Amazon ‘Other’ Segment Is Company’s Fastest-Growing Unit
Amazon’s (AMZN) – Get Report “other” unit is expected to grow at a faster pace than…
Amazon’s (AMZN) – Get Report “other” unit is expected to grow at a faster pace than its other business segments, bringing in $21 billion in 2020, according to FactSet data cited in a profile in the Financial Times.
A $21 billion year would be a 47{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} increase over the previous year. Amazon’s “other” unit revenue is comprised mostly of online ad revenue.
While Alphabet-owned Google (GOOGL) – Get Report and Facebook (FB) – Get Report are still the online advertising leaders, the rapid growth of Amazon’s ad business is helping shrink its rivals’ leads. Google is expected to have 29.8{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} of the digital ad spend market this year, versus 23.5{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} for Facebook and 10.2{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} for Amazon, according to projections made in October by eMarketer. But by 2022, Amazon’s share is projected to grow to 13{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6}.
Amazon’s audience is more targeted than Google’s, with consumers searching for specific products on Amazon and people asking more general questions on Google’s search engine, according to an advertising executive quoted in the FT piece.
However, while Amazon is benefiting from the move to online shopping in the wake of the coronavirus pandemic and social distancing initiatives, Google is also growing its advertising business due to those same circumstances.
Google reported advertising revenue of $37.01 billion in the third quarter, up 9.5{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} from the $33.8 billion the unit brought in the year ago period. Over $26 billion of 2020’s third quarter revenue total came from Google Search. Amazon’s “Other” division, meanwhile, brought in $5.4 billion in the third quarter, up 51{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} from a year ago.
The majority of Amazon’s ad revenue comes from the sponsored banners that appear at the top of product search result pages.
Those ads can act as a listing tax, according to critics, as Amazon’s total marketplace commission was $20 billion last quarter alone.
“Amazon is becoming more and more a pay-to-play platform. Unless you’re willing to invest in their advertising platforms, it’s much more difficult to compete,” said Mitchell Bailey of Kaspien, a company that provides advertising services for brands on e-commerce, according to the FT.
Amazon’s shares were up 1.9{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} to $3,345.70 on Tuesday afternoon, and are up 81{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} year to date.
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