The global advertising industry is still shaking the sand from its shoes after the Cannes Lions Festival of Creativity in June but Amazon has wasted no time expanding its advertising interests. The ecommerce group’s new product, Amazon Marketing Stream, aims to improve advertising analytics.
Amazon’s promotional space at Cannes this year reflected the scale of its ambition. The 27,000 sq ft “Amazon Port” contained multiple stages plus space for yoga and sound healing.
Advertising accounts for less than 7 per cent of Amazon’s revenue. But it occupies an increasingly significant portion of the digital ads market. Its share is expected to reach almost 15 per cent by next year, estimates eMarketer. It sits in third place behind industry leaders Alphabet and Meta.
Amazon also has a couple of advantages over both companies: a captive audience of businesses to buy ads as well as detailed first party data with which to tailor them.
Third party sellers on the platform pay for promotion to bump sales. The company boasts a wealth of useful information. Google may know what you search for but Amazon knows your shopping habits and the decisions you made before making a purchase — what price range you considered, for example. This is increasingly valuable as digital ad tracking is restricted.
For now, advertising is not enough to bolster problems elsewhere in the company. High costs eliminated net income in the last quarter. Amazon admits that it over-reached. The result is that even after a recent bounce the stock trades at less than two times trailing revenue. In June this metric reached a seven-year low.
The share price fall ignores the speed with which advertising, a smaller but more profitable part of the business than ecommerce, is growing. Add it to services such as cloud computing, healthcare and subscriptions and Amazon’s decreasing reliance on its core business looks very impressive.
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