For decades, Jeff Bezos shunned ads.

But now, Amazon’s ad business is huge: it’s on a $30B+ annual run rate (more than 2x the combined sales of Twitter, Snap and Pinterest).

Here’s how it happened 🧵

1/ Amazon doesn’t break out its ad business separately in financial filings. However, most analyst believe ads make up the majority of its “Other” revenue segment.

This figure has exploded from $1B in 2015 to a current annual run rate of ~$32B.
2/ In 2009, Bezos said “ads are the price you pay for a crappy product”.

But the business is so lucrative that Amazon’s interface has been swamped with ads:

◻️ First 3-7 search results (left in red)
◻️ Most of the product page (right in blue)
3/ Prior to the rise of ads, Amazon set out to build the ultimate organic customer recommendations engine.

The approach was codified in a famed 2003 research paper: “Amazon Recommendations: Item-to-Item Collaborative Filtering.”
4/ In recent years, Amazon organic recommendations:

◻️"Customers who bought this also bought this"
◻️"Customers who viewed also viewed"

Have been replaced w/ ads:

◻️ "Sponsored products related to"
◻️ "Brands related to this category"
5/ One of the few organic recommendations that still display is the trusty-old "Frequently bought together" feature.

(Of course, increasing the goods in someone's basket is worthwhile for Amazon)
6/ The road to Amazon ads started in 2005.

While Bezos didn’t like ads, he tapped Paul Kotas (who worked w/ him at DE Shaw) to run experiments on AMZN's valuable digital real estate.

The 1st project was banner ads. But it directed users off the platform and the idea was canned.
7/ The real motivation to build an ad business was spurred on by another tech giant: Google.

Amazon was dependent on Google search slots to drive traffic. The company even created a “Google Reliance” metric to track this dependence…which could potentially be existential.
8/ Google, of course, occupies a lucrative part of the buying funnel. It sells ads at the point that someone shows intent for a purchase.

However, Amazon owns the last foot of the transaction funnel: the purchase.

And, today, 60%+ of product searches actually start on Amazon.
9/ Amazon’s transaction data is valuable for 3rd-party merchants, which have grown from 3% of Amazon sales (2000) to ~60% of its $300B+ retail sales (2021).

To stand out, sellers are wiling to pay for sponsored placements (just like brands buying grocery store shelf space)
10/ Amazon sells a number of ad products:

◻️ sponsored products (search)
◻️ sponsored brand
◻️ sponsored display ads
◻️ sponsored posts
◻️ sponsored videos

Ads have grown so much that -- in 2018 -- it passed MSFT to become the 3rd biggest digital advertiser after FB and GOOGL.
11/ While Amazon says that ads are *optional*, getting buried on page 5 of search results is bad for business.

The avg. cost per click (CPC) on Amazon Ads is climbing. And it's not uncommon for merchants (~5m on Amazon) to spend up to 50% of a product on listing fees and ads.
12/ The economics of running a 3rd-party merchant business is trending towards scale.

A number of companies are raising big money to "roll up" Amazon merchants:

◻️ Thrasio ($3.4B raised)
◻️ Perch ($909m)
◻️ Heyday($800m)
◻️ Razor Group ($560m)
◻️Elevate Brands ($373m)
13/ Is Ads already Amazon's most profitable business line?

Using Google's 68% margin for its core business as a comp, Benedict Evans writes:

"Given [Amazon Ads] margin structure and incremental cost base, it's highly likely to be generating similar absolute profits to AWS." 🤯
14/ If you enjoyed that, I write threads breaking down tech and business 1-2x a week.

Def follow @TrungTPhan to catch them in your feed.

Here's a one that might tickle your fancy: https://t.co/B3SWUCF2cd
15/ Also: check out my Saturday email for some laughs, insights and the easiest way to stay on top of my content.
https://t.co/jGZs8brnVR
16/ Sources

BI: https://t.co/jlQcktIFEi

The Information: https://t.co/fKOEJAFEwv

CNBC: https://t.co/HBtXX54cjP

Inc: https://t.co/BzHCfFTvHN

Marketplace Pulse: https://t.co/oDFsn3GVG3
17/ Based on the latest quarterly filings, Amazon's "Other" segment -- mostly ads -- is currently on a $32B annual run rate (+49% YoY).

That's more than 2x the combined sales of Twitter, Snap and Pinterest ($12B).
18/ Here ere is the article from @benedictevans https://t.co/Q9xeimUowL

More from Trung Phan 🇨🇦

The Wall Street Bets due diligence on Wendy’s is gold.

The catalysts are:
◻️ The release of a new summer salad
◻️ The @Wendys Twitter account, which has mastered “meta pragmatic roasting” (which is effective with younger people)
◻️ The fact it literally sells chicken tendies


OP:

Here’s a more fundamentals-driven analysis of Wendy’s

https://t.co/A2k19S9M7J


😂😂😂


Further Wendy’s analysis from @CliffordAsness !!

More from Tech

A common misunderstanding about Agile and “Big Design Up Front”:

There’s nothing in the Agile Manifesto or Principles that states you should never have any idea what you’re trying to build.

You’re allowed to think about a desired outcome from the beginning.

It’s not Big Design Up Front if you do in-depth research to understand the user’s problem.

It’s not BDUF if you spend detailed time learning who needs this thing and why they need it.

It’s not BDUF if you help every team member know what success looks like.

Agile is about reducing risk.

It’s not Agile if you increase risk by starting your sprints with complete ignorance.

It’s not Agile if you don’t research.

Don’t make the mistake of shutting down critical understanding by labeling it Bg Design Up Front.

It would be a mistake to assume this research should only be done by designers and researchers.

Product management and developers also need to be out with the team, conducting the research.

Shared Understanding is the key objective


Big Design Up Front is a thing to avoid.

Defining all the functionality before coding is BDUF.

Drawing every screen and every pixel is BDUF.

Promising functionality (or delivery dates) to customers before development starts is BDUF.

These things shouldn’t happen in Agile.
"I really want to break into Product Management"

make products.

"If only someone would tell me how I can get a startup to notice me."

Make Products.

"I guess it's impossible and I'll never break into the industry."

MAKE PRODUCTS.

Courtesy of @edbrisson's wonderful thread on breaking into comics –
https://t.co/TgNblNSCBj – here is why the same applies to Product Management, too.


There is no better way of learning the craft of product, or proving your potential to employers, than just doing it.

You do not need anybody's permission. We don't have diplomas, nor doctorates. We can barely agree on a single standard of what a Product Manager is supposed to do.

But – there is at least one blindingly obvious industry consensus – a Product Manager makes Products.

And they don't need to be kept at the exact right temperature, given endless resource, or carefully protected in order to do this.

They find their own way.

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This is NONSENSE. The people who take photos with their books on instagram are known to be voracious readers who graciously take time to review books and recommend them to their followers. Part of their medium is to take elaborate, beautiful photos of books. Die mad, Guardian.


THEY DO READ THEM, YOU JUDGY, RACOON-PICKED TRASH BIN


If you come for Bookstagram, i will fight you.

In appreciation, here are some of my favourite bookstagrams of my books: (photos by lit_nerd37, mybookacademy, bookswrotemystory, and scorpio_books)