Amazon Challenging Google on Another Front
posted Saturday Mar 10, 2012 by Scott Ertz
I think everyone knows that a great deal of Google's revenue comes from advertising; we have all seen Google AdSense ads all over the Internet, plus the sponsored links at the top and side of search results. Most of that revenue actually comes from a very streamlined set of searches, mainly certain products or product categories. No matter who someone purchases the product from, Google doesn't care so long as they start their purchasing journey through Google. What most people don't know, however, is that Amazon is also in the advertising business.
Over the years, Amazon has transitioned its business model, for better or worse, from one of selling its own content to selling other peoples' content. One of the things they sell is advertising space on their product pages. In addition to showing other products you can purchase from Amazon sellers, they also sell advertising space to other, non-Amazon sellers. This method has allowed Amazon to gain revenue from regular sales revenue as well as stealing away Google's primary revenue stream.
So, how well is it working? Hit the break to find out.
Amazon has managed to do more than $1 billion in revenue generated by advertising. That is an impressive number when compared to Google's entire revenue for 2011, which was $37.9 billion. For a company that does not focus on advertising, that is a lot of revenue generated from a secondary category.
How does Amazon accomplish this? Well, there are a couple of things they do better than Google. First is placement. The ads are placed within the content of product details. The ads appear as more suggested products than they do advertisements.
That leads to the second thing they do better - relevance. The advertisements are targeted better for the content they are displayed with than anything Google has been able to accomplish. Combined with the proper placement and product descriptions that tell what you might get on the other side of the link, this leads to a much higher conversion rate for ads.
While the numbers are still pretty low, Amazon has a lot of potential to grow this category. As their relevance for advertisement buys grows, so will their revenue. It would certainly be good for the company, considering the high margin available on advertising; much higher than, say, the Kindle Fire.
