In 2022 Amazon generated almost $38 billion in advertising revenues. Becoming one of the key competitors of the Google and Facebook duopoly.
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The reshaping of the digital advertising industry
Three core changes are impacting and reshaping the whole digital advertising industry:
Cookieless web: the cookie has represented the enabler of the digital advertising industry, enabling tech companies to track the user journey across several platforms, thus making it possible to build the whole attribution machine. Indeed, without attribution (the ability to say how a lead was generated) there would not be a digital advertising industry, in the first place. Yet, the cookie is getting retired. In fact, Google has planned the retirement of the cookie to its Chrome browser, thus determining the end of an era.
iOS privacy changes: Apple forced, in 2021, a privacy change policy, which makes the opt-in to advertising from third-party apps, like Facebook, explicit. This means Apple will ask users whether they want to be tracked. As you can imagine, this is already having a massive impact on Facebook’s businessmodel, which had to rebrand as Meta and invest billions into VR.
Privacy from regulation: regulators are also pushing for more and more privacy within various platforms. This makes it much harder to track users and thus makes the whole digital advertising machine lose efficacy.
In this scenario, just in 2020, we still had a duopoly, between Google and Facebook, and the whole digital advertising industry is getting reshaped.
Amazon and Apple, coming up strong with their advertising businesses.
Amazon for e-commerce and Apple through its store.
In addition, new players, like TikTok are taking over.
TikTok is the Chinese creative social media platform driven by short-form video content enabling users to interact and generate content at scale. TikTok primarily makes money through advertising, and it generated $4.6 billion in advertising revenues in 2021, thus making it among the most popular attention-based business models or attention merchants.
Below is how the digital advertising industry looks like today:
Amazon’s overall business model
Amazon has a diversified business model. In 2022 Amazon posted over $514 billion in revenues, while it posted a net loss of over $2.7 billion. Online stores contributed almost 43% of Amazon revenues. The remaining was generated by Third-party Seller Services, and Physical Stores. While Amazon AWS, Subscription Services, and Advertising revenues play a significant role within Amazon as fast-growing segments.
Google’s overall business model
Alphabet generated over $282B from Google search and others, $32.78 billion from the Network members (Adsense and AdMob), $29.2 billion from YouTube Ads, $26.28B from the Cloud, and $29 billion from other sources (Google Play, Hardware devices, and other services).
In 2022, Amazon closed its divide in terms of total revenue, as it generated over $513 billion in revenue, compared to over $572 billion in revenue from Walmart.
In 2021, Amazon generated almost $470 billion in revenue, vs. eBay’s over $10.4 billion. In comparison, looking at revenues, Amazon was 45x times larger than eBay.
Amazon was not profitable once AWS was removed in 2022. In fact, Amazon, without AWS generated $10.6 billion in operating losses. While Amazon, without AWS, generated $12.2. billion operating income.
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services, Amazon AWS, Subscription Services, Advertising revenues, and Physical Stores.
Amazon’s mission statement is to “serve consumers through online and physical stores and focus on selection, price, and convenience.” Amazon’s vision statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”
In the Amazon Shareholders’ Letter for 2018, Jeff Bezos analyzed the Amazon business model, and it also focused on a few key lessons that Amazon as a company has learned over the years. These lessons are fundamental for any entrepreneur, of small or large organization to understand the pitfalls to avoid to run a successful company!
Amazon has a business model with many moving parts. With the e-commerce platform which generated over $222 billion in 2021, followed by third-party stores services which generated over $103 billion, Amazon AWS, which generated over $62 billion, Amazon advertising which generated over $31 billion and Amazon Prime which also generated over $31 billion, and physical stores which generated over $17 billion.
The Amazon Working Backwards Method is a product development methodology that advocates building a product based on customer needs. The Amazon Working Backwards Method gained traction after notable Amazon employee Ian McAllister shared the company’s product development approach on Quora. McAllister noted that the method seeks “to work backwards from the customer, rather than starting with an idea for a product and trying to bolt customers onto it.”
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.
In the letter to shareholders in 2016, Jeff Bezos addressed a topic he had been thinking quite profoundly in the last decades as he led Amazon: Day 1. As Jeff Bezos put it “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
