StockMarketNews.Today – With millions of Amazon’s Prime members expected to flock to the site next Monday for discounts on products from Bluetooth speakers to paper towels, analysts say its growing advertising business will be a winner alongside the core retail business.
“Amazon is becoming a pay-to-play platform,” said Roshan Varma, director in the retail practice at consultancy AlixPartners. “It’s not enough for brands and vendors to sell on Amazon. If you want to sell, you need to show up on top of the sort order [in product search results] and the only way to do that is beat the algorithm or pay for a sponsored product ad.”
“They position it as you have to maintain your share of voice regardless of the cost,” said Mike Ziegler, a former Amazon advertising manager who now runs Marketplace Clicks, an agency that helps sellers advertise on the ecommerce site.
Prime Day, which Amazon created in 2015, has quickly become one of the company’s biggest drivers of sales and of growth in Prime members. More than 100m people around the world now pay monthly or annual subscriptions for free shipping, streaming video and music and other services.
Last year’s Prime Day saw the most subscription sign-ups since the Prime service launched in 2005 and was the company’s biggest sales day up to that point, Amazon said. With this year’s event expanding to 36 hours on July 16 and 17 and extending offline to discounts at Whole Foods, the grocery chain Amazon bought last year, sales are expected to rise 40 per cent to $3.4bn from $2.4bn in 2017, according to Coresight Research.
The need to advertise to cut through the crowd on Prime Day underscores the growing contribution of advertising to Amazon’s business. While its Amazon’s core retail operations generate the majority of its revenue, executives and analysts see advertising as a promising growth area. Its “other” revenue segment, mostly derived from advertising, more than doubled to $2bn in the first quarter and the company flagged the high-margin business as “a strong contributor to profitability”.
Amazon’s slice of the $100bn US digital ad market is still very small: 2.7 per cent, or fifth place, this year compared with Google’s 37.2 per cent and Facebook’s 19.6 per cent, according to eMarketer. Its share is expected to reach 4.5 per cent by 2020, passing Microsoft and Verizon’s Oath to climb to third place, while Google and Facebook are predicted to lose ground.
Analysts expect growth to come both within the search, sponsored product and display ads Amazon sells on its own site as well as an expansion of the ads it has begun selling across other websites, using its shopping data to target consumers.
“Shopping behaviour is so much more powerful to a marketer than someone asking a question to Google,” said Jordache Perozzo of BuyBox Experts, an Amazon consultancy. “Facebook and Google know what people like or are interested in, but money talks.”
Mark Mahaney, analyst at RBC Capital Markets, estimates that by 2022 Amazon’s ad revenues will top $25bn and generate more than $8bn in incremental operating profit, making the business “as impactful” to the company as Amazon Web Services, its cloud computing business, is today.
As sellers weigh the cost of advertising their products at the top of search results against the boost in sales that Prime Day promises, they also find themselves increasingly competing against Amazon itself. In recent years Amazon has used Prime Day to promote its own in-house labels and products such as voice-controlled speakers.
“The number of branded items and preferred placements [Amazon] is giving themselves on the site, whether in search or headline search or sponsored products, it’s a thorn in a lot of people’s sides,” Mr Ziegler said.
Prime Day is getting more expensive for sellers in other ways, too. Amazon has raised the fee it charges merchants to offer limited-time “Lightning Deals” to $750 from $500 last year.
Amazon.com Inc Company Profile:
Amazon.com, Inc. offers a range of products and services through its Websites. The Company operates through three segments: North America, International and Amazon Web Services (AWS). The Company’s products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It also manufactures and sells electronic devices. The Company, through its subsidiary, Whole Foods Market, Inc., offers healthy and organic food and staples across its stores. The Company also offers a range of products like whole trade bananas, organic avocados, organic large brown eggs, organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic gala and fuji apples, organic rotisserie chicken.
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