Amazon‘s advertising division is pulling in big bucks as its marketplace merchants jockey for position amid the pandemic-fueled eCommerce boom.
The tech behemoth is tracking to post its first $100 billion quarter, with an estimated $21 billion coming from annual advertising dollars alone, the Financial Times reported on Tuesday (Dec. 29), citing FactSet data.
Amazon’s crowded digital marketplace has caused merchants to step up their advertising on the site in order to be more visible in search results. The eCommerce giant’s advertising business is currently growing faster than its retail, cloud and Prime subscription divisions.
The 47 percent increase in advertising dollars over last year has helped Amazon become a formidable rival to Google search, which has dominated online advertising.
“I don’t think there’s enough recognition for just how big of an advertising business Amazon is on the way to creating,” Andrew Lipsman, principal analyst at eMarketer, told FT. He added that Google is anticipated to maintain a solid position this year and next, “but increasingly Amazon is eating into that growth.”
Amazon lures advertisers with reams of data that show the effectiveness of every ad dollar spent and the 20-year shopping habits of consumers.
“I can understand better the value of $1 spent on Amazon because I can literally see the transaction,” said Eric Heller, who runs the Amazon Center of Excellence at the ad agency WPP. He pointed to several studies showing that many shoppers search Amazon directly instead of Google.
Merchants on Amazon bid for positions at the top of search results, which exposes them to over 200 million unique monthly visitors. Popular searches can go for more than $7 per click, the news outlet said, citing JungleScout.
Some people have called Amazon’s sponsored results a listings tax that brought in more than $20 billion on top of the commission the tech giant takes on every sale.
“Amazon is becoming more and more a pay-to-play platform,” said Mitchell Bailey from advertising firm Kaspien. “Unless you’re willing to invest in their advertising platforms, it’s much more difficult to compete.”
Digital advertising dollars accounted for 51 percent of all ad spend in 2020, a one-third increase over 2017. Newspapers, radio, magazines and local TV comprised just 21 percent of advertising spend this year.
The media landscape over the past decade has rapidly morphed beyond changes brought about by the pandemic.