Amazon Ads is bigger than YouTube

Hello,

Thanks for subscribing to Trendline!

Today we look at Amazon’s Ad business - which flies under the radar and is often not discussed as much as e-Commerce and AWS.

I, for one, was shocked to see this chart.

The chart itself is simple, but the point is quite strong.

The lead has grown a lot in the last 12 months, when YouTube essentially flatlined. The reasons for this are not entirely clear -

(a) There is competition from TikTok and other short form video platforms (although YouTube has its own Shorts) and,

(b) Presumably some of the ad dollars have been cannibalized by YouTube prime (that revenue is not counted here).

However, its hard to see why YouTube will stall so badly. Google’s other 2 Ad business - Search and Display have grown at 9% and 3.4% respectively.

Ads is build on the back of its Third-party marketplace business - Independent sellers use Amazon’s infrastructure to sell to consumers. These sellers pay Amazon a fee to use its services (e.g. warehouses) which gets recorded as “Third party seller services”.

These same sellers also pay Amazon to promote their products so customers can see them at the top of search results. This is recorded as “Advertising services”. If you are not sure about these ads, this screenshot will help - look at the red arrows.

The Ad’s business is bigger than Prime now, and together with Third party seller services, is >155B+ revenue, growing much faster than overall revenue.

Here is a quick breakdown of Amazon’s empire:

Amazon doesn’t provide profitability of the advertising business but given digital advertising tends to be quite profitable and doesn’t require as much Capex as AWS and warehouses, its likely to be quite profitable and generating healthy cashflow for Amazon.

The next important question is how far can Amazon grow this business. There are various levers but Amazon is reported looking at growing ad placements on other platforms it owns like Twitch, Prime video.

Will be interesting to see how far it can stretch this business.

With Apple growing its Ad revenue, and Microsoft getting serious with Search Ads via OpenAI (along with Linkedin), it appears that now all of Big Tech is fully invested in Digital Ads - its going to be a interesting industry to watch in coming time.

📢 Shoutouts

• Department of Product Briefing tells you all you need to know about making winning products in Tech. Relevant whether you are a solo hustler or working in Tech, building products. Check it out → (LINK)

• [Sponsored] Our mental health is governed by our information diet. Choose wisely by joining 1440 - a newsletter delivering unbiased news on a range of topics. See here → (LINK)