Amazon Ramping up Advertising Business
Mark Angelo, CEO, Yorkville Advisors
Amazon is best known for being most consumers’ go-to when they want to buy just about anything online. But, even as retail sales continue to be a big positive for the company, ad revenue is adding to their bottom line in a big way.
According to recent reports, advertising revenue is through the roof at Amazon, growing 139 percent in the first quarter of 2018, to about $2 billion. And industry analysts say that number is likely to continue to rise, and to do so very quickly.
Amazon CFO Brian Olsavsky says advertising is a win-win for Amazon, its sellers, and their customers. The ads, Olsavsky says, provide a service by helping sellers and shoppers more easily connect with each other. And, given Amazon’s reach, what the company is making now is really just a drop in the bucket.
Compared to Google and Facebook, Amazon’s ad revenue is relatively small, but the company is gaining fast, and analysts are saying it could be within the top three in digital ad revenue within two years. But, will Amazon press its advantage and try to maximize this aspect of its business, or is the company still focused on other areas of business? That question, to date, remains unanswered.
One question Olsavsky did answer was about Prime Video. No, the company does not plan to monetize its viewers any further by selling ad space to promote videos on the Prime platform.
At this point, Amazon is looking to increase the profit of prime in other ways. The company recently announced a price increase to the subscription service that gives users access to both free shipping on certain Amazon orders and streaming video content. In a few weeks, customers will see their annual fee jump $20 to $119.
While some might complain about the price increase, this does put Prime more in line with other streaming service providers. Netflix charges about $11 per month, and Hulu’s ad-free monthly rate is about $12, though customers can opt to pay about $8 per month for the “limited interruption” option. So, with Amazon increasing the Prime rate to about $10 per month, the company is still undercutting the competition.
It’s a calculated move in a market that is now thinking about Prime more as a streaming service than a “free shipping” service. The program, which had been a loss leader for the company, may soon grow into one of Amazon’s most important income streams.
