Amazon is preparing a major advertising push which could boost its profits to a significant degree for the first time in its 23-year history, Bloomberg reported Thursday, citing interviews with a number of industry professionals. Jay Kahn of Light Street Capital believes Amazon's existing advertising platform will mature into an ecosystem yielding much larger profits than even its cloud business, currently the best performer in the company's portfolio based on bottom lines. The largest e-commerce service in the world is widely expected to become increasingly more attractive to advertisers over the coming years and is already improving its performance in a steady manner. According to New York University's Stern School of Business professor Scott Galloway, there's hardly a better place to advertise a product than on a website that people visit primarily to spend money, especially when it's the largest one of its kind. An additional incentive for marketers is that they already know "what's in their [consumers'] basket," Mr. Galloway believes, being convinced that Amazon is close to turning into an advertising giant.
The vast popularity of the e-commerce platform may also yield higher returns per ad unit for Amazon than someone like Google can charge for similar ads appearing next to results on its more general-purpose Internet search engine. For much the same reasons, Amazon can realistically hope to outdo Facebook's returns, even though the world's largest social media network is soon expected to boost its average revenue per ad unit following its decision to purge the News Feed from the majority of brand-issued content. While Amazon has a lot of catching up to do, with its advertising business amounting to around a tenth of that of Facebook and one-twentieth of what Google's operations are yielding on an annual basis, the $1.7 billion in advertising revenue it posted last year is likely just a small fraction of what its marketing unit will be generating several years from now, many industry watchers believe.
In the past, Amazon was largely reluctant to aggressively feature advertising on its e-commerce platform as it didn't want to annoy users who were basing their purchase decisions on customer reviews, but the amount of promotional results that it's search engine is now providing is indicative of a change in that strategy. Ultimately, the highly specific purpose of Amazon.com may eventually turn it into by far the most valuable advertising space on the Internet, if it isn't already.