Amazon’s ad sales slow down, but continue to outpace Facebook and Google

Amazon posted its Q1 earnings last Thursday evening, announcing best-ever profits for the company and a 17% overall increase in sales. An outlier within this record-breaking growth was the “other” category, which is largely composed of ad sales. Reporting its slowest growth in the past six quarters, revenue from ad sales was up 36%, totaling $2.72 billion.  

So, what’s going on?  

For one, 36% is still impressive for ad growth. It outpaced Facebook’s 26% and smashed Google’s 15.3% for growth for the same period, albeit the “duopoly” revenues are from a much larger base. Sure, it pales in comparison to doubling year-over-year as Amazon announced across most quarters of 2018, but in the grand scheme of things Amazon as an ad publisher is still growing at a rapid rate by any measure.  

The dip in growth could also simply be a sign of normalization. Amazon’s revamped advertising tools have been in the market for some time now, and as Digiday noted, perhaps the appeal of a “shiny new toy” has started to wear away among advertisers. Strategies are becoming more refined and spend more pointed, and brands are no longer as eager to throw resources at the platform to test and learn from its tools.  

Secondly, this trend appears to be par for the course; according to Merkle’s 2019 Digital Marketing Report. Facebook ads and Google’s paid search saw similar spending lags in Q1 of last year, and their just-released recent results attest to this.  

That said, there’s also substantial reason to believe that ad sales will ramp back up very soon. For one, Amazon has been introducing new platforms for media planners to consider. Earlier this month, the company announced an ad-supported music streaming service for non-Prime members, putting it in direct competition for ad buys that might otherwise go to Spotify or Pandora. As the third-largest music subscription service, the size of Amazon’s overall audience is nothing to scoff at.  

In January, the company enhanced its OTT video offering by launching IMDb Freedive, which will offer a catalogue of popular shows and movies for free – supported by video ads – to the public. Advertisers are keen for more high-quality, brand-safe video inventory and many agencies and advertisers are already planning to partner on “up-front” video negotiations later this year. Freedive builds upon Amazon’s already established platform; they now report more than 30 million active users for their Fire TV streaming service. In contrast, Roku announced 27 million active users in their January call. 

The company also rolled out 50 new seller tools in Q1 2019, along with (and perhaps most importantly) advanced customer analytics to those who are enrolled in their Brand Registry. This means that brands now have more thorough insights to gauge the effectiveness of their ad buys. Amazon’s depth of first-party data is constantly growing and an unmatched competitive advantage. With advanced analytics showing exactly how all ad dollars are working, spending will inevitably increase as clients demonstrate a verified return on investment.  

Finally, a few days prior to the earnings report, Amazon made a “game-changing” announcement that they will invest $800MM back into their shipping and warehousing efforts in order to provide one-day delivery for Prime members. As Amazon continues to up the ante in terms of shipping speed and convenience, I wager that brands will have more difficult time staying away from the infrastructure that provides those services.  

If it seems like Amazon’s power as an ad platform is beginning to wane, look again. As Amazon continues to open new opportunities for ad placements, refine the interface for analytics and reporting, and improve their marketplace infrastructure to entice a larger audience, brands and advertisers won’t be able to ignore them as a publisher. I expect we will see the ad sales numbers rise in the coming months, even if they aren’t as dramatic as the figures in 2018.  

And let’s not forget the magic of math. Amazon is well-known to be a company that invests nearly all their profits right back into the company to streamline and improve their offering, which ultimately makes overall profits appear lower.  Amazon’s CFO Brian Olsavsky said it best in The Seattle Times: “…accounting changes mask what’s really going on with the advertising business. While it appears to be slowing on a reported basis, “Advertising is actually growing faster than this,” he said. 

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