The Amazon Selling Machine

What if there were a company that knew what you wanted to buy before you did? What if it made shopping recommendations that tapped into your deepest desires? Better yet, what if it then made buying completely seamless? Would you ever stop shopping?

Amazon shareholders may like the answers to those questions. The company that revolutionized the way we buy has now gotten serious about selling the ads that tell us what to buy in the first place. It is selling advertising on Amazon.com, encouraging brands to create Alexa “skills” so they can market to people when they’re at home, and putting targeted ads on the main screens of its Amazon Kindles, tablets, and televisions. And it’s attracting money that brands used to spend on Facebook and Google.

On Thursday, Amazon reported that the category of its business devoted to advertising and “sales related to our other service offerings” made nearly $2.5 billion in net sales in just the third quarter of 2018. In the third quarter of 2017, it made less than half that, $1.12 billion. A September report from eMarketer estimated that Amazon is now the No. 3 digital-ad seller in the country, behind Facebook and Google. Brands will spend $4.61 billion advertising on the Amazon platform this year, the report estimated. Mike Olson, an analyst with Piper Jaffray, anticipates that Amazon’s advertising revenue will reach $8 billion this year, a number that will double to $16 billion by 2020, and that will soon overtake in profitability Amazon’s big moneymaker, Amazon Web Services, which sells cloud-computing services.

Amazon is catnip to advertisers for the simple reason that it is already an integral part of the way we buy. About half of online shoppers start their product searches on Amazon. But the company also owns Whole Foods, Twitch, Zappos, Audible, and IMDb, and sells TVs, tablets, Kindles, Echos—what Helen Lin, the chief digital officer at Publicis Media, calls “this whole canvas of properties that allow brands to go broader.”

In other words, Amazon owns a large swath of the internet’s advertising real estate—but it also owns the information advertisers rely on to target ads effectively. It knows, with unprecedented precision and volume, what individual consumers search for and buy. It knows where we live, because it has our delivery addresses, and it may know where our family members live, if we use Prime to send gifts. It knows when we write reviews of products and what we think of those products. It collects information about what we watch on Amazon Video, what we read on our Kindles, what we listen to on Audible, and what we ask our Echo speakers. Facebook and Google may know who our friends are, what we’re reading, and what we think about politics—but Amazon knows almost exactly where and how we spend our money.

“That’s one of the powers of Amazon,” Olson told me. “They’ll be able to increasingly use the data that we have on our search history and product purchase history to improve the return on investment for advertisers, as well as the experience for users.” It sends us ads for products we probably want when we’re already in a buying mood, allows us to click on those products, and, without even making us reenter our credit-card number or address, ships those products to our front door.

It’s both eerie and comforting. We can be marketed to throughout our day—when we’re reading, watching TV, cooking dinner, browsing the internet—and we might not even mind it, because the ads we’re seeing are for things we actually want.

Advertisers love this. “It allows a brand to be part of a solution, as opposed to pushing an ad message,” Lin said. But it worries people like Alex Salkever, a futurist, a co-author of Your Happiness Was Hacked, and a self-described skeptical consumer of digital advertising. He researches a lot of sports equipment, and Amazon started serving him ads for sports products that were obscure, but appealing. “It was hard not to click,” he told me. “And this is from me; I am used to consistently minimizing my clicks.”

Amazon is so convenient, so trusted, so everywhere, that it could subtly begin to advertise in a way that encourages what Salkever calls “hyperconsumption.” For example, Amazon invites consumers to sign up for “subscribe and save” deals, whereby brands offer a discount on items like laundry detergent if consumers agree to get refills of that brand in the future. Amazon has little incentive to use its algorithm to ensure that customers get no more laundry detergent than their home actually needs. It also has little incentive to recommend that consumers get off their phone or computer or tablet and stop staring at consumer goods they want. As Amazon gets better at knowing what we want and need and anticipating our 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,” Salkever wrote in an essay in Fortune.

Some of Amazon’s advertising products aren’t all that different from what you’d find on many e-commerce sites. It allows companies to buy sponsored ads, in which their product is featured when a consumer searches for a particular item, and display ads, which appear on certain pages targeted at different audiences. It allows companies to create “stores”—essentially, websites that live on Amazon with products and information about the company.

