There is little doubt on the fact that Amazon.com, Inc. (NASDAQ:AMZN) is one of the most aggressive and disruptive innovators in the tech business, starting as an online bookstore the company has become the undisputed leader in online retail for all kinds of products, and from there it has also expanded into areas like cloud computing services and hardware among many others.
Looking into the future, advertising could be a huge area of growth for the company.
The value of information
The main competitive asset when it comes to targeting online ads in the right direction is information. Google Inc (NASDAQ:GOOG) is so successful in this business because it has access to enormous amounts of data regarding users of its multiple services. The company knows what kinds of information its users have been searching for, and it capitalizes other services like Gmail, Maps and Chrome in order to grasp even more data about the user and make advertising as effective as possible.
While Facebook Inc (NASDAQ:FB) owns a lot of valuable information, for example what users “like” and who their friends are, it has one big disadvantage versus Google: context. When people are using Facebook they are doing things like watching pictures, chatting with friends or giving annoying “likes” to their own comments; of course you like your comment; everyone does, because you are absolutely awesome.
That´s why Facebook Inc (NASDAQ:FB) has been working to improve its search capabilities and launching Facebook Home in order to transform Android smartphones into a Facebook centric experience. Facebook knows that Google has a superior business model when it comes to advertising, and it’s trying to erode those advantages by competing more aggressively in Google´s terrain.
According to data from COMSCORE, Inc. (NASDAQ:SCOR) Google owns a 67.1% market share in search versus 16.9% for Microsoft Corporation (NASDAQ:MSFT) and 11.8% for Yahoo! Inc. (NASDAQ:YHOO). Both Yahoo! and Facebook have alliances with Microsoft to use its Bing technology for search, so Bing is becoming a relevant competitor, but still way behind Google in terms of market share.
More importantly, Google Inc (NASDAQ:GOOG) has a dominant position in mobile with its Android operating system, and it’s also deeply embedded in Apple Inc. (NASDAQ:AAPL) products with services and applications like Search, YouTube, and Maps among many others. As traffic continues moving towards mobile, Google is better positioned than Microsoft Corporation (NASDAQ:MSFT), Facebook Inc (NASDAQ:FB) or Yahoo! Inc. (NASDAQ:YHOO) to continue dominating the lucrative online advertising business.
Amazon knows something
People typically start searching for products in Google and they then get directed to sites like Amazon.com, Inc. (NASDAQ:AMZN), but things could be changing as Amazon consolidates its place as the leading destination for online shoppers. According to Forrester Research, 30% of America’s online shoppers begin their search for a product at Amazon, and the trend could be getting stronger as initiatives like Amazon Prime increase customer loyalty so that people become more accustomed to shopping directly through Amazon as opposed to searching for products all around the web.
Considering the value of information when it comes to targeted online advertising, Amazon.com, Inc. (NASDAQ:AMZN) is in a privileged position to compete. People search for products on Amazon, and the company can combine that information with their purchase history in order to deliver high quality ads to the right audience. If you are a regular shopper for certain kinds of products, then you are a valuable potential customer for companies selling those products, and advertising becomes much more efficient.
The company has built powerful algorithms to analyze consumer behavior and make recommendations, that´s why it recommends buying batteries when you purchase a toy on Amazon.com, Inc. (NASDAQ:AMZN), for example. Amazon has internally benefited from these technologies for years, and now it has the opportunity to capitalize this know-how by expanding into advertising.
Over the past year, the company has built a real-time bidding platform that plugs into exchanges and supply-side platforms, including Google Inc (NASDAQ:GOOG)’s AdX and PubMatic. This platform lets the company retarget its users across the web based on their browsing and purchase habits on Amazon.com, Inc. (NASDAQ:AMZN)’s owned and operated websites.
It´s hard to tell how much money Amazon is making from this business, but the long-term potential is certainly interesting. Besides, online advertising is a high-margin business, so it could be quite beneficial to the company now that profit margins have collapsed due to aggressive investing and increased expenditures for long term growth.
Bottom line
Amazon.com, Inc. (NASDAQ:AMZN) has tracked the browsing and shopping habits of millions of customers on its own websites for years, and it has developed state of the art algorithms to make the right product recommendations to those customers. Now, it’s capitalizing its data and technologies to buy ad inventory more efficiently and serve ads to the right consumers in the right place and the right time. The online retailer has the potential to make a killing in advertising.
Andrés Cardenal owns shares of Amazon.com, Google and Apple. The Motley Fool recommends Amazon.com, Apple, Facebook, and Google. The Motley Fool owns shares of Amazon.com, Apple, Facebook, Google, and Microsoft.
The article Amazon Could Make a Killing in Advertising originally appeared on Fool.com.
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