Amazon's meteoric advertising ambitions rival the Google-Facebook duopoly

With more than 50 percent of the product searches originating on Amazon and nearly 3 out of 4 customers saying they start their search with Amazon when looking for a product online, Google is justifiably worried.

Piyush Sharma
Updated: May 26, 2021 05:26:52 PM UTC
Image: Shutterstock

Amazon is an e-commerce company. Amazon is a cloud-computing company.

Amazon is a media company?

Google and Facebook, and scores of others, masquerade themselves as technology companies but, in effect, they are the most powerful media giants with advertising revenues accounting for the largest and almost exclusionary contribution to the total revenue pie of the respective companies.

The Amazon ad giant is rising
Amazon has a reputation for disruption by swallowing incumbents. With more than 50 percent of the product searches originating on Amazon and nearly 3 out of 4 customers saying they start their search with Amazon while looking for a product online, Google is justifiably worried.

Last quarter, Amazon’s spiking ad revenues at around $7 billion, grew at a spectacular 77 percent, 7X higher than that of Twitter. At 10 percent of the US ad market, Amazon is the undisputed third-largest advertising major in the country's market after Google (29 percent)  and Facebook (25 percent), as per eMarketer.

Google and Facebook are also enjoying spectacular results with e-commerce taking off with more stay-at-home around the world. Analysts are labeling the coming year as a positive “hurricane season” for digital advertising, with the US returning to normal after the worrisome pandemic. The reasons: move to digital fulfillment in the changing new world and continuing shift from TV to digital advertising.

For Amazon’s ad business, what holds for the US is also increasingly starting to mirror for the rest of the world except China. Cowen survey released earlier this year predicts Amazon to be the leading share gainer among the major digital ad businesses. Apple’s privacy changes affect everyone, especially Facebook, but not Amazon and Google that have relatively low exposure.

Amazon has high ad relevancy thanks to its deep learning models, and its investment to develop highly sophisticated ad products like Amazon’s DSP or Amazon Display Network and video creative formats that enable it to challenge Google for video search ads. Amazon is aggressively wooing advertisers across industry tradeshow events, flashing its reach to a targeted audience across Amazon content, services, and devices.

What makes the ecommerce giant additionally attractive is that it provides a ‘brand safe’ environment with no encumbrances of landing the client brand in an awkward ‘content adjacency’ or ‘extremist’ content situation. Amazon is a "safer environment" than social media platforms like Facebook and user-generated video platforms like YouTube.

The fact that Amazon’s customers have the highest intent to purchase, coupled with high-quality user data on their shopping habits, remains the cornerstone of the rise of its ads business to superstardom. Even as Amazon does not disclose profits for the ‘ads and other’ category, those who understand digital ads business would know that if Google’s core business delivers operating margins to the tune of 68 percent, Amazon’s fastest-growing low-profile ad business with plenty of runway ahead, could be as profitable as the acknowledged highly-profitable cloud computing business of AWS.

And that, if it is so, is big news.

Amazon’s dominant e-commerce business operates with wafer-thin margins. This is what makes AWS the highly profitable pillar of Amazon, contributing almost half of the total operating income. In the emerging advertising ecosystem built around the point-of-sale, AWS may have got company.

The writer is an Executive-in-Residence at the Anderson School of Management, UCLA besides being a global CEO coach and C-Suite Advisor

The thoughts and opinions shared here are of the author.

Check out our end of season subscription discounts with a Moneycontrol pro subscription absolutely free. Use code EOSO2021. Click here for details.