Amazon advertising is now worth $2 billion

Amazon’s advertising power continues to grow. The Seattle-based e-commerce company reported in its first-quarter 2018 filing that “other” revenue — which it said “primarily includes sales of advertising services” — grew 132 percent year over year to reach $2 billion.

In the fourth quarter of 2017, the ad business grew to about $1.7 billion, up about 60 percent year over year.

That’s a massive jump for the company, which spent the past quarter making improvements to its advertising offering. Media buyers have reported the company has been running a series of attribution tests to see how its advertising stacks up against the Facebook-Google duopoly and that it’s also been testing application programming interfaces for the Amazon Advertising Platform with a small group of agencies, as it plans to let marketers manage their programmatic campaigns on their own.

Speaking on the company’s earning call on April 26, CFO Brian Olsavsky said that “advertising continues to be a bright spot from a product standpoint and a revenue standpoint, and a strong contributor to profitability. It is a multibillion program.”

In January, Amazon changed its accounting standards, moving some ad revenue into the “other revenue” line item, which led to, according to Amazon, an increase of $560 million attributed to that line item, the majority of which is ad sales.

One question is how Amazon balances ads with a good customer experience, which came up on the earnings call. “We take responsibility for that very seriously, and balancing the helpfulness of advertising and the customer experience,” said Olsavsky. He added that there “may be more opportunities over time to have advertising within [Prime Video].”

Amazon continues to expand its agency development group into “hundreds” of staffers as well.

Advertising has been a quieter growth driver for Amazon’s business. It still remains a small drop in the bucket, of course, but it’s gained attention. Even on the company’s earnings calls over the past couple of quarters, analysts have asked about ads. In the fourth quarter, Olsavsky specifically noted that “advertising was also a key contributor, as we’re continuing to make the offerings more valuable, both to customers and advertisers alike.”

The ad business was noticeably absent from CEO Jeff Bezos’ shareholder letter, but there has been serious growth in both sponsored products and headline search ads. It’s also becoming pricier: Merkle numbers show cost per click for sponsored product ads has increased 65 percent year over year as marketer interest grows.

At agencies, there has been increased attention as well, with Omnicom CEO John Wren specifically mentioning on the company’s own earnings call that Amazon is “coming over the hill” and posing a bigger threat to Google and Facebook. Amazon ad growth has also outstripped company revenue growth overall.

Overall, Amazon reported revenue of $51.04 billion, beating estimates.

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