Early in Amazon’s life, Jeff Bezos hated the idea of advertising. In 2009, Bezos famously stated that “advertising is the price you pay for having an unremarkable product or service.” Despite his dismissal of ads, Amazon started selling ads through the Amazon Advertising Platform (AAP) in 2012. But it wasn’t until 2019 that Bezos admitted to changing his mind on ads. In Q4 2022, Amazon generated $11.6 billion in ad revenue. In Q1 2023, Amazon’s ad revenue was its fastest-growing segment (+21% Y/Y), surpassing even AWS (+16% Y/Y).
Sooner or later, it seems like every tech company becomes an advertising company. This year, Microsoft plans to double its advertising revenue to $20 billion. Meanwhile, Uber is rolling out full-length video ads that play in-app while users wait for rides. So, why is there a seemingly unavoidable push for tech companies to build out advertising in their platforms?
In 2021, Apple released iOS 14.5, and iPhone users were notified that they could opt out of being tracked for targeting across apps and websites through application tracking transparency (ATT). As many as 90% of users chose to opt out of tracking after the update. The resulting aftermath created an attribution problem for advertisers, where it has become more difficult to understand the effectiveness of advertisements.
For the last decade, Google and Meta have dominated digital advertising. However, the attribution problem that arose from iOS 14.5 has contributed to a new trend: brands are diversifying digital ad spend across multiple platforms to better understand the effectiveness of campaigns. Elijah Schneider, CEO of social marketing agency Modifly, noted that in 2019 and 2020, at least 80% of their client spend was on Facebook products. In 2021, client spending on Facebook products had dropped to 55%, with the remaining 45% on alternative social platforms including TikTok and Snapchat. Additionally, Schneider noted that clients are pushing for “serious ad dollar diversification.”
Headwinds like Apple’s ATT have forced more platforms to look for advertising alternatives, and more demand invites more supply. For example, look at companies like Instacart. Instacart, which is planning to go public any day now, generated $740 million in advertising revenue. That represented nearly 30% of its total revenue, despite being most well-known for grocery delivery.
Why is advertising such a powerful source of revenue? One reason could be that awareness is one of the most under-monetized resources that a large company has. Instacart has 10 million monthly active users (MAUs); TikTok has 1 billion MAUs; Snapchat has 750 million MAUs; Uber has 131 million MAUs. Those companies have already done the hard work to acquire those eyeballs; why wouldn’t they try to monetize them?
