Amazon’s $30B+ ad business, explained

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Have you noticed more and more “sponsored content” on Amazon?

It’s not your imagination: the company’s advertising business is huge — and growing.

The ecommerce giant long passed Microsoft to become America’s 3rd largest ad platform, trailing only some random internet companies called Google and Facebook, per CNBC.

Amazon’s ad revenue hit ~$8B…

… in Q2 2021 (+87% YoY) which computes to an annual run rate of ~$30B+.

Here’s a fairly mind-blowing stat: Amazon’s ad business alone is worth nearly 2.5x the combined revenue of Snap, Twitter, Roku, and Pinterest.

Sponsored content has replaced product recommendations

And retailers are happy to pay up to get onto Amazon’s precious digital real estate. By one estimate, 74% of American consumers begin their product search on Amazon.

Other ad inventory includes:

• Sponsored search (up to 6 ads can populate the top of product search results)
• Sponsored brand posts (several products from one brand listed in a banner)
• Video ads

The price to place ads is also going up

A number of companies (e.g., Elevate Brands, Thrasio Holdings) are raising billions to roll up Amazon stores and optimize them to squeeze out every penny.

Competition from these well-funded startups has pushed the average cost per click on an Amazon search ad to $1.27, vs. 86 cents last year.

Amazon says ads are “optional” for brands but — just like Google — you don’t want to get buried on page 4 of search results.

Juozas Kaziukenas of Marketplace Pulse tells CNBC that “it’s not uncommon now for brands to be spending 50% or more of their product price on various fees to be selling on Amazon.” 😬