Advertising usually is not the first thing that pops up when thinking of Amazon. And neither do cloud services. However, both of these subsidiaries of Amazon have been performing so well that one would be completely surprised to know their numbers. So first, let’s do a deep dive into one of Amazon’s hidden treasures – Amazon Web Services.
Amazon Web Services (AWS) has been a branch of Amazon since 2006. It offers a public cloud computing platform to individuals, startups, companies, or government agencies. Ever since its inception, AWS has become the largest cloud provider in the world with over a million users globally. An interesting fact about AWS is that it is the product of a 30-minute meeting at Amazon’s former CEO Jeff Bezos’ house with his executives. As an extension of the global company, Amazon India too has made AWS their core focus. They are the largest cloud service space in India with an approximated revenue of $700-800 million in 2019.
But the tag of the fastest growing business under Amazon India’s arsenal has been passed on to Amazon India’s advertising arm. The 6-year-old ad business of Amazon is estimated to rope in $500 million as annual sales for the year ending March 2022. How is this business thriving? What has led to such a jump that it now stands to overhaul e-commerce ad giants such as Google and Facebook Ads? Read on to find out.
Amazon Ads Road to Success
According to an Ad Spends report by Dentsu in June 2021, ad spending in India is expected to grow by 10.8% to reach 9 billion USD by 2021. Though a majority of the share is spent on television ads as it is the most popular medium, digital advertising is not far behind. In fact, the market share of digital spending has increased from 20% in 2019 to 29.4% in 2021 and is expected to reach 32.4% by 2022.
Sensing the vast opportunity of growth, Amazon India also boarded the train of digital advertising. And not just that, it has been snatching away market share from competitors namely Google and Facebook by picking a page out of Google’s own book – pay-per-click.
India’s digital ad spending is expected to reach $2.54 billion in 2021 with Amazon controlling over 20% of the digital ad market. Moreover, Amazon India along with Flipkart took up 75% of the ads in the e-commerce category. Not just that, among the top 10 advertisers that contributed to over 95% of ad volumes in 2020, Amazon topped the list.
Nowadays, if we want to know the price of a particular product, we naturally navigate to the Amazon online app store on our devices. Long gone are the days when Google was the only source of finding the price of a product. This change in customer behavior has encouraged Amazon India to focus aggressively on Amazon Ads business growth in India.
So, is the financial modeling of Amazon India’s business a profitable one? To an extent it is. And the secret is that Amazon charges twice – once at the beginning as a nominal commission for the campaign and the second time at the end for the sale which is anywhere between 6-20%. And unlike other companies whose only bread and butter is advertising, Amazon is better off as it has multiple avenues of income that keep the business up and running.
What do we learn from Amazon Ads?
The essential business learning is that there is always a huge scope of growth in fields related to your business. Just like how Amazon branched out from an e-commerce platform to a cloud space provider to now advertising, there are multiple options for any business to spread its wings into.
At Mantraa, we endeavor to guide you through the financial aspects that help you achieve your business goals. Have an idea and want some guidance to execute it? Get in touch with us and let’s work together and make that idea of yours come to fruition.