This figure has exploded from $1B in 2015 to a current annual run rate of ~$32B.
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 🧵
This figure has exploded from $1B in 2015 to a current annual run rate of ~$32B.
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)
The approach was codified in a famed 2003 research paper: “Amazon Recommendations: Item-to-Item Collaborative Filtering.”
◻️"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"
(Of course, increasing the goods in someone's basket is worthwhile for Amazon)
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.
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.
However, Amazon owns the last foot of the transaction funnel: the purchase.
And, today, 60%+ of product searches actually start on Amazon.
To stand out, sellers are wiling to pay for sponsored placements (just like brands buying grocery store shelf space)
◻️ 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.
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.
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)
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." 🤯
Def follow @TrungTPhan to catch them in your feed.
Here's a one that might tickle your fancy: https://t.co/B3SWUCF2cd
ASML is the most important company you've never heard of.
— Trung Phan \U0001f1e8\U0001f1e6 (@TrungTPhan) August 22, 2021
The $300B+ Dutch firm makes the machines that make semiconductors. Each one costs $150m and access to them are a huge geopolitical flashpoint.
Here's a breakdown \U0001f9f5 pic.twitter.com/pARj3x7Kwo
https://t.co/jGZs8brnVR
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
More from Trung Phan 🇨🇦
More from Tech
Recently, the @CNIL issued a decision regarding the GDPR compliance of an unknown French adtech company named "Vectaury". It may seem like small fry, but the decision has potential wide-ranging impacts for Google, the IAB framework, and today's adtech. It's thread time! 👇
It's all in French, but if you're up for it you can read:
• Their blog post (lacks the most interesting details): https://t.co/PHkDcOT1hy
• Their high-level legal decision: https://t.co/hwpiEvjodt
• The full notification: https://t.co/QQB7rfynha
I've read it so you needn't!
Vectaury was collecting geolocation data in order to create profiles (eg. people who often go to this or that type of shop) so as to power ad targeting. They operate through embedded SDKs and ad bidding, making them invisible to users.
The @CNIL notes that profiling based off of geolocation presents particular risks since it reveals people's movements and habits. As risky, the processing requires consent — this will be the heart of their assessment.
Interesting point: they justify the decision in part because of how many people COULD be targeted in this way (rather than how many have — though they note that too). Because it's on a phone, and many have phones, it is considered large-scale processing no matter what.
It's all in French, but if you're up for it you can read:
• Their blog post (lacks the most interesting details): https://t.co/PHkDcOT1hy
• Their high-level legal decision: https://t.co/hwpiEvjodt
• The full notification: https://t.co/QQB7rfynha
I've read it so you needn't!
Vectaury was collecting geolocation data in order to create profiles (eg. people who often go to this or that type of shop) so as to power ad targeting. They operate through embedded SDKs and ad bidding, making them invisible to users.
The @CNIL notes that profiling based off of geolocation presents particular risks since it reveals people's movements and habits. As risky, the processing requires consent — this will be the heart of their assessment.
Interesting point: they justify the decision in part because of how many people COULD be targeted in this way (rather than how many have — though they note that too). Because it's on a phone, and many have phones, it is considered large-scale processing no matter what.