Amazon is mesmerizing markets showing that it can keep growing. It is a solid contender in the race to the first $1 trillion company in the world. Alphabet, Microsoft, and Apple are other companies in that club. The online retail giant crushed analysts’ expectations, generating over $51 billion in revenue, compared with the $49.8 billion they had expected, according to CNBC and Reuters.
Amazon.com Inc more than doubled its profit on Thursday and predicted strong spring results as the world’s biggest online retailer raised the price for U.S. Prime subscribers, added U.S. football games and touted its cloud services for business.
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Despite the surge in shopping, Olsavsky gave credit for Amazon’s $1.6 billion profit last quarter to two younger businesses: advertising and Amazon Web Services.
Revenue from third-party sellers paying to promote their products on Amazon.com was an unusually large bright spot during the quarter, with sales in the category, which includes some other items, growing 139 percent to $2.03 billion. This included $560 million from an accounting change.
“Advertising is an important and very profitable bucket of revenue for Amazon and is also growing at a fast rate,” said D.A. Davidson analyst Tom Forte. “They are just getting started here.”
Amazon said it expects operating profit this quarter between $1.1 billion and $1.9 billion, up from $628 million a year earlier. Analysts were expecting $1.01 billion, according to analytics firm FactSet.
And the number of Prime subscribers soared along with its sales from its cloud-computing services (Amazon Web Services). Also, the e-commerce giant also announced it would hike the price of Prime in the US by 20% to $119 per year, reflecting the service’s new features and growing popularity since it first launched.
Amazon Web Services remains the most profitable part of Amazon. It is the oasis in the One Oasis Strategy as I have explained. As it soars, the ecommerce advances and just like that, Amazon deploys multiple-threats to the market: Prime club membership free cash (about $10 billion annually), best ecommerce ecosystem, leading cloud offering and pioneering voice AI [Alexa]. Amazon now has more than 563,000 in its payroll .
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Advertising Business
Amazon is becoming an advertising company purely for companies that pay to promote their products within Amazon ecosystem. It made $2 billion in that unit and that is significant for a quarter.
Revenue from third-party sellers paying to promote their products on Amazon.com was an unusually large bright spot during the quarter, with sales in the category, which includes some other items, growing 139 percent to $2.03 billion.
This has a major implication to Google. If advertisers know that all they need to do is to promote their products on Amazon, most would not bother to promote their websites on Google Search. The same can be said of Facebook. In other words, if promoting the product where people come to buy and spend delivers better results, there is no need to spend money on Google and Facebook. If you sell things on Amazon, it is a better strategy to position yourself before people who are actively buying over web surfers (Google) or those watching crying cats (Facebook). I expect Amazon advertising business to grow and practically challenge the duopoly of Facebook and Google on advertisement. I wrote about this Amazon advertising business few weeks ago.
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.
This may explain why Google is not showing friendly handshake to Amazon these days. Amazon is not just attacking Google, it is going to the heart of its business which is advertisement. As Sun Tzu put it in The Art of War: you must defend your flanks to win. Indeed, Google has a war to fight.
Adverts on Amazon.com
All Together
Amazon is a peerless brand which developed a solid strategy which I have called the One Oasis Strategy. That one oasis has helped it to build a pace-setting digital conglomerate. The oasis makes big money today even as it continues to nurture the well-being of its inhabitants.
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