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Sep 19, 2018

Amazon increases ad market share at expense of Google, Facebook

FILE PHOTO: Amazon boxes are seen stacked for delivery in the Manhattan borough of New York City

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Amazon.com Inc.’s advertising business is gaining faster than expected in a market dominated by Facebook Inc. and Google.

The world’s biggest online retailer will generate US$4.61 billion in U.S. ad sales this year, which represents 4.2 per cent of the total digital ad market, EMarketer Inc. estimated Wednesday in a report. The research firm previously projected Amazon’s ad revenue this year would be US$2.89 billion. The revised number reflects an accounting change by Amazon as well as increased demand, EMarketer said.

Google and Facebook remain the dominant digital advertising companies, with a combined 58 per cent of the US$111 billion market, slipping from 59 per cent in 2017, according to EMarketer.

Amazon is closest to customers at the moment of purchase compared with Google and Facebook, which are better for building brand recognition, EMarketer analyst Monica Peart said.

“Advertisers are looking for a third option that ties purchase data directly to the advertisement,” she said.

Amazon is an attractive place for online merchants to advertise because many product searches begin on the site, not on Alphabet Inc.’s Google. More than half of the products sold on Amazon come from third-party merchants who pay the e-commerce company a commission on each sale. The large number of products on the site and competition from millions of merchants compels them to advertise. Amazon’s shopping marketplace has increasingly become a pay-to-play environment, with the best placement going to paid advertisers as opposed to those offering the lowest prices.

The growing advertising business has helped propel Amazon’s stock to new highs, with investors viewing the sector as a more profitable revenue source than the Seattle-based company’s main e-commerce business. Amazon shares have surged 66 per cent this year.

Amazon’s push into the grocery business also is helping increase ad sales because big-spending companies like Procter & Gamble Co. and Coca-Cola Co. want to maintain brand recognition on the site, even if their products don’t lend themselves to online sales, said Timothy Seward, chief executive officer of e-commerce marketing firm ROI Revolution.

“Amazon isn’t just a web store, it’s also a marketing channel,” Seward said. “All of the major brands usually sold in Walmart and Kroger have to be on there.”