Amazon's Key Strengths In Advertising

Amazon Revenues By Segment

Photo: Business Insider Intelligence

Amazon wants to be a big player in advertising, as VP of global ad sales Lisa Utzschneider said during a keynote at an ad:tech conference. This makes sense for an obvious reason: advertising has better margins than e-commerce, and advertising earnings allow Amazon to lower prices on goods, thereby solidifying its leadership of the e-commerce market. 

But it makes sense for a more subtle reason: Amazon is the most strategic player in tech, and a classic strategic move is to double down on your areas of strength where you have unique assets. 

This was how and why Amazon went into the cloud computing business: it had unique expertise in building large scalable services, and it doubled down on those. Most industry observers thought a retailer had nothing to do in the cloud computing business, but Amazon doubled down on an area of strength and won.

amazon kindle ecosystem revenue

It’s in this light that we’re going to serve up a reminder of all the strengths that Amazon brings to online advertising:

  • Data. Data is the lifeblood of online advertising and Amazon has a unique data trove. Unlike, say, Yahoo’s, it is highly actionable because it is commerce data. It’s not just data on what people like to buy, but data on what recommendations work in getting people to buy things. (In a sense, Amazon’s “You Might Also Like…” recommendation engine is one of the oldest and most effective ad algorithms on the web.)
  • Amazon.com. Amazon has one of the greatest owned-and-operated (O&O) properties on the web, through its website. High traffic, and high-value commerce traffic where most people are logged-in. (At ad:tech, Amazon VP Utzschneider mentioned that Amazon is working on ad formats that include its “One Click” purchase button, so that people can complete a purchase from inside an ad.) Anecdotally, Amazon.com has been featuring more and more advertising. Some might say that it’s bad for Amazon’s commerce business if it sends people away, but we would disagree: if a consumer comes to Amazon and finds a better deal elsewhere through an Amazon ad, Amazon.com will still be the place where they found the best deal. This is similar to how allowing negative book reviews on Amazon.com may have hurt sales in the short term but helped them in the long term by making customers trust Amazon.
  • The Kindle ecosystem. This is another enormous “O&O property”. The top-selling Kindle e-reader models are the ones that come with advertising enabled (they are cheaper than models without). The Kindle Fire is best understood as an interactive catalogue, which will drive sales of all sorts of Amazon products. And the Kindle ecosystem also includes media, such as ebooks, but also music, movies and apps. These are all unique strengths that Amazon can leverage to build up its advertising ecosystem.
  • Media presence. Amazon is no longer just a commerce juggernaut but also increasingly a media powerhouse. Amazon is the top seller of e-books and becoming a publisher. Amazon has a music store and, through Amazon Prime, movies and TV shows. As mentioned, Amazon now also has its own app store, which it is monetizing very well.

BOTTOM LINE: Amazon is no longer just dipping its toes in advertising. Given its unique strengths, it should, and therefore probably will, become an online advertising powerhouse.

MORE: Our Primer On Kindle Economics →

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