Amazon advertising just generated $14.3 billion of revenue in the September quarter, an almost 19% lift on the same three months last year.
While that growth rate would be envied in any other industry sector, it is below that of previous quarters.
However, Nikhil Lai, senior analyst at global consultancy Forrester, said Amazon’s advertising business, while slowing slightly relative to recent quarters, remains robust and highly profitable.
The high-margin income Amazon gets from advertising helps the company compensate for losses incurred by first-party product sales, third-party seller fees, physical store sales, and subscription services.
Lai said Amazon’s ambition to offer full-funnel advertising at scale hinges on the relevance and load of sponsored products on Amazon’s site and app.
For Prime Video, it’s about ads absorbing linear TV dollars chasing higher yield and more revenue impact on streaming TV.
Amazon Prime Video in July started displaying advertising on the streaming platform in Australia.
“As Amazon grows its ad business by enhancing the user interfaces of experiences of its demand-side platform, helping endemic and non-endemic brands launch new products across Amazon, and measure premium video advertising’s halo effects on branded search activity, it’s challenging to serve its various stakeholders,” said Lai.
“Endemic brands are qualitatively different from non-endemic brands. Furthermore, there’s a massive mid-market craving cost-effective reach, rather than ultra-premium placements in the NBA, for instance.
“In addition, it’s difficult for advertisers to trust Amazon since Amazon may enter their business, if they’re not already competing.
“Nonetheless, Amazon’s plethora of intent signals and massive, authenticated addressable audience – nearly 80% of America – suggests a lot more upside.
CEO Andrew R. Jassy sees many opportunities to further expand ads offering in areas that are driving growth today such as sponsored products as well as Prime Video ads, still in the early stages of development.
“Our expansive reach, ability to service relevant offers to our customers, opportunity to engage customers from the top of the funnel to point of purchase, and leading capabilities around measuring outcomes at every touch point provide all types of brands with full-funnel advertising at scale,” he told analysts in a briefing.
“In sponsored products, we're seeing meaningful growth on a very large base, and we see further opportunity in driving even better performance for advertisers by further improving the relevancy of the ads we show and by providing additional optimization controls.
“At the same time, some of our newer offerings are in their very early days. We're just entering our first broadcast season for Prime Video advertising, following a very strong showing at upfronts.
“And we're continuing to support brands of all sizes with our generative AI-powered creative tools across display, video, and audio, including our video generator that uses a single product image to curate custom AI-generated videos.
“While we're generating a lot of advertising revenue today, there remains considerable upside.”
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