Amazon is coming for Google’s and Facebook’s most profitable business

Amazon wants a seat at the advertising table.
Amazon wants a seat at the advertising table.
Image: Reuters/Shannon Stapleton
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Typically when Amazon reports earnings, the spotlight is on the usual suspects: revenue, profit, and the company’s cloud-computing business, Amazon Web Services.

But when Amazon released third-quarter results today, all eyes were on something else: Amazon’s advertising services.

Long rumored as a challenger to the ad supremacy of Google and Facebook, Amazon is finally making good on the threat. With Amazon.com increasingly the first stop of people searching for things they want to buy, advertisers are pulling dollars from Google and Facebook and moving them to the e-commerce giant.

Amazon brought in $4.2 billion in revenue to its “other” segment, which is primarily advertising, in the first half of 2018. That was up 135% from the first half of 2017.

Analysts surveyed by financial data provider FactSet expected the segment to post revenue of $2.39 billion in the third quarter, up 113% from the same period a year earlier. In an earnings preview published Oct. 17, Cowen and Company analyst John Blackledge identified advertising as one of Amazon’s three “core levers,” along with e-commerce and Amazon Web Services.

Amazon beat those expectations with $2.5 billion in “other” revenue for the third quarter.

Earlier this month, CNBC reported that some advertisers were moving half of their search budget to Amazon from Google, with one unnamed agency executive calling Google search ads “quaint.” Google parent company Alphabet also reports earnings today, and analysts will be watching to see whether Amazon has left a mark on its top line. Nearly 50% of product searches begin on Amazon, according to a December 2017 survey by brand research firm Survata.

In September, research firm eMarketer elevated Amazon to third place in its ranking of US digital ad platforms, behind only Google and Facebook. The firm also nearly doubled its expectations for Amazon’s 2018 US ad revenues to $4.61 billion, which would give it a 4.2% share of the US digital ad market. “Increased search traffic gives third-party sellers a reason to increase bids for keywords on Amazon,” Monica Peart, eMarketer’s senior director of forecasting, said at the time.

This article was updated after Amazon reported results for its 2018 third quarter on Oct. 25.