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• Amazon’s $47B Side Hustle 🛒

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Amazon’s $47B Side Hustle 🛒

Hi there. To dive into today’s article, let’s start off with an exercise. Fire up Amazon and search for the item you’ve been thinking about purchasing recently.

I’ve been meaning to purchase a pocket-size espresso maker.
Don’t ask me why but yes I do need it.

As soon as you hit enter on your search, Amazon will get to work and you’ll see your product results. No surprises there. Except, if you look closely, you’d actually be looking at Amazon’s stealthy side-hustle.

Advertising.

Yes, you read that correctly. Amazon’s advertising side hustle raked in $47 billion for the E-commerce behemoth and it doesn’t have plans to stop anytime soon. 

Other Revenue

Amazon has been stealthily building a behemoth of an advertising business which now trails only Google and Meta, threatening the digital advertising duopoly for the first time in years.

With Amazon’s scale, it may be difficult to believe they can do anything quietly. 

However, Amazon strategically masked the true size of their rapidly growing $30B+ ads business, portraying it as “Other” until 2022.

It was only after the “Other Revenue” had bloated up to $31B - a figure more than the revenues of multiple advertising companies combined did the company break out a separate column for Advertising.

Its ad revenue of $47B in 2023 was more than Youtube, Snap, Pinterest and Bing combined.

Heck, it’s bigger than the ad revenues of the entire global newspaper industry!

Everything on Amazon is an Ad

Amazon’s organic recommendations have been replaced with ads. 

1/ Search Results

Just like how any search engine would surface sponsored listings at the top, Amazon search has the first 3-5 spots ready to be bought by the highest bidder.

2/ Product Page

“Sponsored products related to this item,” “Four stars and above” and “Brands related to this category on Amazon” advertising sections have all but replaced organic “Customers who bought this item also bought” and “Customers who viewed this item also viewed” suggestions. 

Everything highlighted in blue is an AD.

The last remaining recommendation functionality is “Frequently bought together.” Everything else on the product page, including additional display advertising, is an ad.

Clicks are Dead ; Long Live Sales

In 2009, Jeff Bezos famously said: “Ads are the price you pay for an unremarkable product”.

Amazon surely ain’t an unremarkable product, but because the company owns one of the most valuable pieces of digital real estate on the planet, in this case, “Ads ARE the price you pay for a remarkable product; along with a $14.99/mo prime membership”.

Amazon is the biggest online store in the world. More than 200 million people visit the website every month in the US alone.

And the company keeps a record of everything that happens on their website. It knows what people search, what they buy, what they leave behind in their cart, their wishlist, everything.

Google and Meta, of course, occupy a lucrative part of the customer’s buying journey in the traditional marketing funnel. 

Amazon, however, owns the last action of the transaction: the purchase itself. 

Advertisers on Amazon are not simply buying clicks; they’re buying sales. 

Juicy Profitable Ads

The advertising business is not only huge when compared with other ad rivals, but for Amazon as well.

The business now makes up Amazon’s third-largest source of revenue trailing behind the E-commerce business and their cloud business, AWS. And this is not the only kicker.

Advertising might not be as big in numbers as the E-com or AWS biz, but it definitely might be punching above its weight when it comes to profits.

You see, AWS has been the cash cow for Amazon for several years. In Amazon’s latest quarterly results, even though their E-com business accounted for 37% ($55.4B) of the total revenue - more than 2x that of AWS’s 17% ($26.3B), AWS’s contribution towards the profit was 63%.

Even though there are no public figures as to the operating margins of the ads biz, if we take the >50% margins that digital advertising behemoths Google and Meta enjoy, doing some basic napkin math might suggest that Amazon must’ve made a chunky profit from the ads business.

This digital ad pivot is one of the most successful versions of what is becoming a norm due to seismic shifts in the digital ad landscape. 

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