What's all the hubbub about? It's just Amazon.com (Nasdaq: AMZN) being Amazon, right?
The tech world was abuzz yesterday when word first broke that the world's e-commerce top dog was toying with the idea of launching a free, ad-supported version of its current streaming service to rival Netflix's ascendance to the top of the streaming food chain.
The move, which remains far from certain, would mark a considerable shift in strategy for the world's e-commerce giant, but one that could bring with it its share of benefits for Amazon shareholders, so long as it resonates with consumers. So keeping that in mind, let's run through the possible moves Amazon could make in its bid to control even more of our online lives.
Amazon's emerging media empire
According to reports, Amazon is considering unveiling both free streaming video and music services as part of a broader landgrab to tap into the $69 billion TV -advertising business, similar to recent moves by Facebook. The behind the scenes impetus driving all of this is Amazon stealthily attempting to monetize an advertising engine its been quietly building for some time now. In fact,
eMarketer estimates that Amazon will generate about $1 billion in advertising revenue this year alone.
And although odd from a historic perspective, a company like Amazon actually appears quite well-suited to create a new, yet dominant, online ad platform.
Remember, one of the key value-adds that online advertising holds over other forms of advertising is specificity. Browsing behavior is an outstanding indicator of consumer interest, and with its absolutely massive stockpile of users and their shopping histories, Amazon could prove a profitable ally for advertisers looking to reach their target audiences.
All Amazon needs now is a delivery mechanism for those advertisements, and that's where free video and music streaming services could potentially come in. Giving consumers free radio and video would be a perfect carrot to consumers to get consumers face-to-face with Amazon's new advertising platform.
Amazon keeps on getting stronger
Again, this seems like an odd move for Amazon at first mention, but it's really just an example of Amazon making the most out of what it already has, namely boatloads of consumer data that could yield impressive CPMs and a massive network of servers step to power the entire system.
There's also an attractive tie-in with Amazon's prime membership as well. Amazon will almost assuredly offer ad-free versions of these media platforms to Prime subscribers, which could also prove a huge win for Amazon's core e-commerce business as well. Amazon shoppers with a Prime subscription are estimated to spend twice as much on Amazon.com when compared to the average shopper, so creating the incentive to pay-up to forego advertisements on its video and music sites would still prove highly accretive to Amazon's core business.
So at first sight, this sounds like a way for Amazon to increase the competition against the likes of a Netflix or a Pandora Media, but it's actually likely much bigger than that. Amazon, king of playing the long game, would actually be eyeing a much opportunity set; one in which it still seems particularly well-suite to compete.
This is, of course, far from a sure thing. However, if this storyline proves more reality than fiction, it'll be Google and Facebook that really have something to worry about, and that's certainly worth noting today.
Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Facebook, Google, Netflix, and Pandora Media. The Motley Fool owns shares of Amazon.com, Facebook, Google, Netflix, and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.