Amazon.com Inc.’s advertising business, Amazon Marketing Services, is generating billions in revenue and starting to “make an impact on gross profit,” said Brian T. Olsavsky, the retail giant’s chief financial officer, during a conference call with analysts.
Hundreds of thousands of advertisers have bought the retailer’s ads, he said, noting that Amazon vendors, sellers, authors and third-party advertisers are using its ads to drive “brand awareness, discovery or ultimately purchase decisions on our site.”
Those results are in line with similar results that digital marketing firm Merkle recently reported in its “Merkle Digital Marketing Report Q2 2018″ that’s based on the data it gathers on its clients.
The report found Amazon generated triple-digit increases in investments in the retailer’s two most popular formats, Sponsored Product and Headline Search ads. Spending on the retail giant’s Sponsored Product ads, which accounted for 88% of all Amazon search and product detail paid ad spending in the second quarter, was up from 165% a year earlier for the median Merkle client during the quarter. Sponsored Product ads are keyword-targeted, cost-per-click ads that can either appear on the right-hand side or bottom of search results and product detail pages on desktop and mobile devices.
Ad spending on Headline Search ads, which accounted for 11% of spending, soared 162% for the median Merkle client during the quarter. Headline Search ads are keyword-targeted, cost-per-click search ads that appear at the top of the first page of search results on desktop and mobile devices. Product Display ads, which are cost-per-click ads aimed at helping drive sales and traffic to an Amazon product detail page, accounted for just 1% while spending on the ads decreased 55% for the median Merkle client.
The net result of that growth is an ad business for Amazon that’s projected to generate $3.37 billion in revenue this year, which would be a 58% increase from last year, according to research firm eMarketer Inc. That amount is more than Gap Inc., No. 20 in the Internet Retailer 2018 Top 1000, generated online last year. And it would would give Amazon a 1.2% share of the worldwide digital ad market, up from a 0.9% share last year.
The majority, $2.29 billion or 68.0%, of that Amazon ad spending is on desktop ads. However, Amazon’s mobile ad business is growing quickly. Mobile ads are expected to generate $1.08 billion this year, which would be a 122% jump from last year. That would give Amazon a 0.6% share of the worldwide mobile ad market, up from 0.3% last year.
While Amazon’s North American ad revenue is larger than its international ad revenue, both areas are growing quickly, Olsavsky said.
To foster that growth, Amazon is focusing on improving its ad tools by rolling out tools that can automate some of the manual elements that advertisers currently have to do, as well as improving its measurement capabilities “so advertisers understand what outcomes they’re driving on our properties,” he said. “We think that we’re uniquely positioned to show them the direct benefit of their advertising.”
Amazon is No. 1 in the Internet Retailer 2018 Top 1000.