Amazon.com, Inc. (NASDAQ:AMZN)’s rapidly expanding business lines, and the durable competitive advantage of each of these segments represent big opportunities for the company. After years of focusing solely on enhancing the customer experience and gaining substantial amounts of market share in most of its business segments, Amazon’s growth drivers and subsequent monetization opportunities are aplenty. In addition to its core retail, marketplaces business and the Kindle line, Amazon also has these 3 big growth drivers going forward.
1. Advertising Network
Advertising on Amazon.com, Inc. (NASDAQ:AMZN)’s platform is an excellent and a big long-term opportunity for the company and its still in the early innings. Amazon has massive amounts of consumer shopping behavior and purchase data which it can use to target very effectively. Amazon’s is already a leading vertical search engine which enables the company to display ads based on customer queries and also based on demographic and purchase data information. While Google Inc (NASDAQ:GOOG) is the king of online advertising, Amazon.com, Inc. (NASDAQ:AMZN) can gain market share from some of the more struggling firms in display advertising including Yahoo! Inc. (NASDAQ:YHOO) and AOL, Inc. (NYSE:AOL).
Yahoo! Inc. (NASDAQ:YHOO)’s core business is not in good shape, as the company continues to lose market share and its fortunes have lately been driven by its equity holdings and share buybacks. Yahoo! Inc. (NASDAQ:YHOO)’s display advertising saw an 11% Y/Y decline in 1Q-2013, along with a 7% decrease in the number of ads sold, as well as a 2% decline in the price per ad. Amazon.com, Inc. (NASDAQ:AMZN)’s consumer spending habits data can enable the company to make advertising a larger piece of Amazon’s revenue pie.
According to eMarketer, Google Inc (NASDAQ:GOOG) along with Yahoo, Facebook, AOL, Inc. (NYSE:AOL) and Microsoft Corporation (NASDAQ:MSFT) control two-thirds of U.S. online advertising. And Amazon can be a much more prominent player in the growing world of online advertising, which would be great plus for the company as advertising-based companies usually command a much higher operating margin (i.e. 20%-40%) compared to Amazon’s core retail operations which has low single digit margins. Amazon.com, Inc. (NASDAQ:AMZN) can also grow its revenues substantially from the ads being placed on mobile apps on smartphones and tablets on both Android and iOS.
Amazon has only a handful of websites that it owns, but the major lucrative market for this ad network is the company’s third-party ad network. Amazon Advertising Platform (AAP) shows ads to numerous other high quality websites by portraying display ads to those web properties directly, and also from online ad exchanges. And when Amazon goes to buy large amounts of inventory from the online ad exchanges, the company is armed with years of customer purchase pattern data, and can bid more efficiently based on those shopper analytics. Amazon.com, Inc. (NASDAQ:AMZN)’s growth potential from the advertising business remains robust with huge opportunity across its own properties, third-party networks as well as on mobile.
2. Video Streaming
Amazon is investing in building out more content through Amazon Studios. And the company has recently rolled out 14 pilot episodes of comedy and kids TV shows. And the full seasons of these shows will be completed based on consumer ratings. Amazon is looking to earn more subscription fees from its customers, while competing with other subscription video providers like Netflix, Inc. (NASDAQ:NFLX) and Hulu, LLC.
Amazon’s transactional on demand offering, Instant Video has seen solid consumer adoption and consumers are purchasing newly released video content on a la carte basis from the platform from more than 150,000 titles. Amazon’s investments in adding more video content as the original content production should drive down churn of Amazon Prime in the future. Amazon recently signed newer content licensing deals with CBS Corporation (NYSE:CBS), A&E Networks along with a number of other companies to add to its existing library of more than 38,000 titles.
Amazon’s prime subscribers are doing a lot of cross-shopping on the company’s massive platform which remains a core part of Amazon’s strategy. The company is keen to get more annual subscription fee revenues from the users of Prime, which also aid in reducing the company’s net shipping costs.
3. Amazon Web Services
AWS is a leader in the cloud computing market, with rivals like Google, International Business Machines Corp. (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT) are trying to play catch up. Amazon leverages its back-end infrastructure in place, and allows other enterprises to use that back-end on a variable cost basis. And to stay ahead of the curve, Amazon keeps slashing prices. Whereas, rival, Google Inc (NASDAQ:GOOG) has seen slower pace of adoption among small and medium businesses but gained a lot of traction amongst Enterprise customers with more than 58% of the Fortune 500 companies now using the enterprise cloud product from Google Inc (NASDAQ:GOOG).
Amazon’s customer-centric focus gives the company an edge in terms of rapidly slashing costs, and gain market share while delivering great value. Amazon’s low cost infrastructure platform has hundreds of thousands ranging from start-ups to big enterprises as well as government entities in more than 190 countries across the world.
AWS is almost certain to maintain its leader-board status, however, the revenues from AWS is not disclosed by Amazon. However, the higher margin AWS and advertising are reported together by Amazon and is growing at an impressive rate of 64% Y/Y and was at $750 million for the last quarter. Cloud computing should be a bigger piece of Amazon’s revenue pie in the future.
Non-Core has immense potential
Amazon’s rapid expansion into these other major big markets is a good thing for investors. In addition to its core retail business, marketplaces business as well as the Kindle Line, the company’s “non-core” services are receiving heavy investments by the company. Amazon’s ability to gain incremental momentum from these non-core services of the company will be a crucial component of the firm’s future growth and also make up a larger portion of the company’s total revenues going forward. And all these businesses boast of much higher margins than the retailing business.
The article Amazon’s Three Growth Engines originally appeared on Fool.com is written by Ishfaque Faruk.
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