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).
Amazon has a diversified business model. In 2023, Amazon generated nearly $575 billion in revenues while it posted a net profit of over $30 billion. Online stores contributed over 40% of Amazon revenues. Third-party Seller Services and Physical Stores generated the remaining. Amazon AWS, Subscription Services, and Advertising revenues play a significant role within Amazon as fast-growing segments.
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!
With 64,588,418 shares, Jeff Bezos is the primary individual investor. Owning 12.7% of the company. Other top individual investors include Amazon’s CEO Andy Jessy, who has 94,729 shares. Top institutional investors include mutual funds like The Vanguard Group (6.6% ownership) and BlackRock (5.7% ownership).
Amazon generated over half a trillion dollars in revenue in 2023, of which $231.87B from online stores, over $140.05B from third-party seller services, $90.76B from AWS, $46.9B from advertising, $40.21B from subscription services, $20.03B billion in physical stores, and $4.96B from other sources.
Amazon was profitable in 2023. On nearly $575 billion in revenue for 2023, Amazon generated a net profit of over $30 billion. Since 2014, Amazon hasn’t recorded a net loss, but it did record a net loss of over $2.7 billion in 2022, while it recouped that in 2023. Indeed, in 2014, Amazon reported a net loss of $241 million, and it would be profitable until 2021. In 2022, Amazon turned unprofitable again and highly profitable again in 2023.
Amazon AWS follows a platform business model that gains traction by tapping into network effects. Born as an infrastructure built on top of Amazon’s infrastructure, AWS has become a company offering cloud services to thousands of clients from the enterprise level, to startups. And its marketplace enables companies to connect to other service providers to build integrated solutions for their organizations.
Amazon subscriptionrevenue in 2023 was over $40 billion, compared to over $35 billion in 2022 and nearly $32 billion in 2021. Amazon Prime grew from a $4.5 billion revenue segment in 2015 to an over $40 billion segment in 2023.
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.”
A regret minimization framework is a business heuristic that enables you to make a decision, by projecting yourself in the future, at an old age, and visualize whether the regrets of missing an opportunity would hunt you down, vs. having taken the opportunity and failed. In short, if taking action and failing feels much better than regretting it, in the long run, that is when you’re ready to go!
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model’s success.
Jeff Bezos was best known for founding eCommerce giant Amazon in 1994. However, the entrepreneur owns companies in several industries, including health care, retail, robotics, real estate, and media. Many of these companies have been acquired by Amazon over the years, but some have been the result of direct investment from Bezos himself (through his investment arm is called Bezos Expeditions).
Amazon is a consumer e-commerce platform with a diversified business model spanning across e-commerce, cloud, advertising, streaming, and more. Over the years Amazon acquired several companies. Among its 12 subsidiaries, Amazon has AbeBooks.com, Audible, CamiXology, Fabric.com, IMDb, PillPack, Shopbop, Souq.com, Twitch, Whole Foods Market, Woot! and Zappos.
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.
