Amazon.com seems to be determined to take advantage of its customer base and superior technology by entering the higher-margin advertising business. For a number of years, it has been selling product ads on its website, where it allows other e-commerce businesses to list their products next to similar or related products sold by either Amazon or a third-party seller using the Amazon platform, and charging them on a pay-per-click basis, thereby monetizing the heavy traffic it gets because of its customer base of millions of users.
Now comes another report that Amazon is engaging in talks with mobile ad network Jumptap and other mobile advertising companies, with an intention to acquire them.
“Reaching 107 million mobile users in the U.S. and 156 million mobile users worldwide, Jumptap uses its extensive technology portfolio, as well as industry-first partnerships with third- party data providers, to understand mobile audiences better than any other ad network and provide intelligent targeting with scale,” Jumptap describes itself on its website.
Incidentally, the seven-year-old company is located in the same hi-tech town where Amazon is starting a new R&D center: Cambridge, home to the famed Massachusetts Institute of Technology.
At first glance, selling advertisement – especially mobile advertisement – may look like an unrelated business, causing concerns about loss of focus. However, once one really thinks about it and connects the dots, it actually is a golden opportunity for Amazon.com.
First, Amazon holds a treasure trove of millions of consumer accounts and tons of purchase of data which it could leverage. Second, it has been perfecting the art and science of cross-selling and up-selling relevant products to its customer base, based on their purchase history for more than a decade – a technology base which can be easily modified to show ads even when its customers are not at its own site. And finally, Kindle and Kindle Fire give it a large base of millions of mobile customers. Amazon's plan to roll out a larger Kindle Fire in the near future is no secret, and we fully expect Amazon to offer other mobile devices or smart phones with smaller screen sizes in the future.
So Amazon can easily modify its existing personalization tools and methods, and if it can leverage its large customer base and its vast purchase history into creating targeted ad mobiles, it would be something very precious for businesses indeed. Of course, Amazon won't be the first device manufacturer to do this; Apple when it launched the iAd in 2010, powered by its own 225 million strong user base and nearly $5.5bn worth of book sales, apps, videos, and music in 2011. The brands practically drooled over the level of ad targeting they could do then, based on the actual purchasing behavior of their target consumers.
Now consider this: Amazon’s e-commerce business is around ten times larger than Apple’s, and it has been around much longer. With Amazon powering their targeting efforts, it would be reasonable for businesses to expect much greater benefits from Amazon than what they got from Apple.
And, of course, the motivation for getting into advertising business is margins. Amazon has long realized that its core business of retail has ultra-thin profit margins and, in fact, is nothing but a loss leader to other businesses with higher profit margins, such as the business of technology or media.
Amazon has already transformed itself into a marketplace where others come and sell their goods – a business with better profits than actually selling things itself. Amazon has also been recognized as a leading cloud computing service provider that competes against traditional hardware and software providers by leveraging its technology operations excellence.
So entering the media and advertising business is just another attempt by Amazon to leverage its expertise and assets for improving its bottom line.