“Small Things, Done Consistently, Add Up to Big Things in the Long Run” is a quote by Gretchen Rubin that has become a reality for the largest online marketplace, which is none other than Amazon. It has established itself as an e-commerce giant. The shift of consumers to e-commerce platforms has largely been fueled by the COVID-19 pandemic. Customers from diverse backgrounds in terms of geography, age, and income groups rely on these platforms for their day-to-day activities. This makes them prospective platforms for advertising and, thus they generate advertisement-driven revenue. There are several e-commerce platforms like Amazon, Flipkart, Shopify, and Wix, among others.

Amazon started as an online bookstore and now has multiple diversified businesses. Amazon Online Retail Store, Prime Video, Prime Music, Amazon Pantry, and Amazon Web Services (AWS) are a few names among the many Amazon-owned businesses. As Jeff Bezos once stated, “The company works to charge the customers less.” The idea is to provide a better and more efficient experience for the customer. The company has never limited itself by focusing on a specific type of service. It has held a strong position in many areas and has tried to focus on the scale, i.e., increasing revenue while keeping the operational costs low. This essentially happens when the customer reach of a company increases, thus decreasing the per-unit costs for the company. This is referred to as economies of scale. This focus on Amazon’s customer engagement has played a pivotal role in making it a lucrative advertising platform. With advertising giants like Google and Facebook already existing in the industry, had it not been for its huge customer base, Amazon would not hold a prominent position in the advertisement industry.

Returning to where we began, Amazon’s advertising revenue’s transformation from an “other” category on its balance sheets to a separate item is as unexpected to Amazon as it is to the average person. The contribution of advertising revenue in Q4 of 2020 was $7.95 billion, which translated to about 66% growth YoY. The revenues in Q4 of the very next year experienced a growth of 32% and stood at $9.7 billion. Advertising revenue ranks third among Amazon’s revenue-generating sources. Ad revenue of $31 billion ranks third after online sales and Amazon Web Services (AWS), and is followed by offline stores ($17 billion).

The reason behind this is the huge traffic that Amazon has been able to achieve. More than 200 million unique consumers were registered in a single month in 2020. Moreover, more than 63% of product searches begin on Amazon. As reported by an Amazon ex-sales executive, “92% of the customers who begin their product searches on Amazon end up buying it there.” Thus, Amazon becomes a godsend for sellers. Every dollar spent on an advertisement on Amazon yields more returns for a seller than on other platforms, making it a must-have marketing channel for a seller.

Amazon provides wide-ranging advertising alternatives to marketers and sellers, which can be through its online stores or other services. On its website, advertising under the sponsored items category where the products appear on the top of search results, the video ad service where short clips are run on the home page, and advertising through print media wherein the delivery boxes are used as the medium are some of the options. The company’s Fire TV device also provides space for advertisements. Moreover, Amazon also facilitates brand advertisements across the internet on websites that it does not own.

Amazon’s ad system is also straightforward in the sense that it displays advertising based on keywords. The algorithms are so efficient that they store every piece of information about the actions of a consumer. The items that are added to the cart, items purchased, items that are left behind in the cart, and even the ones that are on the wishlist are captured by the algorithm. This process provides Amazon with a large pool of first-hand customer data.

Data, as we all know, is the most powerful weapon in today’s modern era of technology. Amazon has decoded this area well for itself. The data offers valuable insights into shopping habits and consumer behavior. This behavioural data is precious for the advertising industry. It is because this data helps to ensure relevant advertisement displays for customers. This means that if a customer’s habits reflect his or her interest in gadgets, advertisements related to gadgets are more likely to convert the sales from that customer. These are called personalised advertisements, and they are more likely to contribute to an advertiser’s return on investment.

Unlike its bigger competitors, Google and Facebook, Amazon completely depends upon its platforms to collect data. This is why the privacy restrictions announced in iOS 14 have not affected Amazon. Apple gave a choice to its users to block the collection of their private data on the web. Facebook collects its data by this very method for targeted advertising. Estimates show that Facebook could lose 10% of its revenue due to Apple’s new feature. It hampers Google Ads similarly.

Amazon has emerged as a shark in the ocean of the advertising industry. It has been able to do so because of the company’s thought process of increasing the customer base and attaining scale. The fact that its focus was never restricted by a particular business is the key to its success. Its diverse advertisement channels and established customer base make it a necessity for sellers. Amazon’s policies are highly comfortable for its customers, which can also be observed from an over 90% customer retention and repeated business. Its data combined with advertisement channels is the cause of phenomenal advertisement revenue growth which is expected to continue flourishing in the coming years.

By Devesi Verma