Amazon is quietly becoming a major player in the advertising business.
In the first quarter, the e-commerce giant recorded more than $2 billion in “other” revenue, which largely consists of ad sales, the company announced Thursday. That amount was up a whopping 139% from the same period a year earlier. The result marked the fourth straight quarter that Amazon’s ad-related revenues have grown on a sequential basis from the immediately prior quarter.
Better yet for the company, advertising sales were a “strong contributor” to Amazon much bigger-than-expected profit in the first quarter, said Brian Olsofsky, Amazon’s chief financial officer, on a conference call with investors on Thursday.
“I would say advertising continues to be a bright spot,” Olsofsky said.
With those kinds of results, at least one industry expert thinks the digital ad industry’s giants should be wary of Amazon.
“The duopoly of Facebook and Google should be concerned where future ad revenue opportunities lie,” said Joe Egan, who leads the Shop+ business at Mindshare, a digital marketing firm owned by WPP.
Facebook and Google dominate the online ad business and by some estimates are expected to account for more than 80% of all the growth in digital advertising this year. But with consumers increasingly going to Amazon first when shopping online — instead of searching Google — marketers have started to see the value in putting their ads on the e-commerce site.
Prime customers won’t see ads in videos — yet
Amazon is focusing on helping advertisers tout their brands and new products to its customers and is hoping such advertising will help lead to purchases, Olsofsky said.
But the company’s advertising results were boosted by an accounting change. Previously, the company accounted for some ads by subtracting their value from its cost of goods sold line item. But in the first quarter, those ads got shifted over to its “other” revenue.
The ads that were subject to that accounting change totaled about $560 million, company officials said. But even if you discount those, the company’s ad sales still would have grown by about 72 percent.
Amazon plans to continue growing its ad business, but it’s trying to balance the desire to offer messages that consumers will find helpful with the need to ensure the ads don’t disrupt their shopping experience, Olsofsky said.
“There are always pressures and on that, we’ll always come down on the side of the customer,” he said.
The company has a potentially big opportunity to place ads in the videos it streams to subscribers to its Prime service. But Amazon is taking a cautious and Olsofsky said that consumers won’t see any ads in those videos in the near future.
“There may be opportunities over time to have more advertising in our video, but we choose to not do that right now,” he said.
Amazon’s ad business could also be benefitting from the stumbles of some of its competitors. Growing concerns about how Facebook and Google handle consumers’ personal data and about their ability to control what goes on their services has led some advertisers to rethink their relationships with them and in some cases to cut their spending.
To be sure, the threat is at the margins. Both companies reported strong revenue and earnings growth earlier this week.
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