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Ads could soon be Amazon’s most profitable business
by
Channing Allen
https://thehustle.co/03312021-Amazon-ads
Amazon is badass. Absolutely terrified of it 😁
The ads they are talking about are from an Amazon product and in an Amazon page, right? For the ads to generate more revenue than the marketplace, that would mean that vendors pay more for an ad than they do for the sales fee? Is that realistic or would this self-correct?
For the sales fee a sale has to happen. For the ad, it does not have to.
Also, for a single sale, a single sales fee is applied. But number of ads shown per sale can be N times more.
To look from a different angle, sales fee based revenue is somewhat fixed and requires marketplace growth for revenue growth. With ads, Amazon can squeeze out extra revenue from sellers' profit margins even without overall marketplace growth.
The ads that are ineffectual, not causing sales, should quickly disappear... right? Either the vendors stop doing it, or they go out of business.
Not saying they're not causing sales. But they cost money. And with ads being so prevalent, you probably have to spend extra just to maintain current standings. That extra will grow as marketplace growth slows down and it becomes more saturated.
Trust me, Amazon makes a killing from their ads, it's a cut-throat industry. It's one of the reasons I stopped selling on Amazon. You have to compete to be seen on the first page and the CPC can be expensive to get any form of sales. But if you don't do ads, you get no sales and you end up having to pay Amazon long term storage fees for unsold items, win-win for Amazon.
As more sellers enter the market, there is a race to the bottom for who can outsell the other as your margins slim. Then it only becomes profitable for the actual Chinese manufacturers to sell directly to Amazon.
The only real way to survive without ads is to have a reputable brand, this takes a lot of time and money and makes it hard for small sellers to compete.
Amazon is building an audience using Ecommerce as lead-gen, then selling ads, subscriptions and hosting to make a profit. Super smart. I know the folks that launched FBA and leaders in their ad business now. This was always the plan.