Amazon's advertising and seller growth hints at selling as a service

Rounding off a week of big tech results, Amazon once again posted gravity-defying growth in its ad business as other elements of the business slow.

Why it matters

Advertising is a big moneymaker for Amazon, partly because it is becoming essential to doing voluminous business on the ‘everything’ store. For sellers – from small businesses to big brands – advertising remains optional but it is increasingly difficult to be successful without it, according to some studies.

As Amazon’s sales shift further toward third-party sellers, the advertising and fulfilment side of the business becomes increasingly important. In a recent ANA report in the US, retail media buyers – many of whom buy media on Amazon – said the medium is becoming more of a “have to buy” than a “want to buy”.

Naturally, this is very good for Amazon’s business, especially as the retail media trend is set for strong growth amid economic uncertainty.

What’s going on

In the company’s Q1 results, overall revenues grew 9% to $127.4bn (11% excluding currency fluctuations), but its advertising business grew 23% year on year to $9.5bn.

• “In particular, our sponsored product and brand offerings remain a key driver of growth as we work with advertisers to help customers make more informed purchase decisions,” explained CEO Andy Jassy on a call with investors.
• For context, last quarter also saw the advertising business grow faster than any other declared business segment, followed closely by third-party seller services (20%).

Selling as a service

It’s possible to read these two sides of the business as a more natural place for a tech company such as Amazon, even if its first outward expression was as a retailer (its retail business was flat in Q1 year-on-year). Third-party sellers now make up 59% of overall unit sales, explained CFO Brian Oslavsky on the same call.

The two sides of the business combine well, especially considering Amazon’s investing “meaningfully in brand protection” as well as active promotion of brands and products.

A moat of price and variety

In a more uncertain global economy, the range of products that Amazon sells remains key – “even in difficult economies, most people still shop,” noted Jassy.

“And with the largest e-commerce shopping venue, we have a lot of customers that companies seek to reach.”

Room to grow

Most of this advertising sits within the main Amazon shopping destination, which makes it a closer cousin of search and display advertising than it is to broad-beam TV creative. But the company is working on this.

“We’re still very early in our efforts to find a way to thoughtfully place ads in our broader video, live sports, audio and grocery properties,” Jassy explained. “We have a lot of upside still in advertising.”

Sourced from Amazon, Seeking Alpha, WARC