To repeat – this is just an informed guess, and ads will of course change other things, for example directing purchasing to different products that might have higher or lower margins for Amazon. Meanwhile, operating income does not include capex, so it’s not a great way to compare an ad business with a datacenter business – most of that AWS operating income goes straight out of the door on building more AWS, so a free cash-flow comparison would made ads look better than AWS. But whatever the real number, this is a big business.
There are a few interest things to think about here. Amazon’s own ecommerce, which is, again, only 40% of actual sales on the site, increasingly looks like a low-margin anchor to support the marketplace, and now ads. This week the FT reported the EU is having trouble building a competition case against Amazon: its theory is that Amazon unfairly steers customers away from marketplace vendors towards its own products, but one of Amazon’s arguments is apparently that marketplace is more profitable, so its incentive is the opposite! Everything at Amazon has an angle – the biggest subsidy, going right back the beginning, is the negative working capital, whereby it can charge customer before paying suppliers. Its use of stock options has some of the same character.
A general point, though – Amazon is not the only retailer to have realised that the time we spend on its site makes it a media owner by accident. ASOS has hundred of content producers, and a lot of big retailers are now thinking about online media and ad strategies. The more privacy and data rules we have, and the faster that cookies disappear, the more that content silos, large audiences and first party data matter in ads and ecommerce.