Study on Amazon Advertisement

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It was a Thursday afternoon, and I had a fantastic conversation with one of the senior technical program manager within Amazon Advertisement. He encouraged me to learn further about the business. Here is my study evaluating the business and my perspective on why Amazon is positioned to break the duopoly.

Amazon’s evolution since its conception in 1995 has been aptly aligned to provide low prices, vast selection, and convenience to customers. I am amazed by the fact that the company has consistently managed to maintain 20% YoY growth every year (except 2001) since 1995.1 The growth of Amazon’s advertisement business since it’s launch in 2011 is impressive, with annual advertising revenues in 2019 up 39% from $10.1 billion in 2018.2

Amazon Advertising is well-positioned to take on the Google and Facebook duopoly, with customers visiting Amazon with the intention to buy. Amazon offering the convenience of one-click checkout with customers’ credit card information saved has the potential to yield 20 to 30% sales conversion rates, compared to 1 to 10% on Facebook.3 This advantage coupled with lower cost-per-click prices compared to Google and Amazon Attribution letting track brands track actual spending after clicking ads on Facebook and Google could encourage retailers to shift spending with Amazon to target shoppers.4 The tool has an additional advantage to help Amazon cut down on its own marketing expense from $11.0 billion in 2019.5

I resonate with the findings in Cowen report that Advertising is one of Amazon’s fastest-growing areas6 given its ecosystem of products and services generating massive amounts of customer data for real-time analysis. I believe that the insights generated from the data will data have a two-fold advantage. They have the potential to help businesses brand themselves better and reduce Amazon’s marketing expenses. In my analysis, the revenue stream from Advertisements aligns well with Amazon’s financial focus to develop sustainable free-cash flows in the long-term.

References:

  1. Amazon in 2019
  2. Amazon's Booming Ad Business Grew By 40% in 2019
  3. Amazon is turning advertising into its next huge business — here’s how
  4. Amazon is rolling out a tool that shows just how much Google and Facebook ads drive people to do their shopping on the e-commerce site
  5. Amazon.com, Inc. - SEC filings Form 10-K for the fiscal year ended December 31, 2019
  6. 7 Charts Show Why Amazon's Ad Business Could Balloon To $17 Billion This Year and Is a Growing Threat To Google
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