Amazon (AMZN 3.04%) and eBay (EBAY -0.33%) are e-commerce giants that are increasingly also discovering the wonders of advertising revenue. They each attract millions of customers to visit their sites, so showing advertisements is an excellent way to supplement their other revenue sources.
If they can execute their advertising push effectively, it has the potential to improve the customer's experience as well as boost profits. Let's look at how each is developing that side of the business and their progress thus far.
Amazon is already a major player in the ad market
The coronavirus pandemic fueled Amazon's growth in advertising sales. In 2020, the company increased its share of the U.S. digital ad market to 10.3% from 7.8% a year earlier, according to eMarketer.
In its most recent quarter, Amazon reported an 83% increase to $7.9 billion in advertising revenue from the same quarter last year. The segment is not only growing at a rapid rate, but has even accelerated for four consecutive quarters.
Amazon is also developing innovations for its ad business, launching new features and self-service capabilities, drawing more marketers, small businesses, and others by making it easier and more effective. The less time a company has to spend implementing an ad campaign, the more valuable it will view the service to be.
The company is also looking to make ads a helpful experience for customers. Amazon has millions of people who come to its site looking for products that fulfill their needs. With the right strategy, ads can enhance the customer experience by making it easier for consumers to find the products they are seeking.
eBay is growing ad revenue at a slower pace
While eBay is a much smaller company in terms of annual revenue than Amazon -- $10 billion compared to $386 billion in 2020 -- it is also working hard at increasing its ad business.
In its second quarter, eBay brought in $224 million of ad revenue, an increase of 8% from the same quarter last year. Here's what management had to say on that segment of the business in its quarterly conference call:
More than 1.4 million sellers promoted over 430 million listings during the quarter. Growth was driven by higher adoption and technology improvements .... We see tremendous growth opportunities in advertising, both from our existing Promoted Listings offerings and from new product innovations.
eBay, like Amazon, is working on innovating its ad business to make it more attractive for marketers and companies to utilize. Whereas it was primarily offering "cost per click" to advertise (charging every time a user clicks an ad), eBay now also offers a "cost per view" option (when a user simply views the ad). This can be less expensive for marketers but still provides another source of revenue for eBay.
The company has also launched "promoted listings," allowing sellers to push their merchandise to the top of an eBay search result for a fee. eBay boasts 19 million sellers and just 1.4 million have used promoted listings -- so that leaves lots of room for improvement.
Why the focus on advertising?
Both Amazon and eBay are making advertising revenue an area of strategic importance. One reason could be the fact that it's a high-profit-margin business. The systems that the companies are creating will mostly be automated. Therefore, beyond the initial investment in setting up the capabilities, there's little cost to the incremental revenue -- and so greater potential for profit. Stay tuned.