Is Amazon’s booming ad revenue a deal with the devil?

magine someone fell asleep in 1998, knowing Amazon (NASDAQ:AMZN) as nothing more than an online book seller. How could you possibly explain what it is today?

It’s an Everything-Store/Original-Content/Fulfillment-Center/Delivery-Network/Cloud-Computing juggernaut. It’s also increasingly taking a bite out of Google’s dominance in advertising. While hard numbers are difficult to come by, estimates indicate that advertising on Amazon’s platform doubled to $10 billion last year.

That has lots of investors excited.

But I’m worried the company might be making a deal with the devil — forgoing the most important part of what makes it great in exchange for a quick buck.

A mission to get behind

Let’s start by going back to our Rip Van Winkle who fell asleep in ’98. The best way to explain Amazon’s past two decades is to point toward its mission statement: “To be earth’s most customer-centric company.”

The e-commerce juggernaut built out a mammoth network of fulfillment centers to guarantee next-day delivery. It offers Prime at super-low costs because it can — and customers love it.

Amazon founder and CEO Jeff Bezos has said a lot of smart things over the past 20 years, but perhaps the most famous is this: “Your margin is my opportunity.”

What does this mean? It means if Bezos sees a company selling $10 worth of notebooks and pocketing $0.50 in profit, he intends — backed by Amazon’s scale — to sell those notebooks at $9.51 for $0.01 in profit. For Amazon (which gains market share) and its customers (who pay less), it’s a win-win.

Everyone has their price

All of this is to say: Amazon has done a tremendous job of showing that a customer-centric approach is a winning approach.

That’s why I’m alarmed by what’s happening with Amazon’s ad strategy. If you’re unfamiliar, Amazon displays its ads when you type something into its search bar. For instance, when I type in “diapers” to reup our supply for our newborn, this is what I see.

If I’m not paying much attention, I might miss the fact that the entire first row — for Pampers — is an advertisement. Pampers isn’t at the top because it’s the “best” or most popular product. It’s at the top because Pampers paid to have its items placed there.

Technically, these are referred to as “Sponsored Products”. It says that fairly clearly on the left-hand side. But the only tell-tale sign of what this means to everyday folks is the tiny “Advertisement” displayed in the lower right hand corner.  Can you even see it?

As you might expect, given the popularity of Amazon for online shopping, those ads are proving lucrative. But they also go against everything Amazon stands for.

 

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