Global online retailer Amazon.com Inc (NASDAQ:AMZN) has made public its intention of making a foray into the online advertising niche for the sake of improving its bottom line. If this happens then the retail giant would be posing a direct threat to another giant in the online space namely Google Inc (NASDAQ:GOOGL) which currently earns $50 billion annually from online advertising. Microsoft Corporation is another brand that it would be up against, although it is not as fierce as Google Inc.
To understand this decision, it is first imperative to grasp the manner by which Amazon.com Inc (NASDAQ:AMZN) operates in the online world. Basically it is a retailer wherein it makes purchases from various sources and sells them to buyers all over the world, thus earning a small profit in the process. Courtesy of the company’s policy of maintaining minimal profits margins in a bid to attract users via good bargains, its revenue generation is always on the lower side, so much so that every time the company goes for expansion, the balance sheet goes into a loss.
Under the circumstances, it is but natural to explore options that would fetch more revenue and Google Inc (NASDAQ:GOOGL)’s online advertising business presents itself as a lucrative diversification. While the two companies refused to comment on their future strategies, Reid Spice, digital agency iCrossing’s vice-president remarked –
“Amazon knows a lot about how people are searching on the site and consumer preferences and histories. It can use that to tailor advertising in ways that probably nobody else can.”
Like the way in which Google Inc (NASDAQ:GOOGL) destroyed Amazon.com Inc (NASDAQ:AMZN)’s monopoly in e-commerce by launching ads for product listing and Shopping Express for delivering products, Amazon.com Inc (NASDAQ:AMZN) intends to capture the advertising space by offering an alternative to Google Adwords. This has been welcomed by the online community owing to the following observation by Karsten Weide who performs analysis at IDC –
“Amazon could use the data it has about buying behavior to help make these ads much more effective. Marketers would love to have another viable option beyond Google and Facebook for their advertising.”
And this mindset is exactly what Amazon.com Inc (NASDAQ:AMZN) is hoping for.
This article has been written by Vinita Basu.
