Investors keeping close tabs on e-commerce giant Amazon (AMZN -1.14%) will likely know it's getting into the web advertising business. Indeed, it's already deep in the market, driving $31.2 billion worth of ad revenue last year. For perspective, Alphabet's (GOOGL 0.35%) (GOOG 0.37%) Google brand -- when including YouTube -- collected $209.5 billion worth of advertising dollars in 2021. Alphabet's been doing it a lot longer and had more time to tweak its offering than Amazon has, of course, but Amazon's lesser tally is still an impressive figure.
Furthermore, Amazon has only scratched the surface of its opportunity in this segment of its business. Early users of Amazon's promotional platform are finding a shockingly high return on their investment in the advertising program. Other companies that regularly run ads should achieve similarly strong results once they try it out.
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Yes, Amazon is in the ad game
If you're not familiar with Amazon's newest project, it's not complicated. Amazon.com is one of the world's busiest websites (the 11th most-visited site, according to Alexa). The company is simply looking to monetize all that traffic by selling a bit of space on its web pages to advertisers looking to draw attention to their products.
It's not exactly a new business; the company's allowed advertisers to "sponsor" a particular product for some time now. Back in 2020 though, Amazon really started to turn the idea into a major profit center. Jungle Scout suggests the company did $21.5 billion in advertising business that year, up more than 40% from 2019's tally, en route to 2021's 45% growth. And the stage is set for more of the same.
In its recently published report "Brands, Amazon, and the Changing Landscape of E-Marketplaces," e-commerce consulting outfit Feedvisor lays out some compelling information regarding Amazon's advertising product. One of these data nuggets is the fact that, according to its findings, Amazon.com is the most commonly used sales venue for all brands surveyed, including e-commerce sites owned and operated by that brand itself.
All told, 45% of companies that sell physical goods count on Amazon's reach. That's near twice the 25% of brands that utilize Walmart's or Google's online-selling tools.
And well they should. An incredible 64% of the consumer goods companies using Amazon.com to sell their products say they've seen increased sales because of it.
Perhaps the most impressive piece of information from Feedvisor's study, however, is this: More than half the companies selling goods through Amazon.com that also advertise their goods at the site say the return on investment is seven times their cost, if not more. In other words, for every $1 spent on promoting their product on Amazon, that company gets at least $7 back in increased revenue.
That's impressive. It puts Amazon right up there with the venerable Google when measuring their fiscal upsides to advertising. Indeed, the two companies are tied for top honors in terms of making the most of money spent on digital ads.
Room and reason to keep growing
Don't look for this rate of return on advertising dollars deployed through Amazon.com to persist indefinitely. A little less than half of all the brands Feedvisor reviewed use any sort of digital marketplace to sell their goods right now.
More are sure to step into the fray, though. In fact, Feedvisor's report indicates that 74% of the brands finding success with advertising at Amazon.com say growing competition for consumers' attention at the e-commerce site -- through ads -- is their biggest concern going forward. It's not an unmerited worry. That competition for Amazon's ad inventory, however, is ultimately good news for Amazon itself.
All of a sudden, eMarketer's expectation that Amazon's advertising revenue could grow on the order of another 30% this year and 24% more next year doesn't seem far-fetched at all. That's especially true given eMarketer's figures suggesting Amazon's ad revenue growth so far has largely come at the expense of Google's share without even requiring any actual net market growth. Google, meanwhile, has a lot more business it could end up giving up to Amazon.
