Type any random product into Amazon’s search bar and look closely at the results. If you don’t scroll, every listing in front of you will most likely be an ad, signaled by a small label with the word “Sponsored.”

And it’s just the beginning.

While company founder Jeff Bezos once said that “advertising is the price you pay for having an unremarkable product or service,” Amazon has in recent years become an ad-selling machine, driven by the substantial profit margins and the rising value of digital retail estate on the most popular shopping site in the West. As a result, Amazon’s ad business grew 58 percent in 2021 to more than $31 billion in revenue, making it the third-biggest online ad seller in the US, only trailing Google and Facebook. In the first nine months of 2022, Amazon’s ad revenue surpassed the money the company makes from Prime, Prime Video, and its other audio and e-book subscriptions combined. Along with Amazon Web Services, advertising has emerged as one of the company’s top two profit engines.

first big external advertising executive back in 2008, the company’s advertising business only became substantial over the last decade. A big reason for that was the introduction of “sponsored product” ads, which let advertisers bid on commonly searched keywords to promote their products at the top of search results on Amazon. Today, they are absolutely everywhere on Amazon’s website and app.

Many advertisers love them — and they have good reason to. While Amazon’s search results ads are a similar approach to Google’s — where advertisers bid on certain keyword search terms to show their product listings at the top of search results — there is one crucial difference: Someone searching for a product on Amazon is usually in the market to buy it soon, while someone searching on Google may just be researching it.

Another difference is that after clicking on an ad on Amazon, the customer often makes a purchase within Amazon’s site, giving the company a better, though not perfect, view of which ads may have resulted in a purchase and which didn’t. Google search ads usually drive users to another site, which makes measuring ad results a bit more complicated, and some Google users may go on to make a purchase at a physical store, further clouding measurement of whether the ad worked. This so-called “attribution” on Amazon can give advertisers a better view and more confidence into which of their ads are actually working — i.e. resulting in a sale — and which aren’t. And, as we’ll get to, Apple has recently made it harder for advertisers to target customers as they move between various apps, which has made the Amazon closed ecosystem more attractive.

But the growth of ads on Amazon has sometimes caused internal tensions at the company. In the early days, some Amazon leaders were annoyed that Amazon vendors were being persuaded to spend money on advertising rather than on under-the-radar product placements that were even more profitable for Amazon, and which didn’t require the company to hand over any real data to brands to show what was working and what wasn’t.

Turf wars also developed when Amazon began allowing advertisers to bid on ads in Amazon search when a customer searched for a competitor’s product. This practice, known as “conquesting,” was not new, but battle lines formed when a big advertiser, like Roku, was advertising against searches for Amazon’s own rival products, like the Fire TV Stick. Amazon eventually blocked some of these advertisers from doing what everyone else could do with non-Amazon products.

And, of course, just the presence of an increasing number of ads on Amazon pages ruffled the feathers of some Amazon staff responsible for the overall customer shopping experience. The company’s retail division, which operates separately from the advertising division, “really believed the customer experience would be negatively impacted by ads,” a former Amazon vice president told Recode, while the ad division “figured there was a way it could be done in a smart and beneficial way.” Ads leaders would also stress how important the profits from the business were.

“We need that component of profit to continue to keep prices low,” was the basic argument, a former executive said.

And if you look at the site today, clearly the pro-ads camp has won out.

Pay to play

Amazon already has massive leverage over its marketplace sellers. Ads give it even more power. In Amazon’s most recent financial quarter, a record 58 percent of all products sold came from third-party sellers — those hundreds of thousands online merchants, mostly small and mid-sized businesses, that pay Amazon for the privilege of selling merchandise through what Amazon calls its “marketplace.”

This model has been a boon for Amazon. These sellers help ensure that the selection in Amazon’s “everything store” is unmatched by any other US retailer. Amazon also generates massive revenue from the fees it charges these sellers — to the tune of more than $28 billion, with a B, in just the last three months — for everything from just listing a product on the site, to storing and shipping items from Amazon warehouses, to customer service — and that’s not counting advertising.

