the then possible ad business can itself become a main profit driver. Bloomberg:

It generated roughly $1.2 billion in net advertising revenue globally last year, including $940 million in the U.S., eMarketer estimates. If Amazon’s U.S. ad sales generated the same operating profit margin as Facebook, that would mean advertising accounted for about $395 million in operating income for Amazon last year, or roughly 18 percent of Amazon’s total operating income in the last 12 months for its North American retail business.

That wouldn’t be bad for a business few already have on their radar.

​More on this topic:


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  2. […] ‘others’ basket, which includes Amazon’s advertising business, is growing fast too, hinting at a growing ad […]


  3. […] made $313 million in marketing services revenue in the fourth quarter. (-4% yoy) ​For comparison, some estimate that Amazon’s advertising business made $1.2 billion in net revenue worldwide, with $940 […]


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