Amazon: The Next Big Media Company?
From Wall St. Cheat Sheet
While Google (NASDAQ:GOOG) dominates the display ad market, Amazon (NASDAQ:AMZN) has all the tools necessary to build a successful advertising business of its own: it has already established its Amazon Advertising Platform, it commands a wealth of information on consumer shopping habits, and Amazon Web Services has developed connections with media companies’ platforms that could allow Amazon to run ads alongside their content.
Over the past year, the Internet retailer has harnessed these strengths to develop a proprietary real-time bidding platform that is expected to cause waves in the advertising industry, according to Adweek. As sources familiar with the company told the publication, the platform will be introduced as early as the first quarter of 2013.
Can Amazon Compete with Google?
“I think they could become one of the bigger media companies in the next five years or so,” said Darren Herman, The Media Kitchen’s chief digital media officer, to Adweek. “You have to realize that they’re capturing a ton of demand through their owned-and-operated sites and have people shopping right now.”
Like Facebook’s (NASDAQ:FB) Exchange, Amazon’s service would allow advertising buyers to form targeting segments, like women; aged 25-34; in New York; interested in 7-inch tablets. The new platform will then drop a tracking cookie on that user’s browser and bid to run an ad for the searched item when the cookie appears on a site in Amazon’s network. The self-serve platform will significantly expand upon the Amazon Advertising Platform, which currently runs ads on its owned-and-operated sites like IMBDb.com and sells ad space more traditionally.
“Amazon Advertising Platform leverages the same, pre-defined audience segments we offer for campaigns running on Amazon.com to show users more relevant ads—in much the same way Amazon has been recommending products to its retail customers for many years,” said an Amazon spokesperson to Adweek. “These segments have a minimum size, and are based on anonymous, aggregate data.”
This ad service reportedly generates $1 billion in annual revenue for the retailer.
Compared to its current platform, Amazon’s proprietary platform could be less profitable as advertising space will be sold based on a cost-per-acquisition model, rather than a cost-per-thousand-impressions model. But the platform has benefits, Amazon will be able to use its consumer shopping data to target users with advertisements based on their purchasing history. Neither Google nor Facebook has such a wealth of relevant information.
Furthermore, with Amazon Web Services, the company has no need for Google’s DoubleClick or 24/7 Real Media’s Open AdStream ad servers, and therefore can deliver its ads with Amazon branding.
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. As Adweek reported on Monday, many media buyers believe that Amazon has “the potential to seismically shift the online advertising market, with Google, Amazon and Facebook replacing Yahoo (NASDAQ:YHOO), AOL (NYSE:AOL) and MSN as online advertising’s holy trinity.”