By the end of March 2019, Amazon will make more than Rs 600 crore from its advertising business in the country.
Online retailer Amazon has quietly built itself a high margin digital advertising business in India which is closing in on revenues of nearly $100 million, about 5% of money spent online by brands in India.
By the end of March 2019, Amazon will make more than Rs 600 crore from its advertising business in the country, a company source told FactorDaily. This mostly includes the money it charges sellers to advertise on Amazon and also top brands that spend on the platform.
There are four key pieces to digital advertising — Direct, where brands spend directly with media platforms; Agency, where agencies spend money on behalf of brands; network, where you sell ad space to a larger company like Google which gives you a cut; and, finally, you have your own programmatic platform where advertisers bid for keywords.
“Amazon doesn’t have its own ad network and agencies don’t yet understand how to use advertising on an e-commerce platform,” said an Amazon executive who did not wish to be named as he is not authorised to speak to the press. “We are doing well on programmatic and direct sales,” he said. As per reports, Amazon in the US is creating teams that will focus on agencies to sell ads on the platform.
Nearly 90% of Amazon’s advertising business in India currently comes from the programmatic and direct sales route. Most large brands that sell on Amazon, including the likes of HUL and P&G, have been spending on Amazon. It has also been getting advertising deals from sectors such as automobile and banking.
An Amazon spokesperson did not respond to a query emailed on Saturday. We’ll update this story when we hear from them.
Globally, Amazon is on track to double its digital advertising revenues. According to research firm eMarketer, Amazon is likely to close the year with $4.61 billion in digital advertising revenues. By 2020, Amazon will have 7% of the US digital advertising spend, eMarketer predicted. That’s still small in Amazon’s scheme of things given that the company is forecast to make close to $235 billion in revenues this year.
Also see: FactorDaily’s Digital Advertising Coverage
Amazon started building its direct advertising team in India sometime in 2015 and started evangelising its platform to brands. The pitch is that Amazon can directly attribute sales to its advertisement because it can track user behaviour on the platform. “No other platform can give this kind of attribution to the last click when the sale is happening,” said another Amazon source aware of the company’s growing digital advertising business.
With over 350 million monthly visitors, Amazon.in is one of the largest web properties in India right now. According to Alexa, the web analytics company owned by Amazon, the online retailer’s Indian site is ranked fourth after three Google properties.
“It will be easy for them to become more aggressive. They are today the start of the consumer journey and hence they can influence as well as take them to the purchase,” says Rahul Vengalil, the founder of Whatclicks, a digital marketing audit firm.
Amazon, however, is careful to downplay advertising as a business when it comes to retail, its core retail business. The idea is to use advertising as a tool to help both customers and brands discover each other better. “Amazon is not apologetic about making money from advertising as long as it adds to the customer experience,” the Amazon executive said. The company has strict controls in place as to who can advertise on the platform. “We can let go of business if it comes in the way of customers,” said the executive. For instance, it doesn’t allow brands with less than 3.5-star ratings to advertise on the platform.
Companies that have advertising as their core revenue model, however, don’t have such controls in place. This helps Amazon claim a higher ground when it comes to selling to brands based on the credibility of the platform. “We get about four to five times the CPMs as compared to the rest of the industry,” said the executive. CPM is short for cost per thousand impression and the industry average in India ranges from Rs 80 to Rs 120.
India’s digital advertising market is a crowded space with many players fighting for the spoils. According to media agency Magna which published a report in June, the total advertising market in India for 2018 would be about Rs 68,000 crore. The industry, depending on who you ask, grew about 11% to 15%. This is divided into print, television, digital media, radio and so on. While television accounts for nearly 40% of the ad spend, digital media is at about 19% and the print is about 31%. That translates to about Rs 12,920 crore of advertising spend on digital media. Most of this goes to Google and Facebook.
Amazon’s Indian rival Flipkart, has also been chasing advertising dollars. Flipkart had first talked of entering advertising as a business around 2015, the same time as Amazon. It then acquired two digital advertising companies– AdIquity and Appiterate in March-April 2015. As we’d reported earlier, that didn’t work out well for the retailer and the founders, seen as acqui-hires, quit the company in less than 6 months.
The company, however, has started talking up its advertising business again recently. It claims that the Flipkart advertising platform will reach roughly $200 million in annualised sales by March 2019, about double its revenues from advertising at the end of March 2018.