Amazon reported massive Q1 earnings last week, with overall sales of $51 billion, up 43% year-over-year (YoY), and profits reaching $1.6 billion — exceeding $1 billion for the second straight quarter.
The company's biggest announcement was its plan to increase the price of its annual Prime membership to $119 for new subscribers, up from $99, starting on May 11. Among other Q1 highlights, the company's "Other" segment, the unit that includes advertising, was up 139% YoY to $2.03 billion — surpassing $2 billion for the first time.
On the earnings call, Amazon CFO Brian Olsavsky said that advertising was a "key contributor" to revenue growth and a "multi-billion dollar program," per CNBC. JPMorgan estimated Amazon's ad business at $2.8 billion in 2018, per Digiday, and Cenkos Securities analyst Alex DeGroote projected that it could be worth $20 billion by 2020, per CNBC.
Advertising on Amazon is growing rapidly, as advertisers take notice of the opportunities the e-commerce platform offers in terms of exposure to consumers who are already engaged in shopping activity.
Advertising is still the smallest part of Amazon's overall business, and the e-commerce giant will command just 2.7% of the digital ad market this year, according to eMarketer.
But Amazon could easily introduce a state of triopoly — three-seller oligopoly — to digital advertising in coming years. Amazon is reportedly expanding its outreach to agencies, and could implement programmatic buying tools on its system that would include both display and video ad inventory.
Some major advertisers, including WPP, Publicis, and Omnicom, have said they plan to up their spend to more than $800 million combined across the companies, according to The Wall Street Journal. Olsavsky said that Amazon has considered putting ads in its video content, but that's not in the gameplay just yet, as most ads on the platform are still digital display.
If Amazon pushes ads on video inventory, it would open up an even richer batch of inventory, particularly as Amazon plans to invest more in premium TV productions in the coming year. That content spend likely includes buying up more sports streaming rights, including from the big kahuna in American sports, NFL. Amazon renewed its deal for NFL "Thursday Night Football" games for the next two years starting in the 2018-19 season.