Digital Gabe
Cutting Edge Commentary On All Things Media

Mo’ Ads, Mo’ Money For Amazon

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We’ve known for a while that Amazon’s ad revenue machine is really starting to crank up.  Late Thursday we received confirmation of just how far they’ve come during their Q1 Earnings call.  “Other Revenue”, which is mostly ad sales, was up 132% YoY to $2B . . . in just Q1.  That’s $300M more than Q4, which puts Amazon on a run rate to take in about $10B of Other/Ad revenue during 2018.

Amazon’s secret sauce is their Sponsored Products offering which features search-based targeting (just like Google search ads), right when visitors are ready to make an on-platform purchase.  Amazon has created a self-perpetuating cycle with this product – as more users buy products on their platform more Sponsored Products inventory is created which drives more ad sales.  Pretty sweet setup, right?

One potential dampener to Amazon’s future ad sales is their drive to feature more white label (Amazon branded) products.  As the sales of self-branded products increases it will displace brands who might otherwise pay for ad placement.  I don’t foresee white labeling having an immediate impact on ad sales, but it’s worth keeping an eye of over the next 3-5 years.

Finally, Q1’s ad revenue is further validation that Amazon is joining the Google-Facebook duopoly in the upper tier of digital media sales.  Although their Q1 total is only one-sixth of Facebook’s haul, and an estimated one-tenth of Google’s, their growth trajectory is getting them into pretty rarefied air.

 

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