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It seems like every time investors turn around, online sales leader Amazon.com (NASDAQ: AMZN) has found another industry to disrupt. The company is already the undisputed king of e-commerce, and it dominates the cloud computing industry it pioneered. The smart speaker didn't exist until Amazon introduced the Alexa-powered Echo, another category the company currently tops.
One of the more recent areas of interest for Amazon is advertising. The company has long promoted products on its site, but the segment has increasingly come into focus over the past several quarters. When Amazon reported its third-quarter financial results, there was an important nugget, tucked away in its supplementary financial disclosures: This nascent business is now on track to generate more than $10 billion in revenue over the next year.
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Another massive opportunity?
Amazon wouldn't be interested if the opportunity wasn't lucrative enough. Worldwide digital advertising topped $209 billion in 2017, surpassing television for the first time. It's also worth noting that by some accounts, the majority of the growth last year came courtesy of Facebook (NASDAQ: FB) and Google, a division of Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), so the digital ad leaders have the most to lose.
As traditional media increasingly adopts online delivery, growth in digital ad spending is expected to continue, increasing 16% to reach $250 billion in 2018.
Growing like a weed
Amazon previously revealed that the business segment that it refers to as "Other" in its financial reports "primarily includes sales of advertising services." A look at how growth has progressed over the past several quarters is enlightening:
| Period | Q3 17 | Q4 17 | Q1 18 | Q2 18 | Q3 18 |
|---|---|---|---|---|---|
| Net sales | $1.1 billion | $1.7 billion | $2.0 billion | $2.2 billion | $2.5 billion |
| Y-O-Y growth | 58% | 60% | 132% | 129% | 123% |
Data source: Amazon's Third-Quarter Financial Release. YOY = Year-over-year.
As you can see from the above chart, Amazon's advertising sales achieved triple-digit year-over-year growth in each of the past three successive quarters, putting it on track to top $10 billion in annual revenue.
Consumer behavior is feeding the trend
Changes in how consumers search for products are helping to fuel Amazon's ad sales. A full 49% of shoppers looking for specific products will start their search on Amazon, as opposed to a general search on Google, according to brand intelligence research company Survata. Other studies place the number even higher, with Amazon as the starting point for 54% of product searches.