'Google and Facebook's Ad Business Might Not Survive Amazon'

"There's a relatively new, rapidly growing player in the online advertising world," warns Medium's new consumer technology site Debugger — taking a close look at the "Sponsored Products" listed first in the results of Amazon searches. "Given its unique business model, its history of swallowing whole industries, and its sheer size, Amazon has the potential to massively disrupt the online ad world — and forever change tech." The success of online ads depends on how close a user is to buying something... Few companies, though, are more intimately connected to peoples' buying behaviors than Amazon. As of mid-2020, Amazon controlled nearly 40% of American e-commerce, and data from 2018 suggests that it may control as much as 94% in certain categories, like cosmetics and batteries. Overall, the company is forecast to control almost 5.5% of all retail in America in 2020 — especially as Covid-19 has forced consumers to do more of their shopping online... And the ads are cheap. For one campaign, I paid just $249 to show my ad to 1,049,000 people. Ads are cheap because Amazon has a vested interest in driving more sales. The company collects a commission of between 6% and 20% on every item sold through the site. For every product I sold through a Sponsored Products campaign, Amazon was effectively getting paid twice — once for running the ad, and again for managing the sale of my product. This likely allows them to keep ad rates lower than those charged by their competitors. Ad prices may also be low because Amazon's ad program has relatively little overhead. To understand what you mean by the query "Lunch," Google has to run a massive, worldwide data-gathering program that peers into every aspect of your online and offline life, from the websites you visit to the humidity level in your home. That's expensive. In contrast, when you type something into an e-commerce platform like Amazon, you're telling the company exactly what you want to buy — no world-spanning surveillance program needed. Amazon has recently expanded its advertising program to Twitch (which Amazon owns), giving marketers the option to target the platform's younger audience... In building AWS, Amazon also essentially ate Microsoft's lunch, stealing an industry it was expected to dominate right out from under it. By moving into the advertising world, Amazon could well do the same thing for ad-funded giants like Google, Twitter, and Facebook. Advertising is largely a zero-sum game — the ad dollars currently flowing to Google and Facebook come largely at the expense of newspaper, magazine, and television ads. If the dollars start flowing to Amazon instead, the other tech giants could see a massive drop in their bottom lines. That would have big ramifications for the advertising industry. But it would have an even bigger impact on tech. More than 70% of Google's revenue comes from ads. For Facebook, that number is 98.5%... [I]f Amazon decides to take on Google and Facebook directly, it could result in a fight that saps the strength of both tech giants, and ultimately kills off the emerging companies that rely on them for funding and talent. The impact on the tech industry could be massive, world-changing — and permanent.

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