E-commerce giant Amazon.com (AMZN +3.47%) is known for selling physical merchandise, digital books, music streaming subscriptions, video subscriptions, and a whole lot more. But a lot of investors might be surprised to find out that one of Amazon's hottest new products isn't a thing at all; it's a person, namely you.
In this video from Motley Fool Backstage Pass, recorded on Oct. 5, Fool contributors Jason Hall and Jose Najarro talk about Amazon's fast-growing advertising business. In short, Amazon is leveraging its huge user base into a way to make more money, and the strategy is working very well.
Jason Hall: Let's start with the lead. Facebook all over the news. I'm not sure if either of you guys had a chance to watch any of the congressional hearings with what's going on at Facebook. They're very real, very serious questions about the company's focus on younger users.
Here's the thing. I don't want to get too deep on this. Frankly, this is a really popular stock in The Motley Fool universe. It's recommended in a lot of services. Instead of spending an hour beating up Facebook, which we could do, here's the bottom line: Facebook's users are not its customers. If you invest in the company, if used the service, you have to have a tacit understanding of that. Its users are the products, the Facebook advertisers are its customers.
Let's have a little fun here. Instead of focusing on Facebook or one of you might pick Facebook here. What is your favorite stock that its users are actually the product? Jose, you want to go first?
Jose Najarro: Sure, Jason, mine is actually going to be a little bit not your typical answer. I'm pretty sure some of the people watching the show can already think of some names, but I'm going to go with Amazon on this one. Amazon, not their whole market, the consumer or the users not the product.
Hall: This is becoming like a growing part of their business, that's the key here.
Najarro: Definitely. This is becoming a growing part of Amazon and that is through Amazon advertising. If you give me a quick second to just share my screen real quick, you are having an image of Amazon's ad revenue in year-over-year change in the past quarters. We can see in quarter one of 2021, this was about $6.9 billion. Obviously, quarter four with all the holiday season coming up that's usually the strongest sense in any type of advertisement company. For Facebook and all the other leaders, quarter four tends to be the strongest where we can see this year-over-year growth.
Some of us and originally me, I was just thinking of the way their advertisement would be through their e-commerce. I went to Amazon and I went to laptops, just post laptops. We can see some of the first few items available to me were sponsored ads. That's one way they do the advertisement.
But some other things that Amazon has, they have their video series. They have Amazon Video, I believe it's called there's the paid subscription version of it or you also get a free version where you get some ads. If you are some business, if you want to start branding, you can go to Amazon ads and start doing TV streaming ads on them.
Another part is they have very similar to Facebook, who has Facebook gaming, and some of the other leaders that do a lot of online gaming streaming. Amazon owns Twitch, which is the gaming. It used to be mainly for gaming, now it's a lot of podcasts, a lot of live-streaming shows happening there. Again, you can go there to do Twitch advertisement.
Finally, I want to to say, they have numerous service, their music service. If you don't go with the paid subscription, you can get some advertisement behind it. This is a pretty interesting one like you mentioned Jason perfectly, it's a growing market for Amazon right now where this wasn't the route it was going when it first started selling its books. But now that it has all these users available to it, the users are definitely becoming, another product for Amazon so thought was definitely interesting to share.
Hall: It is, and the interesting thing about it too, a lot of folks might not realize that traditional retailers have had something similar to this in the past, and that's product placement revenue. Where a company will literally by shelf space. They get the premium space, they pay a premium to get access to that space on a retailer shelf. But it's turbo charged for Amazon because every time you go to Amazon, you do a search. [laughs] If you are buying from Amazon, you go to Amazon and then you search for the product. Sometimes, you still might search for Google and then click on the Amazon link. But at any rate, you type it in, and guess what happened? You just built shelf space for [laughs] that products. Literally every single products that Amazon sells, they can sell premium shelf space with their ad model and it is, how lucrative is that almost $7 billion dollars in Q1 revenue compared to going back three years ago, it was a couple of billion dollars they've grown that so fast.
