• by Laurie Sullivan  @lauriesullivan, October 26, 2023

Amazon smashed Wall Street expectations on Thursday after reporting that its advertising business generated $12.06 billion in revenue during the third quarter of 2023, marking a 26% jump from the year-earlier period.

The advertising business includes newly launched services like Sponsored TV, as well as Freevee and "Thursday Night Football," among other programming. The plan also is to bring ads to Prime Video early next year.

Amazon Web Services -- the company’s technology business ranging from artificial intelligence to semiconductors -- brought in $23.1 billion versus $23.2 billion in expected revenue, according to StreetAccount.

“We had a strong third quarter as our cost to serve and speed of delivery in our Stores business took another step forward, our AWS growth continued to stabilize, our Advertising revenue grew robustly, and overall operating income and free cash flow rose significantly,” stated Andy Jassy, Amazon’s CEO.

Jassy said the AWS team continues to innovate -- particularly in generative AI. That’s where the combination of custom AI chips, Amazon Bedrock for AI applications, and CodeWhisperer allows enterprises to have the “equivalent of an experienced engineer who understands all of their proprietary code is driving momentum with customers.”

Those customers include adidas, Booking.com, GoDaddy, LexisNexis, Merck, Royal Philips, and United Airlines, among others.

"Advertising continues to be a major bright spot for Amazon,” said Insider Intelligence Analyst Zak Stambor. “Amazon dominates retail media thanks to its deep understanding of the channel and its ability to effectively deliver relevant ads to its massive customer base.”

Still, he said, Amazon will continue to look for more ways to grow the channel, including rolling out generative AI tools.

Insider Intelligence estimates Amazon’s U.S. ad business will reach $33.96 billion -- a 234% gain from its revenues just five years ago in the pre-pandemic year of 2019.

The earnings announcement came at the end of Amazon’s two-day conference, Unboxed, where the company highlighted its advertising services to agencies and advertisers.

Amazon might have followed Google and Microsoft into the advertising space, looking to support smaller companies, but they have found a niche in serving a marketplace of brands and companies looking to expand into a variety of media -- from search to streaming television. 

“It seems likely that at least some categories of small advertisers may greatly benefit from big screen, sight-sound-and-motion Amazon Sponsored TV placements,” said Gartner Analyst Eric Schmitt. “Initial adoption will likely correlate closely with the measurable impact of these placements on Amazon.com sales conversions.”

Amazon’s ad business is likely to flourish even more. Schmitt believes that in time, Sponsored TV Ads may also have appeal to smaller advertisers who are focused on one or both long-term brand building and offline conversions such as car dealerships and regional restaurant chains.

“Looking beyond small advertisers to larger brands, Amazon is very focused on providing tools to link and analyze ad exposure, search and purchase data via Amazon Marketing Cloud,” he said. “These capabilities surely offer meaningful, strategic insight into media strategy and planning, such as the question of how to best allocate search versus streaming TV, or other placements.”

To tap Amazon Marketing Cloud's capabilities, he said, an organization must have the resources for analysis and more sophisticated planning and measurement capabilities, which are found among bigger and medium-sized advertisers.