That's how much revenue Amazon has generated in one year from a business that is essentially an afterthought. The company realized that advertisers were desperate to find out the purchase inclinations of potential customers. Information it just happens to have from tracking what they search for and purchase on its site.
So they tested the notion and, whaddyaknow, half a bill later, they had a business. It's like making money from the packing material you used in selling gifts (though for all we know that is another business they are already in but not talking about).
The thing about the ad business is that it puts them in direct competition with Google and Facebook. Not that Amazon considers that intimidating or particularly worrisome. Those three and Apple are all headed in each others' strategic direction anyway. Might as well be sooner as later.
But without wanting to sound too cavalier, each of the competitors brings a different type of data to the equation: Google has reams of search info, Facebook has the inclinations of friends and networks, Apple has its own users and their trendlines. Amazon has comprehensive data on what people look for - and then what they actually buy, which is extremely useful if you are trying to both increase sales and reduce the cost of selling.
It is not yet clear who, if any of them, has a competitive advantage. But the larger implication is that the information they capture about all of us is becoming as valuable as our direct customer value. Packaging, re-packaging and interpreting that data is going to be a great business for all of them. Turning data into information and information into wisdom will be the differentiator. It will be fascinating to see which of them - if any - is able to take and then defend the digital high ground on the informational battlefield. JL
Jessica Leber reports in MIT Technology Review:
Google built its $38 billion business selling ads based on how people search and browse the Web. Facebook, too, uses what it knows about its one billion users to sell targeted ads.
But when it comes to what many advertisers value most—what people actually buy, or what they may want to buy soon—there may be no better data than the information in Amazon’s 152 million customer accounts.Since last year, the world’s largest online retailer has been packaging information on what it knows about consumers so that some marketers can use it to make split-second decisions about where to buy ads online and how much to pay for them. This automated process occurs on real-time ad exchanges that sell ad impressions as a person loads a Web page.
When this process began, Amazon used third-party technology, and its experiments were limited. Now it has developed an in-house platform for targeting ads to people who have visited and then left Amazon’s sites, making it likely that the company will open up these advertising services more widely over the next year.
“Today, if you’re browsing the Web, you might see an Amazon advertisement based on Amazon’s data. Tomorrow, you may see an ad from Coca-Cola based on Amazon data, and it’ll run through the Amazon platform,” says Jeff Green, CEO of the Trade Desk, which helps guide spending decisions by ad agencies.
Amazon did not respond to a request for comment about its advertising business, and the company does not break out its advertising revenue. But it’s clear that compared to Google and Facebook, advertising has been a relatively small and low-key business for Amazon. It brought in about $500 million of Amazon’s $48 billion in revenue in 2011, Baird & Co. senior research analyst Colin Sebastian estimates. Mostly this came from selling ads on its own websites.
But Amazon could soon generate much more than that with an advertising network that reaches onto many other sites.
For years, Amazon has put algorithms to work in order to recommend products to people who are on its sites. Now other companies are eager to find out exactly how Amazon’s knowledge about consumers can help them find the best audiences for their ads, says Kip Voytek, digital innovation director at the advertising firm MDC Partners.
Amazon would be unlikely to directly give advertisers access to its trove of information about individuals’ browsing, purchasing, and product review histories, both because of its privacy policies and a desire to keep its valuable data proprietary. Instead, Amazon would create target audiences, such as people who recently purchased digital cameras. A marketer selling digital camera accessories could then use Amazon’s technology to bid for the ability to show ads to a person in that category.
Green points out that while Google might have more overall data about consumers, Amazon’s data could be more valuable for advertisers. Amazon has “a pretty clear understanding of the things I buy. They’ve learned a lot about me. Every time I’m convinced I have another medical ailment, I go to Google. But Amazon, what they have is really about my purchase intent,” he says.
Using its data to expand its advertising business could open up new fronts of competition with Google, which also owns a real-time bidding exchange and an ad-delivery network. But Amazon might be mainly interested in using its ad technology to help the retailers that sell products on its sites and through its Kindle tablets and e-readers. Voytek put it this way: “The question that is open: is this Amazon competing with Google or is this Amazon competing with Walmart?”
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