Whereas five or six years ago many sellers could build a business on Amazon with a quality, differentiated product and not much more without spending any money on Amazon ads, sellers say that is just not true today.

fake review schemes proliferated, with Amazon eventually making internal changes to try to drown them out, and, more recently, taking review scheme organizers to court to try to sue them out of existence. Amazon also invented new ways to promote its own branded products over those from third-party sellers, drawing the ire of regulators and lawmakers in the US and in Europe.

The sponsor-ification of the Amazon shopping experience is just the latest twist. If you’re looking closely enough, a quick search on Amazon for, say, “iPhone screen protector” or “youth soccer socks” will only turn up paid product listings carrying a “Sponsored” label at the top of the results before scrolling.

changes that Apple made to user privacy on iPhones in 2021, which makes it harder for companies like Facebook to target and track ads for advertisers as iPhone users move from app to app. Since Facebook and other advertising firms can no longer follow the browsing and shopping behavior of app users without them opting in, Amazon has become an even more attractive destination for brands looking to get insights into shopping behavior and convince people to purchase their merchandise.

Amazon’s shopping site is already saturated with ads, though, so it’s unlikely that the company will substantially increase ad revenue from packing even more ad placements within its core shopping sites. Rather, more ad revenue could come from rising prices for the cost-per-click (CPC) rate that advertisers pay for sponsored ads. CPC prices typically rise if competition for ads increases among brands and sellers. And that’s exactly what these ad prices on Amazon had done, year over year, for every quarter over two years until the third quarter of 2022, according to Pacvue, an advertising software company focused on e-commerce sites. Epstein believes the CPC pullback is likely “a leading indicator of softening consumer demand,” as inflation and a weakening economy influence the way shoppers are spending money on Amazon and beyond.

So Amazon’s future ambition in advertising is targeting other parts of the web. Among them: the company’s gaming-streaming service, Twitch; live sports events like Prime Video’s Thursday Night Football; and streaming TV service Freevee. Amazon is courting a variety of marketers to those platforms, including those who want to move spending away from traditional linear TV as it gives up viewership to streaming TV services.

“Traditional TV [advertising] dollars are prime for disruption and they want to go get more of those,” said Melissa Burdick, a former Amazon senior product manager who now runs Pacvue.

Behind the scenes, Amazon has also built an advertising technology system, known as a demand-side platform (DSP), that lets brands buy ads in an automated fashion not only on Amazon properties, but all around the web. Amazon creates so-called “audiences” of internet users, based on aggregated customer browsing and purchasing behavior, or video viewing patterns, that advertisers can target with ads across the web via the DSP. Like competitors, the off-Amazon targeting component in iOS apps will similarly be hurt by Apple’s privacy changes, but the advertising agency Wunderman Thompson estimated last year that just 8 percent of the ad inventory available through Amazon’s DSP would be affected.

The company has also been investing heavily in a so-called “data clean room,” called the Amazon Marketing Cloud, that advertisers use to anonymously compare their customer base with Amazon’s to plan their Amazon ad campaigns, and to analyze how they are impacting sales.

“AMC is the best thing they’ve done since sponsored products,” said Patrick Miller, co-president of digital commerce at Ascential, which owns a portfolio of e-commerce consulting and technology companies.

Taken together, Amazon is positioning itself to become an even bigger player in the overall ad industry in the years to come. The profits the ad division generates are crucial to Amazon’s core shopping business, and the data and technology the tech giant provides to marketers are setting the company apart from most other ad firms. Both sides of this equation will argue that the end result for everyday people will be more relevant ads. But whether it actually turns out that way, or whether this advertising growth is an overall net good or bad thing for Amazon customers, merchants, and other partners, is an altogether different question. And one that doesn’t have a clear-cut answer for now.

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