Amazon is poised to challenge the dominance of Google and Facebook in digital advertising. But it’s not just those ad behemoths, which control 57% of the $61 billion US digital advertising market, that Amazon is stealing ad dollars away from. Most of the e-commerce giant’s advertising revenue comes from its core business—retail.
The bulk of Amazon’s ad revenue comes from an advertising segment known as trade marketing. Manufacturers of packaged goods, food, and other products pay retailers like Walmart and Target, and grocery stores like Kroger, to get products on shelves and in coveted parts of the store. Think of the colorful displays you see at the ends of store aisles. Those same manufacturers pay for prominent placement in Amazon’s virtual aisles as well. Some are starting to shift their budgets away from brick-and-mortar stores and toward Amazon, The Wall Street Journal reported (paywall) Nov. 27, in wide-ranging story assessing Amazon’s advertising prowess.
On Amazon, trade marketing looks a lot like traditional search advertising. Companies can pay to be one of the sponsored products listed high up in the results for searches like “batteries,” or in the product display ads that appear in search results, product detail pages. Advertisers can also pay to be placed in marketing emails. (Some of Amazon’s other ad tactics aren’t as obvious. The Journal reported (paywall) in a separate story Nov. 28 that Amazon had been sneaking sponsored products into baby registries, a practice it is reportedly phasing out.)
Trade marketing comprises most of Amazon’s advertising revenue in the US, the Journal wrote, citing a 2018 note from Morgan Stanley analysts. Amazon doesn’t break out its advertising revenue in its earnings reports, instead it includes it in a line item called ”other” revenue.
During the first nine months of 2018, Amazon generated $6.7 billion in “other” revenue, which is made up mostly of advertising, according to company filings, as well as other services that Amazon did not describe in the filings. It was a lift of 130% from last year. Research firm eMarketer expects the company will post $4.61 billion in ad revenue from the US alone this year, which would make it the third-largest US digital ad platform behind only Google and Facebook.