Reports that Amazon.com Inc has doubled its ad profits, is growing its ad business fast, and may be outselling ads on Twitter Inc and Snapchat, may soon see it in serious contention for ad dominance with its bigger rivals : Google and Facebook.
Multi-Billion Dollar Program
Reports that Amazon has achieved around $2 billion advertising revenue and with predictions by eMarketer last October that Amazon would hit $3.19 billion in net U.S. digital ad revenues by 2019 (which is 3.0 percent of digital ad spending), show that Amazon clearly has a multi-billion dollar program underway that is growing fast.
Some commentators put the rapid and impressive rise in ad revenues down to the fact that Amazon has two non-retail businesses that are experiencing fast growth, and are profitable.
Firstly, Amazon’s fastest-growing business segment, which hit $2.0 billion in the first quarter, and showed a 72 % increase from a year earlier, and 100% growth in the last quarter is its “other” section. This segment is mainly Amazon’s growing advertising business which is experiencing strong demand from advertisers that spend money to highlight their products over competitors’ in Amazon’s catalogue. The ad business now generates multiple billions in revenue. For example, the world’s largest advertising company, WPP, directed $200 million of its clients’ ad budgets to Amazon in 2017, and has also predicted that this number could rise to $300 million this year.
Secondly, Amazon’s other key profit driving non-retail business is Amazon Web Services (AWS). This leases computing power and data storage to companies large and small, and has just experienced a 40% growth. The fact that AWS has earned $17.5 billion in 2017 compared to its $9.2 CapEx spending means that it is even making a profit from a business that typically requires a huge amount of investment. For example, Amazon Web Services (AWS), Microsoft, and Google collectively spent $35 billion on data centres to power their cloud businesses in 2017.
One key thing that both of these important business segments have in common is that they deliver big profit margins. For example, AWS’s operating profit margin is consistently over 20% and Amazon’s ad business also contributes big profits to the company’s main bottom line.
Some commentators have said that Amazon’s strong position in the Cloud market, search and advertising, and the voice assistant market with Alexa are boosting the competitive position of the company as well as its profits.
In Competition With Google and Facebook?
This huge surge in advertising profits is still not quite in the same ballpark as Google and Facebook’s Internet duopoly, with Google and Facebook accounting for more than 60% of global online ad revenues, although Amazon is now on the right trajectory to start taking more of their business.
What Does This Mean For Your Business?
Amazon has expanded and diversified in recent years and the big advantages of its advertising that are attracting more business customers are its reach, the fact that Amazon has users’ purchase data and knows what shoppers need, and the fact that advertising on Amazon is delivering results for customers in terms of driving brand awareness, discovery or/and purchases.
These recent ad revenue figures show that although Amazon isn’t seriously challenging Facebook and Google just yet, it is generating significant profits from non-retail parts of its business, and is certainly going in the right direction to challenge the current duopoly. For businesses, this gives them more choice, and another potentially effective advertising platform that could drive more potential buyers their way.