I have written before about the genius of Amazon in terms of understanding the value in rapid and efficient distribution, and also of its seeming inability to effectively target advertising with local deals (which I am pleased to say it is no longer sending to me).
But in the news this week were two Amazon stories – the critique by the French government (perhaps not entirely unfair, but for sure a sign that the business continues to succeed), and also the $800m (£517m) of revenues from Amazon’s advertising business.
I would not be surprised if many people did not know that Amazon had an advertising business, as it pales in fame compared to the company’s other business lines. Indeed Amazon is often quoted as the sleeping giant of advertising. But as with the value of Amazon’s distribution (quicker, more efficient and cheaper than the competition) which is not yet fully realised, the value of Amazon’s advertising business is almost certainly structurally undervalued. Why is this? Ultimately, probably because we have all been led to believe that Google – its primary monetisation tool is advertising, and counts more people as users than almost any company – dominates this space. And indeed by volume Google has a larger share of clients. So what does Amazon have?
In a word: data. In the age of information it is the companies with the most (useful) data which utilise that data to enhance their business that will thrive. Google might know our search habits, and what we send and receive emails on, but what it does not know is what we actually spend our money on. For sure, Amazon does not know everything that we spend our money on – it will not know what I bought last weekend in John Lewis – but as we migrate more and more towards online shopping, and if Amazon continues to outgrow the competition here, it could well have a rounded view of the average shopper.
The value of this is almost immeasurable to advertisers: imagine only advertising premium products to those that you know can afford them. Or, better still, imagine advertising a product to someone only when you know they have bought something similar before, but sufficient time ago for a replacement likely to be needed soon.
The cost per impression of an advertisement would, of course, soar, but the probability of a viewer of the advertisement making a purchase would also increase. Advertisers would be happy, but Amazon (and, indeed, anyone it licensed its customer data to) would earn substantial revenues and steal market share from those competitors without this sort of data.
Now, of course, there is no guarantee that Amazon would want to dominate the advertising world by following this model – though advertising could prove to be more profitable than its online retail operations given the levels of traffic to Amazon’s sites. At the moment, its under-the-radar approach means that customers are not too worried about the amount of data it has at its disposal. But if you knew, whenever you purchased something through Amazon, you might forever more find your online adverts relating to this product, you might just think twice about shopping there. This would damage its core business in the process of trying to grow a new one and so far Amazon has been tentative about using its rich consumer data for advertising, perhaps for exactly this reason.
