a Massive New Division
What’s powering this trend? Amazon Web Services (AWS), Jeff Bezos’s market-leading cloud computing platform, is growing at an astonishing clip and is far more profitable than Amazon’s e-commerce operations.
But the stealthy story that may foretell Amazon’s future is actually advertising.
That’s right: Amazon is now one of the world’s largest online advertising companies, with ad revenues surpassing $2 billion in the second quarter of 2018. This includes not only selling ad spots inside of its own properties, but also a burgeoning advertising network that serves ads on third-party properties to Amazon visitors and customers.
Almost no one seems to be paying attention to this story, which may transform Amazon into an “attention economy” company that relies on maximizing our time spent and our clicks—just like Facebook and Google do. In September, Amazon unified its messy advertising portfolio into a more streamlined offering under a single brand, Amazon Advertising.
Piper Jaffray analyst Michael Olson actually expects Amazon’s ad sales to surpass AWS sales as early as 2021, making it a serious growth engine for the company. This is still far behind what Google and Facebook bring in, but the rapid rise of Amazon’s ad business raises an interesting question. Namely, can Amazon avoid the same trap that has bedeviled other ad-driven behemoths: focusing on ads at the expense of the user privacy?
Both the power and the peril of Amazon’s new foray is evident. At present, over 50% of online shoppers in the U.S. begin their product search on Amazon.com. This gives Amazon an unmatched glimpse into the minds of purchasers. What’s more, Amazon can store not only your implicit purchasing intention, like Google can, but your actual purchasing behavior, which remains often out of Google’s reach. Amazon knows what you bought, when you bought it, how many clicks you took to buy it, and what other product categories you bought from alongside your purchase.
Amazon can now take that behavior and project it out into the sales pitches that follow you around the Internet. And unlike dumb retargeting campaigns that can only show you the same pair of shoes over and over again, the Amazon campaigns can plumb your past purchases to prime your behaviors—even going so far as to show you content you’re more likely to buy during a certain time of day or season. For example, Amazon may know that you bought mineral-based sunscreen last summer because you were going to the beach—and it will know to send you ads for matching product categories in anticipation of your journey to Hawaii for winter break, based on your searches for warm weather items in the fall.