At 40% Growth, Amazon Proves Its Digital Advertising Cred

Amazon’s advertising revenue increased at an impressive rate last year: $14 billion total, just under 40% year-over-year increase from 2018’s $10.1 billion.

Speaking of 2019 ad sales, David Fildes, director of investor relations at Amazon, said on a recent earnings call that “advertising as a subset has been growing at about the same rate year-over-year in the fourth quarter [at 41%].” Last year, for the first time in Q4, Amazon quarterly ad revenues surpassed $4 billion.

Admittedly, those totals may seem paltry compared to the $55 billion Facebook pulled in from ads in 2018 – or Google’s $134.8 billion in the last twelve months. But it’s important to note that those other two digital advertising giants have long-dominated the space,Opens a new window  so grabbing market share from them is an uphill battle.

Nevertheless, Amazon isn’t slowing its efforts. Ultimately, I agree with CNBC’s Megan GrahamOpens a new window , who says that this explosive growth is proof that the e-tailer has plenty of room for still higher ad revenues.

We have company on that score. Graham points out that following the earnings call with Fildes, Morgan Stanley analysts wrote in their notes that for Amazon, advertising “serves as a key area for both further growth potential and profitability flow-through.”

She also says that RBC analysts are similarly confident that advertising represents the largest and least-penetrated total addressable markets for the online e-commerce giant.

In fact, I’m concluding that Amazon is on track to join Google and Facebook as the new advertising giant on the blockOpens a new window .

What next for Amazon’s digital ad strategy?

Although that 41% y-o-y ad sales growth for Q4 2019 is substantial, it’s actually a marked decrease from the 97% y-o-y growth Amazon saw in Q4 during a stellar 2018.

Now that ad revenues for Amazon have begun to stabilize, it’s surprising that Jeff Bezos’s company is exploring new opportunities to inspire yet another period of accelerated growth in its advertising business.

“Amazon is playing the long game by looking to deepen its relationships with brands and move up the purchase funnel,” explains Business Insider’s Audrey Schomer.Opens a new window  As it seeks to mature its ad business, Amazon is encouraging advertisers to test more brand awareness and storytelling-focused campaigns on its platform.

Wondering what that means – and what that relationship might look like for marketers on the advertising platform? Amazon’s Fildes was candid during the earnings call, openly excited about the e-tailer’s new products that he believes will help brands develop a more curated and engaging presence on the platform.

It would be a big deal if the company can deliver as engagement is now among the most reliable KPIs for digital marketers to gauge the success of campaigns.

Fildes was especially animated about Amazon’s ‘stores’ feature, which allows a company to customize and curate a multipage digital storefront. As Graham writes for CNBC, “stores aren’t newOpens a new window , but the company has added featuresOpens a new window like shoppable images and the ability to schedule updates like new releases or seasonal changes.”

According to Fildes, these capabilities enable brands to better inform customers about their company and share their story, which he argues can support brands efforts to deepen customer engagement and loyalty.

Why marketers should care

Simply put, Amazon’s change in focus signals a wider market shift.

According to Ginny Marvin, “the ability to directly tie advertising to sales on Amazon has been a key attraction for advertisers.”

Clearly, Amazon is doubling down on that offering to its advertising clients. As Fildes said during the earnings call, “they appreciate the fidelity we can provide around shopping outcomes,” adding that Amazon is “uniquely positioned to do this given [its] retail business.”

What we’re seeing, particularly related to advertising on Amazon, Kristina Monllos arguesOpens a new window , is “a departure from advertisers’ prior focus on paid search advertising.”

Rather, she says, consumers are spending increasing amounts of time on Amazon.com. As a result, advertisers naturally are identifying brand storytelling and awareness opportunities on the platform. We can expect brands to spend more time, resources and energy creating content for their Amazon presence both in earned and paid media placements as they bid for better engagement.

Combine such features with Amazon’s ad unit’s major unique sales proposition — its closed-loop consumer purchase data — and Amazon could match Google’s and Facebook’s ad revenues sooner than any of them expect.