Amazon’s Ad Business Booming
Advertising and services tucked into “other” in Amazon’s reporting practices became one of the fastest-growing segments of Amazon’s business in the second quarter of 2018, along with cloud computing. Profits in these areas helped to offset its traditional retail business, which tends to deliver lower margins.
“Other,” a category mostly made up of advertising revenue, more than doubled from a year ago to $2.19 billion when the company reported earnings on Thursday. Second-quarter profits rose to $2.53 billion, up from $197 million a year ago. Revenue for the quarter reached $52.9 billion.
Advertising helped the company reach its goal. Amazon’s Sponsored Products, per the company, remains one of the most popular services. It uses the pay-per-click ad model to put products in front of shoppers who are ready to make a purchase. The ads account for the majority of advertising on the site.
Raymond James Analyst Aaron Kessler in a research note wrote that the firm maintains its “outperform” rating give strength in ecommerce, momentum in cloud services, increasing traction in advertising, and improvements in operating margins for Amazon Web Services (AWS), advertising, and core retail efficiencies.
Ben Schachter, analyst at Macquarie Group, agreed with Kessler for the most part, but in his research note made another interesting observation. He suspects Amazon will need to re-enter the phone market either directly or indirectly for customers to use Alexa wherever they are.
Amazon’s Alexa and other voice assistant devices continue to grow in popularity. Consumers are beginning to use these devices to shop. In fact, 77% of respondents to the Avionos survey of 1,409 consumer say voice assistants have a positive impacted their perception of ecommerce.
Avionos’ survey analyzes responses about online shopping habits, preferences and expectations for 2018. The findings reveal that when consumers browse online, with no specific intent to buy, 33% of respondents said they begin their search on Amazon and 32% begin on Google.
When consumers intend to purchase a product, 38% begin their search with Amazon and 22% begin with Google. The findings suggest that consumers look to make purchases on Amazon and find ideas from Google, similar to the way they might search on Pinterest or Facebook.
And while the findings suggest that consumers are less likely to visit a brand or retailer’s site as their first destination for a product search, 15% of consumers with purchase intent and 17% of consumers without purchase intent begin their search on a brand’s site, according to the study.
Interestingly, Amazon already has begun to integrate technology, artificial intelligence, into its marketing strategy and Amazon Go store, which consumers believe will impact their shopping experience in the coming year.
For instance, 43% of consumers think AI will make checkouts faster, 27% think it will bring on faster consumer service responses, and 26% believe it will provide a more personalized experience.