On Tuesday, Amazon set a new record being the second company in the US to ever achieve a $1 trillion market value. While they did not close the day above that value, $1 trillion is an impressive mark, and they continue to be nothing but impressive. In addition to reaching the mark, Amazon recently announced that they are pushing to greater heights in the online ad market.
In the past, Amazon has not utilized online ads like some other companies. For instance, Verizon has utilized Amazon to push their products for a while. On Black Friday, Verizon had an ad for the Google Pixel 2 on their homepage; on Amazon Prime Day, Verizon utilized numerous ads sharing their various unlimited plans. Amazon is taking steps toward that direction as they grow into one of the larger online advertising firms, competing with Google and Facebook.
In comparison to the many other offerings of Amazon, ad revenue is only a small portion. The e-commerce business accounts for the largest chunk of the $235 in annual revenue and Amazon Web Services, which entails the cloud computing business, accounts for 11% of the revenue. Ad revenues don’t even get their own name on the financial results, but rather, they appear under an “other” category. What is notable is that the “other” category surged by more than 130% year-over-year during the first quarter of 2018, ending at a value of $2.2 billion.
While a potential value of $2.2 billion for the total ad revenue for Amazon is a large number, it is still small compared to their main competitors. Google and Facebook combine to account for more than 50% of the digital ad market. Doing some simple math, that means that they both generate revenues of about $22 billion from ads, more than ten times that of Amazon. Even though they are smaller than their current competitors, Amazon holds one key advantage, they have a better ability to put ads in front of people that will more likely feature as suggestions rather than an intrusion. Amazon has intensive data on consumer shopping habits that give them the ability to effectively place their ads, while both Google and Facebook rely on an algorithm to display their marketing messages.
Collin Colburn, an analyst at the research and advisory firm Forrester, added some commentary around the approach that Amazon takes to online ads. He said, “Google and Facebook have been slow to create the standards that advertisers want to see. They are concerned about what sort of content their ads are going to be placed next to. Amazon is different because it has a much more controlled environment on its e-commerce site where the products are being sold, and Amazon’s reach into the rest of the World Wide Web is pretty small.”
What is still up in the air is how consumers and users will react to the new ads. It is likely that consumers will start to see Amazon ads and possibly other ads in areas they have not seen before. For many consumers, this could be frustrating and unwanted, particularly for Amazon Prime members which already pay more than $100 a year for Amazons services. Furthermore, a previous change in ads announcement associated with Twitch caused a significant backlash. Twitch, which is a video game streaming service, used to be free to everyone and was entirely ad-free. Recently, Amazon announced that Twitch will no longer be both ad-free and free of cost. Instead, users must pay $9 per month for ad-free service or deal with ads.
