Amazon Advertising is flourishing. The advertising arm of mighty Amazon achieved an estimated $6.9 billion in revenue for the first quarter of 2021 alone, which amounts to year-over-year growth of 77 percent. According to eMarketer, Amazon Advertising increased its share of the online advertising industry to 10.3 percent in 2020, up from 7.8 percent in 2019. This growth is especially impressive when you consider that Amazon didn’t start taking advertising seriously as a source of revenue until 2012. Here are three reasons why Amazon Advertising is succeeding – with help from Google and Apple.
Amazon Advertising’s power starts with you, me, and anyone who shops on Amazon. Amazon is the world’s Number One product search engine, with a commanding lead over Google. And, boy, do we buy a lot on Amazon: the company generated $200 billion in revenue from its online retail business in 2020, making Amazon the world’s largest online retailer. We also give Amazon access to our lifestyle habits through Amazon Prime (which has 148 million members in the United States and 200 million globally), whose members also have access to the Amazon Prime Video streaming service.
When we search and shop on Amazon, we give the company a treasure trove of first-party data about our habits. With that information, Amazon can accurately predict what products we might want to search for and buy next, and Amazon understands our lifestyle tastes. Amazon then makes a boatload of cash from that data by selling ad units to businesses who want to have their ads appear when we search on Amazon (including Amazon Prime video) and the company’s vast ecosystem of sites (including Twitch), or when we use the Amazon Fire connected TV device. Those ad units include:
These are but three examples. Learn about many more on the Amazon Advertising site.
Increasingly, Amazon does something else: use that first-party data to sell ads beyond the Amazon website. As the New York Times reported, Amazon also targets ads to people across the digital world by tapping into the data it has amassed about consumers’ purchases made on Amazon itself. Since Amazon knows exactly what you’ve searched for and purchased on the site, Amazon can advertise for other brands with pinpoint accuracy. Amazon, in effect, has become a data merchant. With your data.
Recent actions big Tech Giants Apple and Google have played in Amazon’s favor by making first-party data even more important. In January 2020, Google announced it would start phasing out third-party cookies from the Chrome browser in a bid to protect consumer privacy. Then on March 3, 2021, Google said it would not build alternative tracking technologies (or use those being developed by other companies) for its own ad-buying tools to replace third-party cookies. These announcements were regarded as a serious blow to advertisers’ ability to deliver targeted ads to people based on their browsing habits across the web. That’s because third-party cookies are crucial to this kind of advertising.
But phasing out third-party cookies has an impact on a brand’s ability to collect first-party data as Amazon does, which is why first-party data is more important for creating personalized content. As if to underscore this reality, on March 11, Google said that it will work with businesses to make it easier to use their first-party data programmatically for ad buys.
The importance of first-party data became even more amplified when Apple went live with its iOS 14.5 in late April. iOS 14.5 includes a new privacy control, App Tracking Transparency (ATT). According to Apple, ATT requires apps to get the user’s permission before tracking their data across apps or websites owned by other companies for advertising or sharing their data with data brokers. Apps can prompt users for permission, and users will be able to see which apps have requested permission to track so they can make changes to their choice at any time. Apple had announced the eventual arrival of ATT in 2020, triggering considerable anxiety from Facebook, which launched a campaign decrying the evils of an opt-in system that would potentially make advertising less precise and less effective.
But those actions by Apple and Google are just fine by Amazon because, of course, Amazon has already figured out how to mine its first-party data to create advertising. Therefore, Amazon Advertising is a more attractive choice to businesses looking for alternatives for businesses that have been relying on third-party cookies to create personalized ads. Amazon Advertising delivers personalization without those bothersome third-party cookies.
And Amazon is not the only company doing so. It’s no coincidence that with the demise of third-party cookies, more retailers such as Dollar Tree, Kroger, Macy’s, Target, and Walmart are monetizing their first-party customer data to build ad businesses. Each retailer can give advertisers access to different types of consumers – fashion-conscious audiences on Macy’s and budget-minded shoppers on Dollar Tree, to cite a few. Amazon has a head start on everyone -- although Walmart is making impressive strides and wields considerable clout, too.
To be sure, businesses are now stepping up their efforts to create personalized content with their own first-party data. But when they need an advertising partner in a world that increasingly values first-party data, who are they going to call? Amazon Advertising will be at the top of the list.
Finally, Amazon Advertising is not standing still. Amazon Advertising continues to unleash new products and strikes agreements, such as:
Why the focus on Amazon’s content ecosystem? Well, as recently reported, Amazon’s ad-supported streaming platforms, which includes IMDb TV, Twitch, live sports, and other content via Fire TV, reaches 120 million monthly active viewers -- up from the 20 million viewers recorded at the start of 2020. Amazon is following its audience. And learning from them. And monetizing all that data.
Amazon Advertising still has a long way to go. Both Facebook and Google are at least two-to-three times bigger than Amazon Advertising. But what can stop Amazon Advertising from keeping up its phenomenal growth? Escalating anti-trust scrutiny of Amazon is a potential threat. But otherwise, Amazon Advertising faces not threats, per se, but rather healthy competition, such as Walmart Connect, which understands both its online and offline audience well; as well as emerging smaller ad networks from specialty retailers. With the rise of the stay-at-home economy, we’re living in a digital-first world now. Amazon’s world.
Note: I invest in Amazon, Facebook, and Google