Amazon makes major leap in ad industry with $10 billion year
Amazon topped $10 billion in revenue for the advertising side of its business in 2018, as the e-commerce giant invested in its marketing products to entice more brands to spend on its platform and promote their products.
On Thursday, Amazon released its fourth-quarter holiday results, which topped $72 billion in total sales on the e-commerce site, representing a 20 percent increase year over year and beating analyst estimates. Profits hit $3 billion, compared to $1.9 billion a year ago. And advertising continued to be one of the brightest spots for the company, with $3.4 billion posted in its "other" category, which is mostly attributed to ad sales, marking an increase of 95 percent year over year.
Brands and ad agencies have been working closely with Amazon as it builds an ad platform to compete with Google and Facebook, and $10 billion in 2018 makes it the third-largest ad business.
The $10 billion for the year blew away what analysts had previously estimated. At the beginning of last year, eMarketer predicted Amazon would only do $2.8 billion in ad sales.
"There is a reason those two bigger ad companies are now paying close attention," says Will Margaritis, svp of e-commerce at Dentsu-Aegis Network.
They still have some breathing room, however, as Facebook this week reported more than $16 billion in ad sales in just the fourth-quarter of last year, while Google is expected to top $135 billion in ad revenue in 2018 when it reports next week.
Last year, Amazon streamlined its ad products so they were less confusing to brands, and folded them under the Amazon Advertising moniker.
Amazon sells search ads similar to Google's search system and it sells display and video ads. Its reach extends all across the web, with its own e-commerce site, IMDb, Twitch and a network of outside publishers that run its ads.
Amazon also owns Whole Foods, Fire TV, and makes Echo devices, which run its home-assistant, Alexa. Brands are finding ways to play across all these properties.
The company also is competing with YouTube, Hulu, Roku and Facebook for video advertisers through FireTV. This month, Amazon also launched IMDb Freedive, an ad-supported video service that runs Hollywood movies and television shows with commercials.
"We are plugging into Amazon the same way we do for everyone: Facebook, Google, Instagram, Pinterest, Snapchat," says Alex Collmer, CEO of VidMob.
VidMob uses another thriving part of Amazon's business, Amazon Web Services, which is a cloud computing system for enterprise customers. On Thursday, Amazon reported that Amazon Web Services generated $7.4 billion in revenue, up 45 percent year over year. Advertising and AWS are Amazon's fastest-growing segments, and the two are increasingly being used in tandem by marketing technology companies and ad agencies.
One of the main gripes of Amazon's ad business is that the products are still less sophisticated than rivals' technology. Amazon has not fully rolled out an attribution program it tested last year, which let advertisers detect when their digital ads led to sales on its site.
Amazon is expected to roll out the attribution tool more widely this year, and advertisers say the early results were already promising, showing that Amazon ads are driving sales.
Amazon has become so important to the advertising industry because of its dominance in e-commerce. Brands are afraid of its power but also know they have to maintain a presence on its site, and the best way to get seen in Amazon is to buy ads.
"If you're selling on Amazon, you're advertising on Amazon," says Wes MacLaggan, svp of marketing at Marin Software. "And you're increasing your budgets."