Amazon may have a surprise winner in a service that directly competes with Google and Facebook’s bread-and-butter business: online advertising.
According to Amazon’s latest earnings, the “other” revenue from its North America business — believed to be mostly comprised of its online advertising sales — saw the biggest year-over-year jump of any part of Amazon, at 60% in 2016. It recorded $1.3 billion in annual revenue.
Although that’s tiny compared to Google’s $80 billion in ad revenue, it shows Amazon has been quietly ramping up its online advertising offerings, and could one day be a major threat in the industry.
In fact, during Amazon’s earnings call with investors on Thursday, an analyst from UBS pointed out this growth, asking where the company sees its advertising business going longer term.
Amazon’s CFO Brian Olsavsky didn’t share much, stressing it’s “very early,” but did agree its online advertising business is a “good strategy” for the company.
“Our goals there are to be helpful to customers and enhance their shopping and viewing experiences, mostly with targeted recommendations. We think that’s a good strategy rather than invasive things that take away from the shopping experience,” Olsavsky said during the call.
Olsavsky also said “sponsored product” ads are “off to a great start” and a “very effective way” to reach interested customers, while adding the company’s working on some pre-roll video ads as well.
“For the most part, we like the progression. We are balancing customer experience with advertising at all times, and we like the team that’s working on it,” he added.
Although Amazon rarely talks about its sprawling advertising business, there’s been some speculation that it could end up becoming a major part of the company’s overall business.
According to Bloomberg’s Shira Ovide and Leila Abboud, Amazon’s ad business is estimated to have generated roughly $1.2 billion in 2016. If you apply Facebook’s operating margin, Amazon’s ad business would have made $395 million in operating income last year, a solid 18% of Amazon’s total operating income.
During the earnings call, Darin Manney, Amazon’s head of IR, cautioned against making a big deal out of the jump in “other” revenue, stressing that it includes revenue from its co-branded credit card arrangements and other types of advertising deals.
Still, Amazon seems to be drawing a lot of attention from industry big wigs, including WPP CEO Martin Sorrell, who, according to Bloomberg, recently said: “The company that would worry me if I was a client — or I think worries our clients, more than Google and Facebook — is Amazon.”