Tech Talk: Amazon's Ad Business Threatens Google & Facebook

Amazon has been operational for well over two decades now, and while the Seattle, Washington-based company already managed to become the largest eCommerce outlet in the world by every important metric, it didn't settle for that and has instead been diversifying its portfolio in a rather aggressive manner ever since it became sustainable in the late 90s. These days, Amazon offers hosting services, publishes eBooks, makes drones, drives advancements in artificial intelligence (AI), produces online television programming, manufactures consumer electronics, develops TV standards, runs a video streaming service, and invests in a wide variety of other industries spanning virtually every sector that's in some way connected to the World Wide Web. On top of everything else, the company has recently been putting an increased focus on online advertising, which isn't surprising in light of the fact that digital advertising as a whole is a rapidly growing industry that's already worth tens of billions of dollars in the United States alone.

While Amazon is a tech giant in every sense of that term and has repeatedly proven it's capable of diversifying its business model and expanding into new markets it hasn't previously explored, digital advertising is an extremely competitive market that's currently dominated by Google and Facebook. Amazon might be the world's largest player in eCommerce, but Facebook and Google hold such a large share of the online advertising market that even the multi-billion dollar businesses they're competing with are admitting they're afraid that the two Internet giants will further solidify their market duopoly in the future and put them out of work. Regardless of that notion, many industry watchers believe Amazon has a solid chance of developing its online advertising business and coming up with a viable competitor to Google and Facebook's digital ad platforms.

One Morgan Stanley analyst recently predicted that Amazon could reach $5 billion in advertising revenue by 2018, adding how that number could easily increase by an additional $2 billion come 2020. Even though that particular forecast doesn't represent the opinion of an average industry analyst, it still isn't unrealistic, and even conservative estimates put Amazon's 2018 advertising revenue at around $3.5 billion. While several billions of dollars in annual advertising revenue would only provide Amazon with less than five percent of the digital advertising market, that foothold could still be strong enough to serve as a basis for a more rapid expansion in the future, some industry watchers speculate. Even if Amazon currently isn't the biggest player in the digital ad industry, analysts at several established banks like BMO Capitals are saying that both Google and Facebook should still be worried about the company's growing ambitions in this sector, especially given its track record with expansions.

The current state of the market doesn't immediately suggest that the Seattle-based tech giant has a good chance of disrupting Google and Facebook's advertising duopoly in the long term, but Amazon's previous accomplishments paint a somewhat different picture of the company's prospects. Being the largest eCommerce company on the planet, Amazon already has access to massive amounts of user data relevant to online shopping habits of consumers — something that's incredibly valuable to advertisers — and runs a digital shopping platform that's larger than anything Google and Facebook ever came up with combined. As the goal of most online advertising is to directly sell a product, opting for an ad platform whose owner already dominates eCommerce would likely seem like a sensible choice to many advertisers, and that's where Amazon's biggest chance of taking away more market share from Google and Facebook lies. The two Silicon Valley giants have been trying to launch a viable eCommerce platform for many years, but the vast majority of their users still choose to make their purchases through a third-party platform like that run by Amazon.

In light of that fact, Amazon is now seemingly trying to advance its advertising efforts by further integrating them with its shopping platform in an attempt to offer an ad delivery network that's more efficient to those of Google and Facebook and cuts out the middleman that connects products sold through its eCommerce service with customers. Some industry analysts believe that this is a viable strategy that has already started eating into profits of Amazon's significantly larger competitors. This particular opinion was recently given by BMO Capitals' Daniel Salmon who even lowered his stock forecast for Google's parent company Alphabet precisely due to Amazon's recent activities in the digital advertising industry. While it remains to be seen whether Amazon manages to grab a larger share of the ad market at the expense of Google and Facebook in the future, an update on its efforts to do so will likely follow soon.

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