June 4, 2013

Amazon has ramped up its advertising strategy in recent years, and the site is reaping the benefits. In figures from eMarketer's new estimates on Amazon ad revenues—the first time eMarketer has ever forecast Amazon’s advertising revenues—the ecommerce giant took in nearly $610 million last year worldwide in net ad revenues.

That figure was up 45.5% over 2011, and Amazon’s worldwide ad revenues after traffic acquisition costs (TAC) will increase a further 36.9% this year to $835.05 million.

eMarketer estimates the bulk of Amazon’s ad revenues come from ads placed in or near search results that appear when a person searches Amazon for a product. The company also earns substantial revenues from display ads served on Amazon-owned sites and through its ad network.

Overall, eMarketer expects strong and consistent growth in Amazon’s ad revenues as it continues to develop its strategy. Key to further growth will be the plethora of consumer purchasing data Amazon gathers through its core business, retail sales. Ad-selling competitors such as Google and Facebook lack such data—and therefore its targeting potential.

Amazon has already developed its targeting technology, along with creating its own demand-side platform (DSP) to improve targeting of Amazon buyers on other web properties and devices like Kindles—something that may help position them as a more attractive site for both brand and direct response advertisers.

The bulk of those revenues are from the US, where eMarketer estimates Amazon took in $450 million in ad revenues last year. In 2013, Amazon will net $660 million in US ad revenues, rising to $1.1 billion by 2015.

eMarketer bases its estimates of Amazon’s ad revenues on information in company reports and an earnings breakdown model that accounts for advertising and usage trends worldwide, as well as developments and assumptions about the company’s advertising strategy and interviews with people familiar with Amazon’s business.

eMarketer made several assumptions about Amazon’s advertising revenues to build our model:

A number of firms estimate Amazon’s revenues across categories, though few offer breakouts of advertising revenues. The estimates that do exist differ dramatically. Barclays estimated in March 2013 that the company earned $550 million in global ad revenues and co-branded credit cards. Jefferies offered a more conservative forecast, estimating in January that Amazon would earn just $350 million in 2013, up from $235 million in 2012. Other firms’ estimates have ranged as high as $1 billion in global Amazon ad revenue this year.

In its public reporting, Amazon does not break out ad revenues, but includes it in the category of “Other” revenues—which also includes revenues to Amazon Web Services (AWS). eMarketer assumes AWS revenues still account for the vast majority of Amazon’s “Other” revenues, something we expect will continue to be the case for the foreseeable future, based on our understanding of Amazon’s operations and the advertising market. This is substantiated by research estimates from multiple firms, which attribute between two-thirds and 90% of Amazon’s reported “Other” revenues to AWS.

eMarketer also assumes that Amazon does not pay substantial TAC to partner sites, unlike major competitors like Google.

Key variables in the outlook for Amazon ad revenues include the following: