Amazon (AMZN 1.66%) has already achieved incredible success in e-commerce and cloud computing. In the last few years, the company has gained ground in digital advertising as well -- a market that is expected to exceed $500 billion in value by 2024, according to eMarketer.
This sizable and rapidly expanding opportunity could be Amazon's next big business. Here's what investors should know about this tech company's digital advertising efforts.
Amazon's sell-side tools
Amazon Publisher Services is a suite of tools that help content owners (websites, mobile apps, video) monetize their ad inventory. This includes Amazon's two ad marketplaces, which integrate with over 20 supply-side platforms (SSPs) to help publishers of all sizes reach a wide audience of ad buyers. Amazon also provides publishers with access to its exclusive shopping data, which can help them tweak content to improve user traffic and maximize value to marketers.
Image source: Getty Images.
In the most recent Advertiser Perceptions report, Amazon Publisher Services ranked as the second most popular SSP, behind only Alphabet's (GOOG 2.27%) (GOOGL 2.01%) Google Ad Manager. This widespread adoption is a result of Amazon's ability to create value for its clients. For instance, unlike many SSPs, Amazon does not charge publishers to use its ad tech platform. Ultimately, this boosts profitability for Amazon's partners.
Amazon's buy-side tools
Amazon DSP (demand-side platform) enables marketers to plan, launch, and measure targeted ad campaigns across digital channels like desktop, mobile, and connected TV.
Using Amazon DSP, marketers can programmatically (in an automated way) buy ad space from a wide selection of inventory sources. This includes Amazon's content like iMDB, Fire TV, Twitch, and the Amazon marketplace. But it also includes the tens of thousands of partner websites and mobile apps available through Amazon Publisher Services, as well as inventory from over 30 third-party SSPs. In other words, Amazon DSP helps marketers cast a wide net, enabling them to reach a large audience.
In the latest Advertiser Perceptions report, Amazon DSP took the top spot, outpacing both Google and The Trade Desk (TTD +2.47%). Again, this is a result of Amazon's ability to create value for clients. Not only is Amazon's consumer data a tremendous asset in targeting ads, but marketers also typically see 10% lower prices and 25% higher returns when using Amazon DSP to purchase ad inventory through Amazon Publisher Services. In other words, Amazon makes marketing more efficient.
Amazon is gaining market share
Amazon's ad tech platforms, rich consumer data, and coveted ad inventory have helped make the company an important player in the U.S. digital ad market. In fact, Amazon currently ranks third behind only Google and Facebook, but the company is rapidly taking market share while Google is losing ground.
|
U.S. Digital Ads |
2017 |
2018 |
2019 |
2020 |
|---|---|---|---|---|
|
Amazon market share |
2.1% |
6.8% |
7.8% |
10%* |
|
Google market share |
42.2% |
38.2% |
31.6% |
29.4% |
Data source: eMarketer. Note: Amazon's 2020 market share is estimated by eMarketer to be more than 10%, but no exact figure is available.
According to eMarketer, Amazon's digital ad revenue is expected to jump over 70% in the next two years, reaching $25 billion by 2022. That number represents only 6% of Amazon's $386 billion in sales over the last 12 months. And while that's not likely to move the needle at this point, digital advertising is an enormous market and Amazon's increasing dominance in the industry could eventually contribute meaningfully to the company's top line.
A final word
Investors should keep in mind that Amazon's influence in certain industries has already sparked concern from regulators. If the company's shadow continues to spread throughout this segment, it could result in litigation -- potentially even a forced breakup. And the company's growing digital ad business isn't the only iron in the fire. Amazon has also been building a large logistics business that may also fuel regulatory concerns. Investors should pay attention to this situation.
That being said, few companies will ever achieve Amazon's level of success. The combination of exceptional management, effective strategy, and a large market opportunity have helped this company build an empire. And even if Amazon were split into multiple businesses tomorrow, I'd be a buyer.
