Amazon confirms advertising will become a ‘meaningful’ part of its business

Amazon confirms advertising will become a ‘meaningful’ part of its business

Amazon’s advertising business has loomed quietly in the digital media space for some time but the online behemoth has given the clearest indication yet that it will now come to the fore.

Advertisers and agencies have been hearing Amazon-sized footsteps for some time but until now the business has erred away from revealing too much. However, on its latest earnings call Amazon was asked by one analyst as to whether advertising could become a more “meaningful part of the business” over the near to mid-term.

It’s much more a possibility than it ever has been, answered the business. “Our scale and number of customers, number of clicks, number of eyeballs and new content – video content and other opportunities for advertising has really helped create some in that business,” continued Amazon’s chief financial officer Brian Olsavsky.

That scale is tipped to swell its ad business by an average annual rate of 37% between 2016 and 2018, leaving it at $5bn, according to Wall Street investment form Morgan Stanley. While it’s a paltry sum compared to the $80bn worth of advertising Google gobbled up last year, its growth has already piqued the interest of Sir Martin Sorrell, the boss of the largest advertising holding group in the world.

“It’s pretty early in the days with advertising but we’re very pleased with the team we have and the results,” said Olsavsky in response to another analyst query. “Our goal is to be helpful to consumers and enhance their shopping or their viewing experience with targeted recommendations, and we think a lot of the information we have and preferences of customers and recommendations help us do that for customers.”

Much of the early ad focus at Amazon has been on driving sales through targeted ads, banking on its deep well of customer data to reach consumers at the top of the purchase funnel. Yet, it has prodded other parts of the advertising mix in recent months with the launch of its cloud-based header bidding product that will see it make money from helping publishers peddle programmatic media. Media observers are already speculating whether the move is a shot across Google’s bows in an escalating adtech race that has already seen the online giant attempt to ward off any direct challenge to its dominance of publisher’s budgets.

“As a marketer, the announcement from Amazon last night about their impressive rise in profitability will hopefully be followed by a reinvestment of this profit back into further developing their own advertising services,” said John Barham, head of paid media at digital agency Roast.

“Amazon is not only a platform for ecommerce, it is a huge research environment for users – figures from the second half of 2016 suggested that over half of US users begin product research on Amazon as an example. As such they own some of the most valuable advertising real estate out there and have access to some of the most insightful first party data on user purchases and behaviour. In an ideal world, Amazon will take this opportunity to accelerate their advertising capabilities – they really are a sleeping giant – and break the current duopoly of Facebook and Google”

One thought on the minds of observers is that advertising could lift the profit margin of the company, generating between 20% and 30% versus the much lower margin of 5% for retailing goods. Analyst Steven Mallas goes on to cite – in a post from earlier this month – how the breadth and depth of customer data within Amazon as key to inflating its ad business further and consequently ensuring its margins remain high.

If there was ever any doubt that Amazon is committed to building its ad business, the slithers of detail it did share on the earnings call have put those concerns to rest. Even its coyness looks to set to dissipate in the coming months with its media arm set to appear at the IAB UK’s digital upfronts later this year where it will no doubt reveal more about its longer-term ambitions.

Amazon’s comments came off the back a stellar quarter that sent its shares to an all-time high in extended trading. Revenues of $35.71bn in the quarter smashed Wall Street estimates of $35.3bn, and was up from the $29.1bn it posted a year ago.

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Seb Joseph

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