Amazon’s Emboldens its ‘Duopoly-Killer’ Power Play

Amazon continues to challenge the Google/Facebook duopoly for advertising market share. This isn’t a new phenomenon as Amazon has been painted as a “duopoly killer” for the past half-decade. But the threat is increasingly real as Amazon ratchets up ad efforts… and as revenue follows in step.

The latest evidence comes in Amazon’s recent Q2 earnings, in which it reported that its “Other” unit (primarily comprising ad revenue), grew 87 percent year-over-year to $7.9 billion. This follows 41 percent year-over-year growth it reported in Q2 2020, and 77 percent year-over-year growth in Q1 2022.

During the Q2 earnings call, Amazon CFO Brian Olsavsky attributed the ad revenue boost to new ad formats and functionality, as well as demand-driven bid rates. As noted, Amazon’s ad revenue growth rate has grown steadily, but it has inflected over the past year as it correlates to Covid-driven e-commerce growth.

Specifically, Amazon sellers can amplify their exposure within Amazon by buying into various sponsored placement offers. These are mostly search ads, placed within Amazon search results, following a Google-like bid marketplace model. As we’ve reported, 73 percent of Amazon sellers buy these ads.

73 Percent of Amazon Sellers Buy Ads

Amazon’s Long Tail

Going deeper on Amazon’s Q2 ad updates, it launched more than 40 new features and self-service capabilities during the quarter. For example, a new geo-targeting capability enables regional sponsored-product campaigns. Amazon has also expanded services in Australia, Europe, India, Japan and Saudi Arabia.

More importantly, several of the new ad features and functions boost capabilities for self-serve ad management. This is meant to lean into the growth in Amazon’s third-party seller marketplace. The long-tail dynamics of this segment make it primed (excuse the pun) for better self-serve ad tools.

Going deeper on this correlation, one orbiting factor that could impact things is the continued growth of the third-party Amazon marketplace. Known as the FBA (fulfilled by Amazon) network, it consists mostly of SMBs who want to gain additional distribution scale (albeit compressed margins) through Amazon.

The FBA universe isn’t necessarily new and is one way that Amazon has grown so rapidly over the past several years. But one thing that’s new is the efforts to federate FBA sellers under one umbrella. Companies like Thrasio and JungleScout are doing so by establishing operational standards and economies of scale.

This could be one more wild card in Amazon’s overall growth. And as these FBA networks grow, so may their standardized tools and practices for amplifying sales through Amazon advertising. Along with larger brand spending on advertising, this SMB long tail could fuel Amazon’s continued ad revenue growth.

What’s Behind the Great eCommerce Rollup?

First-Party Advantage

Panning back, Amazon’s Q2 ad revenue milestone follows its $15.73 billion in 2020 annual ad revenue, which pushed it past the 10 percent mark for U.S. ad revenue market share. This brings us full circle to the duopoly and the question of Amazon’s potential to continue nipping at its heels.

eMarketer believes Amazon will continue to do just that, rapidly gaining ground on Google and Facebook. Currently, Amazon’s 10+ percent market share compares to Google’s 28.9 percent and Facebook’s 25.2 percent. But Amazon seems to have momentum and macro factors like Covid on its side.

To put some predictions behind that, eMarketer projects Amazon to reach 10.7 percent of U.S. digital ad spend this year, growing to 11.9 percent next year and 12.8 percent in 2023. The firm also predicts that much of this growth will cut into Google’s market share, while Facebook remains fairly flat.

This is mostly because 90 percent of Amazon’s ad revenue is from search formats. This ad budget adjacency, plus broader privacy reform, could push advertisers into the arms of strong first-party networks. And when it comes to first-party options (read: privacy safe) it doesn’t get much bigger than Amazon.

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