Amazon.com, Inc. (AMZN) may have earned $2.5 billion from its digital advertising business, according to an estimate by Martin Sorrell, CEO of WPP plc (WPPGY), one of the largest advertising services agencies in the world. He quoted the figure during WPP's latest earnings call and did not provide a time frame for that estimate.
According to tech publication Business Insider, the figure was quoted within the "wider context" of advertising spend during 2016. Research firm eMarketer has estimated that Amazon earned as much as $1 billion from its advertising business last year. Meanwhile, research analyst Brian Salmon from BMO Capital estimated that Amazon earned $2.12 billion from its digital advertising business in 2016. He has predicted that Amazon's digital ad business could be worth $150 billion by 2024. (See also: Amazon Could Eat Into Google Ad Revenues.)
Amazon has mostly kept its digital advertising business under wraps until earlier this year. According to Brian Olsavsky, Amazon's chief financial officer, the company plans to make "targeted recommendations" based on customer preference data from previous purchase history and searches. "We have a sponsored product, it's off to a great start, and it's a very effective way for advertisers to reach those especially interested customers," he said during an earnings call earlier this year, adding that the scale of Amazon's operations, such as its Prime Video service, had expanded brand opportunities for advertising. During Amazon's most recent earnings call, Olsavsky said that "advertising revenue growth has been strong and fairly consistent over the past three quarters."
Sorrell from WPP said Amazon could be a potential "third force" in digital advertising. Currently, Alphabet Inc. (GOOG) subsidiary Google and Facebook, Inc. (FB) dominate the digital advertising sweepstakes, accounting for 57% of all business in the industry. Their sales proposition is similar to that of Amazon in that they use data to offer advertisers the opportunity to target consumers with specific tastes and preferences. However, Amazon's business could result in higher conversion numbers for advertisers because the purchase process could potentially be streamlined to a single click through the company's Prime subscription program. (See also: Google and Facebook Run 57% of All Digital Advertising Worldwide.)
The e-commerce behemoth also faces competition from offline retail giant Wal-Mart Stores, Inc. (WMT). According to a recent article, the Arkansas-based retailer has embarked on an initiative similar to that of Amazon. Walmart Exchange, the company's advertising platform, enables brands to purchase ads on the company's website. Wal-Mart is offering a sweetener to advertisers in the form of in-store data from its physical stores. Edward Yruma, managing director for investment bank KeyBanc, has called Wal-Mart's advertising foray "an underappreciated business opportunity." (See also: Is Wal-Mart the Next Amazon?)