Amazon Advertising Controls Its Own Destiny
Why did Amazon soar and Meta get pummeled after they reported quarterly earnings this week? There are many factors at play, but one big one: Amazon has more control over its advertising destiny than Facebook does. Meta’s ad business is vulnerable to Apple’s consumer privacy controls. Amazon’s ad revenue is beyond the reach of Apple — and Google’s forthcoming privacy restrictions, too.
Why is that? Because Amazon has mastered the application of first-party customer data to sell ad units. Meta has not.
For the first time, Amazon broke out its advertising revenues for the quarter. Advertising services grew 32% year over year to $9.7 billion during the quarter. Meanwhile, Meta’s total revenue of $34 million for the fourth quarter was 20% billion increase year over year.
But Meta also said that estimated that ad-tracking changes introduced by Apple in 2021 would cost Meta $10 billion in 2022. Here’s the backstory: in 2021 Apple updated its iPhone software to require apps to ask people whether they want to be tracked. And guess what? A significant number of users said they didn’t want to be tracked. As a result, businesses such as Meta that rely on user tracking across the web to target ads are, well, getting stung. Investors are scared that the $10 billion estimated loss could be the start of even bigger losses on the horizon.
But Amazon Advertising does not have this problem. Amazon Advertising relies on first-party data — or data gathered from customers who visit Amazon. And seeing as how Amazon is one of the world’s most popular platforms to do product searches, Amazon gathers a huge treasure trove of data. Amazon relies on that data to sell very targeted ads to companies — on and off Amazon.
Apple’s privacy controls (and Google’s, which are coming in 2023) clamp down on third-party cookie tracking, not first-party data that businesses such as Amazon own. This, by the way, is why retailers such as Walmart that have gotten into the ad business are in the driver’s seat. Walmart is behind Amazon in building its own business, but Walmart is on a roll. And yes, Walmart Connect (Walmart’s ad business) relies on first-party data, too.
The retailer-based ad networks smell blood in the water: Meta’s. How and when will Meta figure out a workaround against Apple (and ultimately Google)?