Amazon.com, Inc. (NASDAQ:AMZN) is known as the 800 pound gorilla in the e-Commerce space. However, Amazon’s little known advertising business is slowly and steadily getting out of the cage. Amazon has vast amounts of consumer data which it can utilize to rapidly grow its advertising business.
Online advertising business
Amazon.com, Inc. (NASDAQ:AMZN) owns a number of high traffic websites and the company is just starting to monetize these by placing advertisements on these properties. However, the tight-lipped Amazon doesn’t break-out the revenue it earns from advertising operations. In 2012, the advertising revenue which is reported in the Other Revenues line item, contributed only 4%, or $2.5 billion, to Amazon’s total revenue of $61 billion. Amazon’s cloud computing business, or AWS, makes up the bulk of that $2.5 billion and the rest comes from advertising and co-branded credit cards.
Amazon has evolved into a “commercial search engine” and consistently ranks as one of the top 10 search properties in the world, according to data from comScore. As a result, a majority of Amazon’s advertising revenue is coming in from the ad placements near customer search results. Amazon is likely using keyword and product-based search results, in line with search giant Google Inc (NASDAQ:GOOG), and it also has huge amount of data about the consumer’s historical shopping data, and prior purchases to more accurately enhance targeting.
In addition, Amazon.com, Inc. (NASDAQ:AMZN) earns a lot of revenue from display ads on its third-party network. The company is gaining momentum in establishing itself as a viable platform for serving ads on third-party websites. Amazon earned roughly $610 million in total advertising revenue in 2012, which represented a growth of 45% from the previous year, according to estimates from eMarketer.
Advertising on Amazon’s sites and mobile
Amazon.com, Inc. (NASDAQ:AMZN) has number of popular consumer Internet properties in which it enables advertisers to place display ads based on the observed shopping behaviors of millions of customers. On Amazon.com alone, there is an active customer audience of more than 209 million. Also, Amazon owns Quidsi, which is a rapidly growing e-Commerce company with popular sites like Diapers.com, Soap.com etc. Amazon also owns the popular entertainment information site, IMDB, which routinely gets more than 160 million visitors.
The company facilitates various types of ads like coupon ads, customer review ads, and e-commerce ads on its properties. Amazon started rolling out video ads on its entertainment information platform, IMDB, and that too using a skippable ad format very similar to Google Inc (NASDAQ:GOOG)’s YouTube which terms it the “TrueView Format.”
Unlike numerous other companies which have struggled to keep up with the consumer’s shift to mobile, Amazon.com, Inc. (NASDAQ:AMZN) is positioning itself to have stellar offerings for mobile ads as well. Amazon is trying to compete with advertising giants Facebook Inc (NASDAQ:FB) and Google for mobile dollars as well. Just like Facebook and Google, Amazon has a big audience which is accessing its sites from various mobile devices, and many of these customers are making retail purchases as well as acquiring other content like music and books from its platform. Amazon’s own tablet devices are also showing ads, which leads to incremental revenue for Amazon.
Third-party network
The big opportunity for Amazon.com, Inc. (NASDAQ:AMZN) lies in its ability to expand its third-party advertising network. The firm’s third-party advertising enables other high traffic and high quality websites to show ads to earn revenue. Amazon also acquires a lot of inventory from online ad exchanges and makes bids using its years of consumer data and analytics for enhanced targeting capabilities.
In addition to desktop, Amazon operates a Mobile Ad Network which allows advertisers to target customers of Amazon on various third-party apps and exchanges across Android, iOS, and Kindle Fire. Amazon provides the same tools and personalization capabilities for its own sites to leverage on its Mobile Ad Network.
The revenue from advertising are small for now, they can grow substantially from current levels in the future. According to eMarketer, Amazon doesn’t pay a lot of Traffic Acquisition Costs (TAC) to partner sites, unlike other competing firms like Google.
