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Amazon is powerful, the way they reshape multiple industries: Ben Walsh Barron's finance reporter Ben Walsh on and speculation the ecommerce giant may get into the mortgage industry.
Accounting changes make the growth look like more than it is, but it's still impressive. In fact, Amazon's ad business could produce more operating profit than AWS byaccording to analysis from Piper Jaffray.
Winning over advertisers For Amazon's ad business to keep growing, the company needs to win over advertisers. Amazon's greatest challenge is winning over more advertisers from competitors, particularly Facebook and Google. Despite Amazon's rapid growth, it's still a relatively small player in the advertising space.
Although Amazon has "hundreds of thousands" of advertisers, Facebook alone has 6 million. Advertisement Adding to Amazon's challenges, its ad business is built on several legacy platforms that aren't nearly as easy-to-use as Facebook or Google's ad purchasing systems. On the company's second-quarter earnings call, CFO Brian Olsavsky said the company is working on "improving the usability of our tools," increased automation of the ad buying process, and improving its measurement capabilities.
The system makes it easier to buy various ad products and track their effectiveness. If Amazon can successfully roll out an easy-to-use purchasing system to rival those of Facebook and Google, it will go a long way toward encouraging new advertisers to use Amazon's ad platform, particularly less sophisticated advertisers like small businesses.
Amazon doesn't have to pay the additional costs of running a massive highly trafficked website, because it already does that for its retail business. Facebook and Google, on the other hand, see those costs directly in their core advertising businesses.
Fierce competition in the cloud-computing space from Google and others will keep pressure on Amazon's pricing. There are real costs associated with adding compute power, which aren't fully subsidized by Amazon's core retail platform.
As such, AWS doesn't benefit from the same level of profitability as advertising. Although it's still very profitable.
And that's what Piper Jaffray's analysts are pointing out as a very real possibility for Amazon's business in If Amazon continues to improve the ease of use for its advertising products, bringing more and more marketers on board, it should be able to keep growing at a healthy pace.
And with the margin profile of the business, it's only a matter of time before it becomes Amazon's most profitable business, surpassing AWS.
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