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Amazon Sets Its Sights on the $88 Billion Online Ad Market

Although Verizon doesn’t sell its wireless plan, mobile phones, or offer Fios, its high-speed internet service on Amazon, it does advertise on the platform, says a report on the New York Times.

A Verizon ad for the Google Pixel 2 – buy one get the second half off – could be seen blazing across Amazon’s home page during last year’s Black Friday. Also, on the 16th of July, a day Amazon calls Prime Day (an event where they offer special deals to their Prime customers), Verizon ran all sorts and special offers for Amazon shoppers such as the mix-and-match unlimited service plan. 

After reshaping and dominating the online retail landscape, it seems Amazon is rapidly gathering momentum in a new and highly profitable area, online advertising. It is gradually emerging as a major competitor to Facebook and Google.

This push by Amazon means customers – even Prime customers who pay a yearly fee of $119 for access to free shipping as well as for streaming video, music, and discounts – are most likely going to be bombarded with ads in places where they didn’t exist before.

Some games in late August were angered when Twitch, a video game streaming service that Amazon acquired in 2014, said soon it would no longer be ad-free for Prime members unless they paid an additional monthly fee of $8.99 for a premium service called Twitch Turbo.

Amazon gets most of its annual revenue – estimated to be $235 billion this year – from its e-commerce business, selling everything from lawn furniture to books. Amazon is also a leader in the cloud-computing business thanks to Amazon web services, which equates to about 11% of the company’s revenue but over half of its operating income. However, in the company’s latest financial results, they labeled it “other,” an action that caught the eye of several analysts.It consists of revenue from display and keyword search driven ads called “sponsored products,” and from selling banner. In the first quarter, the category surged by about 130% to $2.2 billion.

These numbers may be nothing to Facebook and Google seeing as they make up more than half of the $88 billion digital ad market. However, it does have troubling implications for the two giants.

Most online advertising relies on imprecise algorithms to govern where the marketing messages will appear, as well as the impact they actually have on sales. This is where Amazon will have an advantage over its competitors. Because of its wealth of data and analytics on consumer shopping habit, they can place ads in front of people when they’re probably hunting for something specific and as such, welcome them as a suggestion, instead of seeing them as intrusive.

“Google and Facebook have been slow to create the standards that advertisers want to see,” said Collin Colburn, an analyst at the research and advisory firm Forrester. “They are concerned about what sort of content their ads are going to be placed next to.”

He added, “Amazon is different because it has a much more controlled environment on its e-commerce site where the products are being sold, and Amazon’s reach into the rest of the World Wide Web is pretty small.”