In December 2017, I reported that Amazon had built a solid advertising business with its own category redesigning capabilities. Facebook has its walled garden ad, Google has its search ad which remains largely text-based, but Amazon has built what I will call “active shopping ad” as only those that are actively shopping get to see the ads. Yes, you must have gone to Amazon to shop, before you can see ads.
I will like someone that is in the shopping state of mind to see my ad, over someone watching a cat on Facebook, or researching a topic with no intention to buy anything as may be with Google. Amazon ad business is the best in terms of value for money especially for merchants. Markets are validating that construct as ad is the fastest growing unit in the Amazon empire.
I was on Amazon today working on gifting items when I noticed something: Amazon now runs a serious advertising business. And there are many companies putting money in that ecosystem. If companies think that advertising on Amazon is a better deal than promoting their websites on Google, it simply means that Google has a major problem in its hands.
Facebook has walled off the partying and events communities, and if Amazon takes care of the merchandise, I do not know what will remain for Google. Yes, we put adverts for two major things: events and products. If Google becomes a second-platform for both, there is a problem for Larry Page and his lieutenants in Alphabet, the parent to Google.
The experts are here with data:”the e-commerce giant’s ad business will grow more than 470% over the next five years, outpacing the growth rates of both Google and Facebook in that period, and making it one of Amazon’s fastest-growing and most profitable business segments.” This is a slam dunk – there is no reason to put adverts on Google for anything that can be sold on Amazon.
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Facebook will be a waste of efforts if Amazon carries that item especially if you have a merchant store within Amazon. Both Google and Facebook will give you clicks from adverts; Amazon will deliver sales to the bank accounts. That makes Amazon ad business a superior business. If ads are to take users to commercial sites, Amazon wins because it is the grand-dominion of all digital commerce sites.
Amazon is expected to pull in $40 billion in annual ad revenue by 2023, new research shows, up from miniscule levels just a few years ago. According to recent report from Juniper Research,
Amazon has been expanding its offerings to advertisers over the years, selling inventory across its sprawling website to niche products like the Chefman pressure cooker and, more recently, to well-known household brands from Unilever and Procter & Gamble. Display ads, paid search results, and instructive videos are just some of the available inventory.
The Amazon ad was engineered to serve the Amazon oasis, the ecommerce. Like the One Oasis Strategy, that business has grown after making the ecommerce better through better discovery for premium merchants. Yes, the ad unit has evolved to become a business itself. The Amazon ad business will redesign the industry, affecting Google and Facebook. But do not weep for the latter duo – they will be fine: “By 2023, the global digital advertising market will hit $520 billion, up from $294 billion this year. At that point, the top three digital advertising platforms—Google (at $230 billion), Facebook ($110 billion) and Amazon ($40 billion)—will comprise roughly three-quarters of the market, according to Juniper Research”. Yes, they will continue to run the show for a long time but Amazon ad will take most of the merchant advertising within a decade.
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For robust digital platforms, the advantage of network effects goes beyond users begetting more users, now it can be expanded to creation of more business units and models. Amazon can pull such ad revenue because the fundamentals are already in place, it now becomes a case of drawing more revenue from ad segment that is in your domain of expertise.
We easily associate Amazon with ecommerce, yet all the things bringing sizable profits to it are not pure ecommerce: from tech products it owns to Cloud services and advertising; Jeff is on a mission.
Google will continue to dominate the ad space for B2B, and a wide range of other human activities don’t fall under classical shopping or events; there is still a lot under that category.
The sectoral categorization of businesses of the future is becoming blurred, the operating system is technology/digital, and from there you can crisscross and pivot to everything conceivable.
“For robust digital platforms, the advantage of network effects goes beyond users begetting more users, now it can be expanded to creation of more business units and models” – That is the trajectory.