But Amazon also sells ads on its hardware products, including the Kindle, Fire TV, and Fire tablets—devices we have already purchased from the company for a not-insignificant price. I recently bought a Fire tablet because my iPad died and the Fire tablet was half the price of a new one. But I soon learned why it was so cheap: Before you can access your home screen, you have to swipe out of a full-screen ad. I’ve received a steady stream of ads from Ben Bridge Jeweler and Allstate, which is a little unsettling because those ads seem spot-on for someone who recently got married, as I did. Every time I pick up my Kindle, I also see an ad. My husband and I recently purchased a Fire TV at the recommendation of the salesman at Best Buy; after hooking it up to our internet and turning on the home screen, we were immediately served ads.

The devices I bought from Amazon, on Amazon, are filled with ads Amazon also makes money from—ads that are targeted with the remarkable precision of a company that has quietly come to own a staggering proportion of my purchasing decisions. That these ads are ubiquitous is part of the appeal to advertisers: In its sales material, Amazon recommends that brands “treat the Fire TV–inline ad-creative as a piece of recommended browsing,” making it seem less like an ad and more like a friendly suggestion. Twitch, a live-streaming video platform owned by Amazon, also sells ads; it said earlier this year that Amazon Prime members would no longer get ad-free viewing. Earlier this week, I was watching TV and saw an ad for Audible on my TV home screen; anyone who signs up for Audible, an Amazon company, will then get sold new books. It’s a perfect nesting doll of buying driving more buying.

Amazon-enabled ads may soon appear in even more places. In January, CNBC reported that the company was in talks with several other companies to let them promote products on its Echo speakers, which are powered by Alexa, Amazon’s voice assistant. The ads could potentially suggest a certain brand for a consumer who asks Alexa to add an item to their shopping list. If someone puts toothpaste on the list, for instance, Alexa might suggest trying Colgate, and mention that a special, personalized offer is available.

On Thursday’s earnings call, an Amazon executive said the company didn’t have “plans to add paid advertising to Alexa.” But already, brands can create “skills” for Alexa—essentially apps that allow consumers to interact with those brands. Patrón, the tequila company, has a skill called Ask Patrón that offers cocktail recipes, which of course recommend that the customer use Patrón.

“We still believe there’s a lot of room to continue to improve the presentation of and bringing to our customers new and more relevant purchase options,” Brian Olsavsky, Amazon’s chief financial officer, said on the call. The company, he added, is continuing to “invent new products for advertisers.”

Mike Thompson, an information-security expert who lives in Manchester, England, bought an Amazon tablet for his two kids, ages 3 and 5, back in July. But he was soon disappointed. The lock screens contained random ads, he told me, tantalizing his kids with new products that they didn’t need. “What I wasn’t prepared to live with is the fact that this tech felt like nothing more than a portable, advertising hoarding,” he said. After doing some research, he discovered that he could get the ads taken off the lock screen—if he paid Amazon £10. Even after he did so, he still saw ads on the device’s home screen. He told me he wouldn’t purchase an Amazon device again. Twitter is full of customers with similar complaints:

There are other reasons Amazon’s ubiquitous advertising may face consumer backlash. Facebook, for instance, lost some big advertisers after the company admitted that Cambridge Analytica accessed information about 50 million Facebook users without their knowledge. Amazon’s privacy notice assures customers that though it collects data about them, it “is not in the business of selling it to others.” But it does say that it targets users with specific ads, based on information Amazon has collected—and it collects lots and lots of information. Sometimes, Amazon says, it receives information from third parties about what other sites customers have visited and what ads they’ve seen.

Of course, advertising has long gone hand in hand with media. That’s been, in many ways, a boon. Advertising helped make television programming cheaper. It allowed magazines and newspapers to proliferate. It subsidized the cost of providing programming over the radio. Advertising also helps drive the consumption that powers the American economy. But rarely has one company offered up so many advertising products, primarily for the purpose of driving shopping on its own site. And rarely has one store been so dominant.

This is good news for people who hold Amazon shares: As the company makes more money on advertising, those profits could start to subsidize the expensive fulfillment-and-delivery network that the company has built. The irony is that as its advertising gets better and better, Amazon will likely get even more adept at persuading us to just keep buying things—and keep buying them from Amazon.