When it comes to online advertising, Amazon is a giant in the making
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When it comes to online advertising, Amazon is a giant in the making

There’s a third name in online advertising: Amazon. The ecommerce giant (which is known for being an “everything shop” but also has major businesses in areas as diverse as cloud computing and streaming entertainment services) is competing against other tech titans Google and Facebook, who are widely regarded as being the leading names in online advertising (in that order). However, Amazon has something that neither of these other companies do: an in-depth data set on the shopping habits of millions of people. For Amazon’s nascent advertising business, that could be the gift that never stops giving.

Amazon’s share price has increased by 11% so far this year

graph 24 amazon

Source: Yahoo Finance

Despite its relative smallness compared to equivalents at Facebook and Google, Amazon’s ad business is far from insignificant – valued at “about $125 billion” by Morgan Stanley, it’s bigger than Nike or IBM. The core of this business is simple: selling ad space on its own site that matches searches. So, if I sell batteries, my ad will appear when you look for them on Amazon.

But recently, the company has branched out, and now offers traditional online ad formats on a number of sites around the web. Powered by Amazon’s incredible cache of consumer data, these ads are selling like proverbial hotcakes. Although it’s still the smallest (by far) of the three, Amazon’s ad business is making fast and significant gains on Facebook and Google.

That trove of data goes beyond simple things like preferences. Amazon has your address, and which credit card you use. It knows when you’ve got a cold (bought cough medicine?) and how old your child is (that baby grow was for 2 – 3-year olds, right?) When you line it all up, you quickly realise that Amazon’s knowledge about our lives may be unprecedented. And it’s letting third parties access it via a ‘self-service’ option.

At the end of the day, Amazon’s ad business is simple, and relies on one age-old principle of salesmanship: the person most likely to buy a shirt is someone who has purchased a shirt in the past. Repeat custom is where it’s at. Right now, Amazon is the best provider of that information on the market – and that’s what is letting it disrupt the world of online advertising.

Disclosure

Dominion holds Amazon in its Global Trends Ecommerce Fund.


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