Digital advertising is big business, and in 2019 U.S. spending on digital ads is projected to eclipse the money spent on “traditional” advertising for the first time. With an estimated $129 billion in play and mobile the hottest platform, things are about to get interesting.
Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google and Facebook (NASDAQ:FB) currently dominate the market, but they’re about to get more competition. Amazon (NASDAQ:AMZN) is testing search video ads on its mobile app. The online retailer is flexing its muscles in an attempt to keep shoppers on its site and scoop up additional revenue in the process.
Report: Video Ads Coming to Amazon’s Mobile App
Bloomberg is reporting that Amazon is several months into testing video advertising on its mobile app for Apple’s iOS. Those ads show up in the results when a consumer searches for a product. If that sounds familiar, it should; it’s a model that’s been perfected by Google, helping the company to rake in an estimated $42 billion last year from the U.S. digital advertising market alone.
According to Bloomberg’s sources, companies running video ads on Amazon’s mobile app will be required to commit to spending at least $35,000 on ads. The pricing of the ads will be flexible, and will depend on which category the product being advertised is in. While AMZN is currently testing the video ads on iOS, AMZN plans to roll it out on Google’s home turf, as an Android version of the video ads is expected to be introduced later this year.
What’s in It for Amazon Stock?
Digital advertising can have a meaningful, positive impact on Amazon stock.
Digital ads can generate significant revenue for Amazon, creating a positive catalyst for Amazon stock. This year, companies are expected to spend $129 billion on digital advertising in the U.S. alone.
As a result, in 2019 — for the first time ever — digital ad spending in this country is on track to eclipse the money spent on traditional ads, including newspapers, magazines, television and radio. Last year, Google and Facebook together generated an estimated $65 billion of digital ad revenue in the U.S..
Amazon’s U.S. ad revenue doubled last year, but it was still far behind Google and Facebook, with single-digit market share compared to the 60% of the market that the two ad giants captured.
But Amazon’s digital advertising revenue is going to grow meaningfully, providing a win for Amazon stock. The company already sells video ads for its website, but mobile is the hot platform as shoppers move from their computers to their smartphones. By selling search ads for its mobile app , AMZN will greatly increase its digital advertising revenue potential.
Incorporating video could also be a big catalyst for Amazon revenue and Amazon stock. Videos are a big deal for shoppers, who like to see a product in action. If they turn to a competing platform like Facebook’s Instagram and Google’s YouTube to search for and view videos about a product, they will be fed links that can take them to retailers other than Amazon to make the purchase. Of course, that phenomenon would be negative for Amazon’s results and, consequently, Amazon stock.
If Amazon allows advertisers to display video ads on Amazon’s mobile app, thereby letting shoppers see products in action in more detail than can be viewed in photos, shoppers would be more likely to stay on Amazon’s site instead of moving to a competing website.
What’s Next?
Bloomberg pointed out that the video ads on Amazon’s mobile app are still in beta testing, and are currently only appearing on iOS. Amazon is careful about making moves that might upset its user base or disrupt the shopping experience, so it’s going to make sure that it gets mobile video ads right.
However, with U.S. digital advertising spending expected to hit $129 billion this year — and Google happily directing online shoppers to competing retailers like Walmart (NYSE:WMT) — look for Amazon to officially make a push into the mobile video ad market this year.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
