Why Doesn’t Amazon Build A Huge Ad Play?

Amazon is just a fascinating company.  I have never worked there and their performance over the years has been amazing to watch.  In particular, it hasn’t always been obvious that their  heavy R&D expenditure over the years was justified compared to their low operating margins.  Look at the companies in recent years from cloud services like EC2 to the Kindle.  And of course, you can see there e-commerce growth truly outpace the competition. 

I really don’t know why they are not thinking thru ways in which to more greatly to broaden their reach.  I did a post last year on why Amazon should buy Twitter.  Out of all of their investments in non-ecommerce related businesses, I have always wondered why Amazon had not more fully invested in building a world-class advertising play.  Amazon possesses all of the necessary components to build a world-class advertising platform. Amazon has a huge affiliate network called Amazon Associates.  A guesstimate is that an Amazon affiliate network has 2 million affiliates generating on average 5,000 impressions per month per publisher, or 120 billion impressions per year.  This is an imperfect estimate but most certainly if Amazon were generating less than 20 billion impressions per month via its affiliate base then it would not currently be ranked as a top 30 ad network as it is today.  The three big guys make Amazon’s advertising capability look like market share mice nuts – the  top three ad networks (Platform A, Yahoo, and Google).

Amazon has a lot of the core assets like the Affiliates program. great e-commerce and none-commerce sites (IMdb, Shopbop, etc),   They also have invested in some interesting behavioral targeting technology like Omakaze but I am not sure how much it is being invested in.  Amazon could put a great big bow around their scale on and off-their network and build a kick ass e-commerce based ad network.  For Google, the last time I checked retail revenue (e-commerce) represented 40% of their revenue.  So why doesn’t Amazon put their heads together and build an Amazon Adsense?  With all of the data that they have, there is no reason why they couldn’t build sophisticated behavioral targeting so that ads on off Amazon are super-targeted then you visited one of their publishers.  Heck, they could also build their own version of keyword bidding with their marketplace merchants in the same way that Amazon Adwords works today.  You can see some work being done on the Amazon site in terms of keyword bidding but that’s on the Amazon site. 

If I was armchair quarterbacking this, my guess is that its hard for an e-commerce focused company to think heavily about tackling a significantly different operating initiative.  I experienced this first-hand when I was at Expedia, it was always hard for the advertising team at Expedia to get mindshare since more ads on Expedia.com meant cannibalization of e-commerce revenue.  Yet, I believe that building out a e-commerce vertical ad network would be a fantastic strategy to expand Amazon’s reach in a synergistic way.