Although the headlines coming out of Amazon’s Q2 earnings yesterday were all about one-day shipping, there is an extremely profitable and powerful division growing faster than Amazon’s net sales: Advertising.
Amazon’s ad sales business increased 37% year-over-year, to $3 billion, beating expectations. Jon Reily, EVP Retail and E-Commerce at Publicis Sapient, says that this puts Amazon advertising north of $10BN in sales a year.
“In addition to creating a necessity for sellers selling on Amazon's marketplace, they also have a strong tool for their own retention as they reported on the call that video ads on devices are ‘contributing to Prime retention’, Reily says.
Reily also noted that Amazon rarely speaks about retention in Prime, so to call that out as a factor is surprising. “Much like AWS, which was created to solve their own problems and needs and then sold as a very profitable service, Amazon Advertising is looking to be very similar. Anything that keeps Prime members in the boat is a must have, and something that does that and is a profit machine contributing to >$10 billion a year is a golden goose.”
In contrast, analysts were disappointed to see the growth of Google’s core advertising business decelerate in second quarter earnings yesterday, with ad sales growing at a more paltry 15%.
So how has Amazon, seemingly overnight to some, created a booming advertising business off the back of a retail site?