You think AWS is Amazon’s most profitable business unit? Think again!
Amazon reported an operating income of $2.53bn for Q3-2022. AWS contributed $5.4bn to that figure.
And Amazon’s Advertising division? It announced a whopping $9.55bn in sales. As Advertising incurs very little costs for Amazon, many analysts assume 90% of this is profit.
This means that without AWS and Advertising, Amazon would have made a loss of $11.47bn (!) in operating profit.
And this isn’t a one-time phenomenon. Data from previous years show that Amazon has become increasingly reliant on Advertising to subsidise its retail business. Two years ago, Advertising only contributed $4.48bn to Amazon’s sales in the third quarter. Meaning that it has more than doubled its size in just about 24 months.
So what are the implications for you as a vendor?
First, you need to become aware that you are financing Amazon’s business model. Without Advertising, Amazon couldn’t run its business.
Second, while Vendor Managers say Advertising is not part of their P&L, in some way, it is!
Think about it: Right now, shopper demand is on the decline. So your Retail Media investments are the key for Amazon to achieve profitable growth. Leveraging this in your upcoming annual negotiations will be critical!
Sure, Amazon may allocate retail and ad investments into different P&Ls. But if you focus $1m in ads on profitable listings, it also increases your account’s Net PPM.
So instead of investing more in Automated Marketing or price promotions that are unprofitable for you…
…show your buyer how you can reach Net PPM targets through strategic ad investments next year.
For further insight and support, contact Martin Heubel, Founder and Director of Consulterce, a strategy consultancy for B2C Household & CPG brands (Email: [email protected])
NAM Implications:
- NB. If best-in-class, global coverage Amazon are breaking even at best on Retail…
- …what hope other online players?
- Which suggests that other retailers could intensify their focus on Retail Media as a revenue stream to supplement their online bottom line.
- i.e. they could be coming for your advertising budget!
