Are these 2 e-commerce actions turning into advertising giants?

Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY) are e-commerce giants who are increasingly discovering the wonders of advertising revenue. They each attract millions of customers to visit their sites, so posting ads is a great way to supplement their other sources of income.

If they can execute their advertising campaign effectively, it has the potential to improve the customer experience and increase profits. Let’s see how everyone is developing this aspect of the business and its progress so far.

Image source: Getty Images.

Amazon is already a major player in the advertising market

The coronavirus pandemic has fueled growth in Amazon ad sales. In 2020, the company increased its share of the U.S. digital advertising market to 10.3% from 7.8% a year earlier, according to eMarketer.

In its most recent quarter, Amazon reported an 83% increase in advertising revenue to $ 7.9 billion from the same quarter last year. The segment is not only growing rapidly, but has even accelerated for four consecutive quarters.

Amazon is also developing innovations for its advertising business, launching new self-service features and capabilities, attracting more marketers, small businesses and others by making them easier and more efficient. The less time a business has to devote to implementing an advertising campaign, the more it will perceive the value of the service.

The company also seeks to make the announcements a useful experience for customers. Amazon has millions of people who come to its site looking for products that meet their needs. With the right strategy, ads can improve the customer experience by making it easier for consumers to find the products they are looking for.

eBay grows ad revenue at a slower pace

While eBay is a much smaller company in terms of annual revenue than Amazon – $ 10 billion from $ 386 billion in 2020 – it is also working hard to increase its advertising business.

In the second quarter, eBay generated $ 224 million in advertising revenue, an 8% increase from the same quarter last year. Here’s what management had to say about this segment of the business in their quarterly conference call:

Over 1.4 million sellers promoted over 430 million ads in the quarter. Growth has been driven by greater adoption and technological improvements …. We see tremendous growth opportunities in advertising, both from our existing sponsored ad offerings and new product innovations.

eBay, like Amazon, strives to innovate in its advertising business to make it more attractive to marketers and businesses. While it primarily offered a “cost per click” for advertising (billing each time a user clicks on an ad), eBay now also offers a “cost per view” option (when a user simply views the announcement). It may be less costly for marketers, but is still another source of revenue for eBay.

The company also launched “promoted registrations”, allowing sellers to push their merchandise at the top of an eBay search result for a fee. eBay has 19 million sellers and only 1.4 million have used promotional ads, which leaves a lot of room for improvement.

Why focus on advertising?

Amazon and eBay are strategically important to advertising revenue. One of the reasons could be the fact that it is a high profit margin company. The systems that companies create will, for the most part, be automated. Therefore, beyond the initial investment in capacity configuration, there is little cost for additional revenue – and therefore greater potential for profit. Stay tuned.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Cedric Lloyd

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