One of the ongoing tech stories of the past few years is how Amazon continues to nip at the heels of the “duopoly.” That ominous term of course refers to Facebook and Google, which together account for about 52 percent of U.S. ad market share. Any “opolies” of course face regulatory scrutiny which we’re seeing now.
Back to Amazon, the company continues to leverage its existing position and scale to carve out new revenue streams. It does this mostly to maintain growth, which is harder to do as companies get bigger and core products mature. But it’s a critical exercise as it directly impacts Wall Street’s temperature on tech giants.
That’s all to say that Amazon is highly motivated to chase these ancillary revenue streams. The best example of that is probably AWS, which has been one of the most successful tech stories of the past decade (now operating independently). But the second-biggest revenue diversification play for Amazon is advertising.
The thought is that Amazon has so much scale and reach through its eCommerce business that bolting on an ad business is logical and adjacent. It has done this through search ads and sponsored listings within Amazon. And it’s working… as we’ve examined, 73 percent of third-party sellers buy these ad placements.
Amazon’s ad market conquests are also working if you consider its market share. As we recently examined, it has crossed the 10 percent threshold for U.S. ad market share. More recently, Loop Capital reports that Amazon’s ad revenue is 2.4x that of Snap, Twitter, Roku and Pinterest combined, and growing 1.7x faster.
Drilling down on Amazon’s ad revenue growth, it reported 77 percent year-over-year growth in Q1 to $6.9 billion. To be fair, these figures are for Amazon’s “Other” unit which includes various other services, but is mostly comprised of ad revenue. This growth is partly propelled by pandemic-driven eCommerce inflections.
But beyond Amazon’s eCommerce tailwinds in the past year — which boosted its ad business by association — current and future macro factors likewise work in its favor. Specifically, the current era of privacy-mindedness, regulation and tech-platform restrictions could actually boost Amazon’s ad business.
We say that because the nature of these restrictions favor first-party networks like Amazon. As background, most privacy restrictions don’t inhibit collecting user data and using it for content/ad targeting on one’s own properties. It’s more about sharing or selling such data to third parties.
So in a world that favors first-party networks — defined as web properties under the same ownership — it doesn’t get much bigger than Amazon. So it could attract advertisers looking for the reach of an ad network, but the unfettered targeting and contextual relevance of the world’s biggest online store.
And it doesn’t end there. Amazon.com of course has the most scale, but other Amazon properties could begin to comprise a broader network of multi-media and cross-channel offerings. We’re talking streaming video via Prime (now reaching 120 million monthly users), as well as channels like Alexa and Twitch.
Meanwhile, Amazon’s annual ad revenues are $22.4 billion (trailing 12 months as of Q1 earnings), which is up 65 percent year over year. Now that we’re at the end of Q2, we’ll get more insight in about a month when Amazon releases earnings. Meanwhile, the company is primed (sorry) to continue grabbing market share.