Amazon's ad business is still expanding, but its growth has steadily slowed down

  • Amazon’s small but growing advertising business increased 37% year-over-year to $3 billion in the second quarter.
  • Amazon is gaining traction with advertisers, but the ad business’ growth rate has slowed over the past year, showing that it’s not growing as quickly as it was previously.
  • The bulk of Amazon’s ad business comes from ads run on its own site and app but it’s recently made moves to build out its programmatic display and video arm.
  • Amazon also increased its own marketing spend for its annual Prime Day sale more than usual, according to data from Kantar and MediaRadar.
  • Click here for more BI Prime stories.

Marketers increasingly see Amazon as a threat to the duopoly of Facebook and Google, but Amazon’s growth rate is slowing down.

Amazon reported $3 billion in “other” revenue during the second quarter of 2019, which primarily includes advertising sales, a 37% year-over-year increase. To compare, Amazon’s growth rate during the second quarter of 2018 was 64%.

Amazon’s ad growth has slowly dropped over the past year. Amazonmade $2.7 billion in ad revenue in the first quarter, a 34% year-over-year increase. In the fourth quarter of 2018, Amazon made $3.4 billion, a 97% year-over-year increase.

According to an Amazon spokesperson, the wide gap in ad growth rates from last year to this year stemsfrom an accounting change that Amazon rolled out last year, resulting in a one-time boost. After adjusting for the accounting change, Amazon’s fourth quarter growth rate was 38%.

According to eMarketer, Amazon’s ad business is expected to make $11.33 billion this year, up from $10 billion last year. To compare, Facebook reported$16.6 billion in ad revenue during the second quarter while Google’s parent company Alphabetreported $32.6 billion in the same time period.

Amazon’s ad business is comprised of ad formats including sponsored products and sponsored brands on Amazon’s website and a programmatic arm that places display ads on publishers’ sites and Amazon’s video properties. Amazon doesn’t break out revenue by ad format, but new research from Merkle suggests that most of its ad revenue is going towards a sponsored products format that displays an image of a product in search results or on product pages.

Read more: Inside Amazon’s growing ad business: Everything we know about how the e-commerce giant is making inroads with marketers

Merkle reported that 86% of clients’ spend on Amazon’s non-display inventory went towards sponsored brands in the second quarter, up 12% year-over-year.

There are signs that Amazon is working to build out its programmatic advertising arm. In May, the e-commerce giant agreed to acquireSizmek’s ad server and Dynamic Creative Optimization tools to compete with Google in ad-tech. Amazon is also hiring fora “stealth advertising” engineering team that’s aimed at programmatic advertising for gaming.

During the earnings call, head of investor relations, Dave Fildes, suggested that Sizmek’s business and clients will stay the same under Amazon’s ownership.

“Customers are going to be able to use those proven products and services,” he said. “We’re looking forward to working with that team.”

Amazon is increasing its own marketing spend

Amazon also is spending more on its own advertising. It spent $8 billion on marketing in the first half of the year, up from $5.6 billion in the year-ago period.

A lot of that went into promoting its annual Prime Day, according to research from research firm Kantar and ads-tracking firm MediaRadar.

Read more: Amazon is pumping money into Google to promote Prime Day, and it could be a brilliant way to also boost Amazon’s own ad business

According to Kantar, Amazon spent $13.2 million on TV ads from July 1 to 16, incuding $8.1 million to promote Prime Day. The company spent another $5.9 billion on digital advertising that promoted Prime Day.

MediaRadar found that Amazon’s ad spending rose 28% year over year in the second quarter.

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