Amazon ad sale boom could challenge Google-Facebook dominance

[April 27, 2018]   By Jeffrey Dastin and Sheila Dang

SAN FRANCISCO/NEW YORK (Reuters) - Amazon.com Inc's expanding business of selling space on its site to merchants helped it double profits on Thursday, and some see the move as a step toward taking advertising dollars from Google and Facebook Inc.

With $2 billion or less of advertising revenue, Amazon is dwarfed by Alphabet Inc's Google and Facebook, often called an internet duopoly, but it is growing fast, may be outselling ads on Twitter Inc and Snapchat, and it has advantages that other contenders lack.

Amazon has users' purchase data and knows what shoppers need, said Jason Damata, founder of Fabric Media, which advises companies on marketing and business strategy.

Google knows what people are searching for, while Facebook only knows “what you want your friends to think you like,” Damata said.

Some of his clients began directing their ad budgets to get customers to buy their products on Amazon, Damata said, and saw sales jump as a result.

Amazon does not break out ad sales alone. It says advertising sales are the majority of its "other" section, which hit $2.0 billion in the first quarter. After adjusting for accounting changes, that is a 72 percent increase from a year earlier, Amazon said.

Chief Financial Officer Brian Olsavsky called the ad sales business "a multibillion dollar program and growing very quickly." Advertisers of all sizes were interested in sponsored product ads "to drive brand awareness, discovery or hopefully, purchase," he said.

The logo of Amazon is pictured inside the company's office in Bengaluru, India, April 20, 2018. REUTERS/Abhishek N. Chinnappa/File Photo

Internet research firm eMarketer last October forecast Amazon would hit $3.19 billion in net U.S. digital ad revenues by 2019, or 3.0 percent of digital ad spending.

Established advertising firms also have taken notice. Martin Sorrell, the founder of the world's largest advertising company WPP, who stepped down in mid-April, last month saw Amazon in "head-to-head" competition with Google and Facebook. Sorrell added that WPP had directed $200 million of its clients' ad budgets to Amazon in 2017 and predicted that number would rise to $300 million this year.

"Amazon is coming over the hill. Amazon certainly poses a big threat on search and advertising," he said, adding that its voice assistant, Alexa, would make it an even stronger competitor.

(Reporting by Jeffrey Dastin and Sheila Dang; Writing by Peter Henderson; Editing by Greg Mitchell and Lisa Shumaker)

[© 2018 Thomson Reuters. All rights reserved.]

Copyright 2018 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.