During last week’s earnings call, on Thursday, advertising was brought up in just one question. In response, Amazon CFO, Brian Olsavsky, said that in Q3 alone, revenue from advertising services grew 58%, adding that “its year-over-year growth rate is actually faster than the other revenue line item”.
It has been a busy quarter for the company, with its announcement of its acquisition of Whole Foods; the search for a second headquarters, which has seen cities across the United States compete to offer the company enticing tax breaks, among other inducements; the release of new Echo products; and Amazon Prime Day.
For the advertising business, which has now grown to $1.12bn, the progress is promising. Compared to Alphabet’s $24bn in Q3 ad sales, and Facebook’s $9bn in Q2 ad sales, however, Amazon’s ad revenue is a mere drop in the ocean.
Recently, Frank Kochenash, global senior vice president, commerce, at POSSIBLE – who will oversee WPP's new dedicated Amazon practice – told WARC that Amazon has the potential to rival the duopoly.
“It has exceptionally good data on its audience, knowing important browsing and purchasing activities. As its offerings grow to include more video and music content, Amazon's ability to understand its audience will also grow," he said.
What sets Amazon apart is its willingness to reinvest in the business to a dizzying degree, as this year profits decreased 40% to $347 million, down from $575m twelve months prior. According to The Verge, the net cash the company is investing has almost quadrupled since last year.
For most companies, this slim profit would be enough to cause worries on Wall Street. But Amazon has so far managed to convince the markets that reinvestment for long-term gain is preferable to short term profit, as the company’s stock rose 8% in after-hours trading following reports.
An obvious area for investment is in personnel, specifically in Amazon's advertising division. Digiday reported that the company has been hiring heavily, announcing 2000 new jobs in New York.
A large part of Amazon’s offer is its attribution capability, closing the loop between what people are searching for and then buying online. This has excited brands, with 63% planning to increase their advertising spend with the company next year.
Sourced from Seeking Alpha, the Verge, Digiday, WARC