Amazon Has a Massive New Division—and No One’s Paying Attention to It
What’s powering this trend? Amazon Web Services (AWS), Jeff Bezos’s market-leading cloud computing platform, is growing at an astonishing clip and is far more profitable than Amazon’s e-commerce operations.
But the stealthy story that may foretell Amazon’s future is actually advertising.
That’s right: Amazon is now one of the world’s largest online advertising companies, with ad revenues surpassing $2 billion in the second quarter of 2018. This includes not only selling ad spots inside of its own properties, but also a burgeoning advertising network that serves ads on third-party properties to Amazon visitors and customers.
Almost no one seems to be paying attention to this story, which may transform Amazon into an “attention economy” company that relies on maximizing our time spent and our clicks—just like Facebook and Google do. In September, Amazon unified its messy advertising portfolio into a more streamlined offering under a single brand, Amazon Advertising.
Piper Jaffray analyst Michael Olson actually expects Amazon’s ad sales to surpass AWS sales as early as 2021, making it a serious growth engine for the company. This is still far behind what Google and Facebook bring in, but the rapid rise of Amazon’s ad business raises an interesting question. Namely, can Amazon avoid the same trap that has bedeviled other ad-driven behemoths: focusing on ads at the expense of the user privacy?
Both the power and the peril of Amazon’s new foray is evident. At present, over 50% of online shoppers in the U.S. begin their product search on Amazon.com. This gives Amazon an unmatched glimpse into the minds of purchasers. What’s more, Amazon can store not only your implicit purchasing intention, like Google can, but your actual purchasing behavior, which remains often out of Google’s reach. Amazon knows what you bought, when you bought it, how many clicks you took to buy it, and what other product categories you bought from alongside your purchase.
Amazon can now take that behavior and project it out into the sales pitches that follow you around the Internet. And unlike dumb retargeting campaigns that can only show you the same pair of shoes over and over again, the Amazon campaigns can plumb your past purchases to prime your behaviors—even going so far as to show you content you’re more likely to buy during a certain time of day or season. For example, Amazon may know that you bought mineral-based sunscreen last summer because you were going to the beach—and it will know to send you ads for matching product categories in anticipation of your journey to Hawaii for winter break, based on your searches for warm weather items in the fall.
Now, with Whole Foods, Amazon can also merge offline and online behaviors and draw additional insights and correlations. Amazon Prime customers get generous discounts when they connect their Prime account to their Whole Foods app and scan the QR code at checkout in stores. I know this works, because I do it and I’m a pretty paranoid, privacy-aware person. But the deals are insanely good.
For marketers, ads on Amazon are a no-brainer. Unlike traditional ad campaigns, which may take weeks to assess, spots run on Amazon can be judged as effective or not within a matter of hours. This allows advertisers to quickly adjust, refocus, and ultimately get a much higher return on their ad dollars. It doesn’t hurt that Amazon’s content engine is relatively frictionless, particularly for its 100-million plus Prime members. What’s more, unlike any other retailer, Amazon is able to create its own massively powerful gravitational forces. Prime Day has become a culture phenomenon beloved by shoppers and the media alike, in a manner similar to that of Black Friday.
The trouble with ads, however, is that they are insanely profitable. The allure of the attention economy may induce bad behavior from Amazon as it chooses between higher-margin clicks and lower-margin actual sales (or convincing shoppers to stick around to buy more).
Bezos has always said Amazon must maintain a laser focus on the customer. But ad-focused web companies are essentially built on grabbing our attention and inducing us to click as much as possible—regardless of where those clicks take us. For Amazon, it is far more lucrative to encourage visitors to spend more and more time on Amazon.com, even if they are not spending money. (Some Amazon ads send people to outside sites, but those ads are clearly marked as doing so and tend to appear at the bottom of search results.)
Amazon Video, Music, and Kindle all compete for our attention as well and maintain tight hooks into the rest of the Amazon ecosystem. And Amazon has one other huge advantage over other ad businesses: There are no and will never be ad blockers allowed inside its walled garden.
All of this could make it nearly irresistible for Amazon to maximize clicks over commerce. On the surface, this doesn’t sound like a huge problem. On Amazon, we are merely shopping (or, to a lesser degree, watching videos and or listening to music or reading books). No harm in that, right? And unlike existing social and search platforms, Amazon has no toxic news problem. Russian operatives are unlikely to attempt to leverage Amazon as a political tool, because it is an apolitical place and there is no space for divisive advertising.
But in a sense, Amazon’s shift toward advertising could be an even more troubling development than Facebook’s efforts to keep consumers on the platform. Time spent shopping madly may in the end create equally detrimental impacts on humans and their psyches. Anyone who has gone down the rabbit hole on Amazon—looking for nail clippers and ending up comparing rotary burr coffee grinders—exquisitely understands the lure of the hedonic treadmill of “things I would like to buy.” More advertising on Amazon may seed consumptive thoughts that push out healthier thinking and behavior. What’s more, this type of behavior takes time away from other activities that may be better for us—such as taking a walk or even walking down the aisles of a physical store.
And as Amazon’s artificial intelligence algorithms divine more and more of our inner desires, the system will grow more and more adept at pushing our buttons, putting in front of us goods and services that are closer and closer to what we actually desire. In other words, watch out. We might get ads that are so finely targeted that they actually do feel like they are adding value to our browsing experience. Yet inducing hyper-consumption is something that could do significant harm to Americans who have seen real salaries stagnate and remain mired in credit card debt.
None of this is to say that Amazon doesn’t offer useful services. We all love having things delivered to our doors via Prime. AWS has been a revolutionary force in cloud computing. And Amazon is without a doubt making it easier for sellers to efficiently find buyers for their wares.
But when clicks become the driving economic force behind a business, then clicks can become the desired outcome over all other concerns—including concerns that too many clicks, too much time spent, and too much money spent on Amazon may be bad for our collective financial, psychological, and physical health.
Alex Salkever is a regular contributor to Fortune and a technology executive. His new book, Your Happiness Was Hacked: Why Tech Is Winning the Battle to Control Your Brain—and How to Fight Back, was published on June 26.