Dive Brief:
- BMO Capital Markets managing director for media and internet equity research Dan Salmon sees a bright future for Amazon’s ad revenue with a predicted $3.5 billion for this year and 63% growth in 2018 for a total of $5.7 billion per a report in Adexchanger.
- Salmon’s report said Amazon will make those gains at the expense of Google, Facebook, other online direct-response budgets, offline direct marketing and retailers' trade promotion budgets.
- Salmon explained to Adexchanger that putting a figure on Amazon’s ad revenue has historically been tough because it doesn’t specifically release those figures in its earnings reports.
Dive Insight:
Amazon has been a quiet player in digital advertising while sitting in a very favorable position. The e-commerce giant is a threat to Google in search because Amazon visitors seeing search ads are likely to be ready to make a purchase while searchers on Google might just be conducting research. In fact, WPP CEO Martin Sorrell said in a Q4 earnings call in March that Amazon keeps him up at night.
Most previous estimates put Amazon's ad revenue at around $1 billion yearly. However, this number is based on Amazon's financial reporting under the “other” category which combined ad services revenue and co-branded credit cards, Salmon explained. The “other” category includes Amazon’s display and video ads, but doesn’t account for other ad formats like Sponsored Products which fall under a different category in Amazon’s reporting, “electronics and other general merchandise.”
The revised estimate from BMO Capital Markets is guesswork according to Salmon, but a separate report from Morgan Stanley predicts Amazon’s ad revenue could reach $5 billion next year, still smaller than BMO Capital Markets’ $5.7 billion estimate but much larger than the $1 billion yearly number analysts had been relying on.
The bigger role in advertising comes as Amazon continues to expand beyond its core e-commerce beginnings with original digital programming via Amazon Prime and connected hardware like the Echo smart speaker featuring Amazon's smart assistant Alexa. Digital video advertising and IoT engagements are both areas receiving a lot of interest from marketers, suggesting Amazon's ad business is well poised. Amazon recently restricted monetization opportunities for Alexa skills but the move could be preparing the way for new monetization opportunities being introduced in the future.
