In 2022, Amazon has become an advertising behemoth, and one look at Amazon advertising revenue will clarify why the company has shifted its priorities in recent years to become one of the top ad-selling platforms.
Despite Amazon’s third-place rank behind Google and Meta in the world of online ad sellers, its advertising business has seen exponential growth that outpaces its competitors. Amazon’s earnings in 2022’s third quarter totalled $110.8 billion. Of this total, Amazon’s ad business generated $9.5 billion, with a growth of 25% for Amazon Ads.
Compare this to the much slower growth of Google and Meta. Google’s advertising revenue increased by 2.5%, and Meta’s decreased for the second quarter in a row, dropping by 3.7%.
- Amazon Ads grew 58% in 2021
- In the third quarter, third-party sellers were responsible for 58% of all products sold
- Due to the increasing demand for Amazon ad space, Amazon sellers now spend 10% to 20% of their revenue on advertising
- Amazon’s media-related sales grew by 25% in the most recent quarter
Amazon's Advertising Business
Although Amazon’s advertising revenue still trails behind Google and Meta, the business saw considerable growth in 2021, with ads generating over $31 billion in total revenue.
- In 2020, Amazon’s total digital ad retail estate in the U.S. reached 10.3%, up from 7.8% in 2019.
- A recent study shows that Amazon’s advertising arm sees a 20% higher ROI (return on investment) than standard brand marketing strategies.
- Although Amazon’s advertising revenue trails behind that of Meta and Google, Amazon ranks second among the most popular shopping apps in the U.S., seeing 98 million users per month.
- Of Amazon’s revenue streams, advertising only accounts for 7%, yet it generates more revenue than all of Amazon’s subscription services.
- Amazon’s advertising revenue trend in recent years shows a 147% increase from 2019 to 2022, reflecting how Amazon’s ad business growth is surpassing competitors.
- As of 2021, in addition to Google and Meta, Amazon accounts for more than 74% of all global ad spending.
- 56% of U.S. consumers prefer shopping through Amazon to other online retailers.
Amazon's Ad Business Competition
Although Amazon advertising revenue still falls short compared to online advertising giants Google and Meta, its ad business has experienced growth that has surpassed both major competitors for three years straight. In the third quarter of 2022, Amazon’s advertising business grew 25% to $9.5 billion.
- In 2022, Google properties, including YouTube, only increased by 2.5%, totaling $54.4 billion.
- Meta’s advertising arm, including ads on Instagram, decreased for the second quarter in a row, dropping 3.7% to $27.2 billion.
- Amazon is steadily catching up to its competitors; in 2019, Meta’s advertising revenue totaled six times that of Amazon’s, but in 2022, Meta’s total revenue is less than three times as much.
- Revenue reports indicate that Amazon’s advertising revenue has grown tenfold in the last five years.
- As of 2021, Amazon controls 14.6% of the U.S. digital marketing landscape.
Impact of the Pandemic on Amazon's Ad Business
The COVID-19 pandemic wreaked havoc on digital and local economies. The digital marketing industry’s business slowed considerably to compensate for the expenses and losses many companies suffered following the 2020 outbreak.
In the second quarter of 2020, marketing executives cut Amazon advertising costs dramatically to focus attention on customer experience and the growing product demand caused by the pandemic and the subsequent lockdowns. However, as of 2022, Amazon and the rest of the online advertising market plan to increase advertising.
- Experts expect the market to see a growth rate of 14.3% from 2021 to 2026.
- 24% of advertisers and businesses reported that they paused their ad spending until late 2020.
- Though there may be no correlation between the pandemic lockdowns and the changing landscape of advertising, research shows that six-second ads perform better than long ones, capturing 8-11% more attention per second.
- An assessment from June 2022 predicts that total digital ad revenue will increase by 11.5% by the end of the year.
- Most recently, Amazon’s total revenue increased by 40%, reaching $88.9 billion in 2022.
- Now that the company is stabilising following the initial pandemic outbreak, Amazon advertising revenue increased by 41%, reaching $4.22 billion.
Amazon Advertising Cost
As the Amazon marketplace rises in popularity among sellers, Amazon advertising revenue increases to reflect advertisers’ total expenses. As of June 2021, the average Amazon seller pays $1.20 for PPC ads, though the price may increase for sellers competing for high-bid keywords.
This cost-per-click rate has increased since 2020, when the average seller only paid $0.79. The increase in advertising costs for Amazon sellers means the company has seen a profit growth of approximately 52%.
- Raising the average cost-per-click to $1.20 in 2021 from $0.79 in 2020 has increased Amazon’s ad cost growth rate by 52%.
- However, 59% of Amazon sellers worry about the rising cost of advertising on Amazon, especially now that consumers are adjusting their shopping habits.
- Recent studies show that 77% of U.S. consumers are decreasing their spending.
- 60% of U.S. consumers report higher prices for grocery items, cleaning products, and clothing.
- 83% of U.S. consumers say they’ve adjusted their spending habits as inflation rises.
- 45% of Amazon sellers report challenges managing their advertising budget as prices increase.
- Even still, experts expect an increase in ad usage as 32% of Amazon sellers plan to dial up their ad spending in 2022 to make up for the shifting market.
- In 2021, 74% of consumers began their online shopping search on Amazon; this number is down to 63% in 2022.
Amazon Ad Revenue Forecast
In recent years, Meta and Google have dominated the digital advertising sphere, but the pandemic has paved the way for Amazon to surpass these advertising giants.
In 2020, Google’s global ad revenue only increased by 7.3%. Meta has seen a gradual decrease in ad revenue over the last two quarters, whereas Amazon advertising revenue has increased significantly in the most recent quarter. It appears this growth will continue, perhaps exponentially.
- From 2020 to 2021, Amazon’s advertising revenue increased by $11 billion.
- The Global Digital Ad Market Trend suggests that Amazon’s advertising profits will likely increase to $64.3 billion by 2026.
- Currently, Amazon claims 6% of the global ad revenue share; experts expect this number to increase to 7.1% by 2023.
Why Is Amazon Advertising Successful?
As the U.S. economy changes due to the COVID-19 pandemic and rising inflation, digital advertising has become more competitive than ever. As a result, advertisers are looking to stand out among their competition, which often means increasing advertising costs.
As of 2021, Amazon’s advertising business is the company’s fastest-growing revenue source, with Amazon advertising revenue rising by 64%. This increase in advertising profits is primarily due to consumer preference, with 56% of U.S. consumers stating they would choose Amazon over other retailers. As a result, many sellers want to claim some of Amazon’s digital real estate for themselves.
- Pay-per-click ad usage is the most common form of advertising on Amazon, with 75% of Amazon’s almost two million sellers using one or more types of PPC advertising.
- With a marketing strategy that includes selling millions of different products and efficient scalability, Amazon has nearly doubled its advertising revenue from 2019 to 2022.
- Despite challenges with budgeting and increasing advertising costs, Amazon advertising offers many benefits for sellers: U.S. small and medium-sized storefronts sell an average of 4,000 products per minute.
- Selling online can increase business visibility; experts predict that U.S. retail profits will reach $431 billion by the end of 2022.
- 89% of consumers state that they’re more likely to purchase products from Amazon than other e-commerce websites.
- Amazon Prime incentivises shoppers to order online with faster shipping; since 2018, the number of Amazon Prime subscribers has increased by 50%.
Amazon advertising revenue will continue to grow in 2022. Amazon ads generated over $31 billion in 2021, and experts predict this figure will increase in the coming quarter. Since Amazon’s ad revenue increased by $11 billion in a single year, it’s highly likely that the company’s advertising success will only continue to grow.