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Amazon’s ad revenue is set to surge in 2018

Amazon Global Retail RevenueBI Intelligence

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Amazon’s ad revenue could reach $4.5 billion in 2018, a 61% increase from $2.8 billion in 2017, according to JPMorgan.

Additionally, Amazon’s ad revenue is projected to grow at a compound annual growth rate (CAGR) of 55% in the two years through 2019, to reach $6.6 billion, according to the note.

Here are some of the drivers that could contribute to Amazon’s growing ad business this year:

  • Prime subscribers will help attract brand ad spend. The e-commerce giant had an estimated 90 million US Prime members as of September 2017, up 38% year-over-year (YoY) from 65 million, according to Consumer Intelligence Research Partners(CIRP). Prime customers spend around $1,300 a year, almost double the $700 non-Prime customers spend. These high spenders give Amazon an edge over Google and Facebook, as Prime members tend to be in the purchasing mindset.
  • Amazon plans on a big digital ad tool push in 2018. The company is developing a slew of digital ad offerings, mostly surrounding its e-commerce and video products, to release in 2018, according to CNBC. For example, Amazon plans on refining its algorithms to serve sponsored product listings, which appear at the top of users’ product search results on Amazon.
  • Ad giants plan to spend more on Amazon ads. WPP, the world’s largest ad company, spent $200 million with Amazon in 2017, and this figure could increase 40-50% in 2018, per The Wall Street Journal. Omnicom, the world’s second-largest ad company, spends $100 million with the e-commerce giant, and this figure could double annually in the years to come. Publicis, the world’s third-largest ad company, plans to increase its ad spend on Amazon by roughly 50% to $300 million in 2018.

But, Amazon is still far behind Google and Facebook in terms of advertising. Google and Facebook generated $61 billion and $27 billion in the first three quarters of 2017, respectively. However, the $4.5 billion figure still positions Amazon well ahead of other companies vying for the third dominant ad spot. For example, Snap generated around $540 million in total revenue — nearly all through advertising — in the first three quarters of 2017.

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