A couple of weeks ago we talked about why Amazon mini TV worked & Zomato Originals failed, & today we’re here back with Amazon eating another big piece of Meta & Google’s ad sales pie. So, really, let’s just hope it’s 2050 & business other than Amazon exist.

Why Jeff Bezos Should Push for Nobody to Get as Rich as Jeff Bezos - The New York Times

Quick back story

Started as an online bookstore in 1995, 25 years later Amazon clocked USD $470 billion in revenue. They’re now the largest retailer on the planet - with sales growing 4X faster than the e-commerce industry & size doubling every 3 years.

So let’s talk about how Amazon’s on a mission to wipe out Meta & Google.

The beginning

For the first time Amazon released its revenue from the advertising arm. It was USD$9.7 billion in sales for the Q4’21 & USD$31.6 billion for the whole year. This makes Amazon bigger than YouTube, Facebook, & Instagram, that purely run on advertising.

Forget comparing it with tech giants, Amazon’s ad rev are challenging the global ad revenue of newspaper industry. This data was always hidden in the ‘others’ category of their quarterly reports.

In Amazon’s view, this is still very much small since it’s only contributing to 7% of the company’s total revenue. Yet, even at just 7%, it is beating tech giants.

In Amazon’s view, this is still very much small since it’s only contributing to 7% of the company’s total revenue. Yet, even at just 7%, it is beating tech giants.

What’s working & why?

This growth was a result of Amazon integrating 3 of its advertising arms into one - the Amazon Media Group, Amazon Marketing Services & Amazon Advertising Platform as Amazon Advertising.

The merger gave Amazon an added advantage of using a multi-channel insight of consumer behaviour and sales patterns. Here are a few things that are making Amazon the new advertising superpower.

1️⃣ High intent users, at scale

Most users open Amazon only when they have an intent to buy a product. This is exactly opposite to what most users open Google / YouTube/ Meta products for. Amazon has the high intent (in-market) users who are potentially going to buy a specific product in very near future.

49% of US internet users typically start product discovery on Amazon, that number of Google is mere 22%. The research conducted said 51% said even if they buy the product from anywhere else, they check reviews on Amazon.

2️⃣ Data is the edge, at SKU level

The quality of data that Amazon has is incredibly rich. Amazon knows what you have bought last, what you usually buy, when you usually buy, even the amount of clicks it takes for you to make a purchase, price point you will be a category at & the power of accurate search results based on these data points.

This creates an important data point for Amazon’s ad serving engine. Every Direct to Consumer brand loves this accuracy of ad-targeting. No wonder, they are spending huge amounts on Amazon ads & generating higher return on advertising.

3️⃣ The right incentives

D2C brand advertising + FMCG where most of Amazon’s revenue now comes from has a big problem. The order return rate (ORR). The order return rate eats into margins for sellers on amazon and also eats into Amazon’s margins. This is sort of added data point advantage where Amazon also understands what products are getting returned a lot & makes these insights available to the seller.

Plus amazon only makes the commissions if the item has been delivered and not returned. That means it’s in Amazon’s best interest to solve for return order rate & work with sellers. This is not the case with any other advertising platform for D2C.

Quick wrap up

Amazon may exceed the revenue, even enjoy the biggest piece in market share but it operates in different market than that of Meta / Google.

So when it comes to ‘search advertising’ yes, all the tech giants are in the same boat, but Google & Meta will be great in brand advertising for a long time, which caters to discoverability, & unsought awareness.

Amazon has data, and Google & Meta have placement when the user is not even thinking of making a purchase.

But advertising seems like the next obvious step for all big businesses. Walmart, Instacart, even Airtel India are striving to build their own ad businesses. For now, Amazon is simply cutting into advertisers' search budgets that mostly land up in Google’s pocket.

Rumour has it that Amazon is inching closer to ramping its audio & video sales pitch.

That’s all folks!

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