Amazon has been running its annual Prime Day promotions around the world for the past couple of weeks, and while big discounts and huge sales numbers have grabbed the headlines, the silent winner was Amazon’s rapidly growing ad business. ‘Amazon, which has made a boon from all the increased ad spending. According to The Information, advertisers spent nearly three times more on Prime Day than on an average day over the previous two weeks and the ads they purchased cost an average of 58% more than the going rate during Prime. Day 2021.
Why is this important? While Amazon is best known for its e-commerce store, the company actually gets most of its dough from its cloud computing arm Amazon Web Services. Or so we thought until earlier this year when it started disclosing ad revenue separately. Based on numbers from the company’s advertising arm, Amazon’s next big thing seems to be its advertising business, and that’s probably a bigger cash cow than AWS.
How big is Amazon’s advertising business? In February, Amazon first revealed that its advertising revenue for 2021 was $31.2 billion. While that only made up 7% of the company’s total revenue, it was higher than YouTube’s ad revenue for 2021, which was $28.8 billion, and that makes Amazon the second-largest advertiser. in the United States after industry giants Google and Facebook. By comparison, AWS made just over $60 billion, but it’s capital intensive, leaving a profit of around $18.5 billion. Advertising, on the other hand, is not as capital intensive, which is why many believe it generates more profit than AWS. Amazon does not officially disclose operating revenue generated from its advertising business.
(Footnote – this is the same size as newspaper advertising revenue, which was also around $31 billion. Other newspaper company revenue is not included)
— Benedict Evans (@benedictevans) February 3, 2022
How Amazon Makes Money From Ads: While Google and Facebook sell advertisements all over the place online (their own platform as well as third-party websites and apps), Amazon derives its advertising revenue from ads shown on its e-commerce platform and other services. like Kindle, Fire TV and First Video. The lion’s share of Amazon’s advertising business comes from sellers who want to advertise their products in Amazon’s search results and product listings. Amazon’s greatest value proposition is that it has unrestricted access to data on customer buying habits, which makes ad targeting all the more effective and easy.
Twitter and Snap warn of falling ad spend: Interestingly, Amazon’s growth in advertising comes at a time when social media companies, which have primarily relied on ad revenue, are faltering on this front. In their earnings calls last week, Twitter and Snap said advertisers are spending less on ads due to the negative economic outlook. The news also sent shares of Google and Facebook plummeting, with investors expecting similar outlooks.
How Apple plays into this whole picture: Apple’s new App Tracking (ATT) transparency has significantly hurt many companies that depend on ad revenue, including Facebook and Snap, as it made it more difficult for companies to collect information about iPhone users, which made advertising targeting difficult. Prior to the launch of ATT, apps could track a user across apps (even if it wasn’t their own app) based on the device’s unique advertising ID, but now requires a additional consent for this. Platforms like Facebook relied heavily on data from third-party apps to form user profiles for targeting purposes. Amazon, on the other hand, is unaffected by ATT because it relies entirely on data collected from its own app, just like Google.