Amazon has been quietly building a powerful advertising platform that I believe will surpass the size of AWS in the next 5 years. Last quarter, the company projects $5.4 in revenue from advertising services, growing +50% y/y (compared to $11B for AWS, growing at 29%). Most people have heard the stat that 50% of shopping related searches now start at Amazon but in my view, search is just the tip of the iceberg. The world where Amazon displaces a significant amount of both Google / FB’s ad business is closer than it seems.

1. Owning the browser: By controlling the browser, you can be the default search engine. Amazon will own a significant share in the web browser market through its device strategy. More importantly, given the focus on Alexa, Amazon will own the browser of the future: voice. When a user searches on or through any of these properties / devices, Amazon will gather more data about the user and have the ability to influence future shopping behavior. This is one of the threats to the Google ecosystem because rather than Amazon being limited to product search, they will push into providing comprehensive web search.

2. Building and distributing content: By producing their own content, Amazon has an asset that it can use to drive ad revenue in more creative ways, not just limited to the 15 or 30 second spot. Amazon can give sellers / brands the ability to fund or sponsor shows, do product placement, and perhaps tie the purchase of products to getting free premium content. Because Amazon not only produces the content but owns the distribution channel, they can help brands market to consumers on a truly one-to-one basis. Brands may be able to target ads based on prior purchase history and eventually with perfect attribution from seeing an ad to placing an order, Amazon may be able to bring higher levels of performance marketing to this channel. Just as Facebook has become a dominant force in direct-response marketing because of its strength in attribution, Amazon has the same potential.

3. Create a seamless purchase experience: In the very near future, it will be possible to click on an interactive ad within a TV show, add that item to cart, and have it delivered within the hour. Amazon’s combination of content, distribution, merchandise, payments, and delivery infrastructure will create a seamless online to offline purchase experience that will be hard to compete with. This frictionless purchase experience will also enable impulse purchasing in a way that is not possible today. Imagine watching an episode a cooking show and get an ingredient kit delivered that same afternoon without ever leaving home. The one click impulse purchase could be a powerful lever for brands that doesn’t exist in any non-intent or discovery oriented platform.

4. Bridging the world of intent and non-intent: Passive listening through Alexa could bring the world of intent and non-intent together combining cues about a user’s behavior and preferences with their search history. While the ethical and morale gravity of passive listening devices is a much larger topic, Amazon is the only company with all the components to connect what it learns about us across all its channels with what we buy. Google arguably is best positioned to compete on this basis but lacks the commerce infrastructure that Amazon has built over the past few decades.

I’m convinced what Amazon builds will have immense impact on the internet industry. Brands will have another powerful platform to consider but its likely that transactions driven by Amazon’s ad business will always stay within the Amazon ecosystem. Said another way, if a brand decides to market to Amazon customers, they should be prepared to pay both an advertising and marketplace tax to Amazon. This shift may favor larger brands vs smaller brands since large brands will have the purchasing power to crowd out the smaller ones and may be able to squeak out a profit given their scale advantages. However, for all brands, owning the customer relationship has never been more important to avoid being dependent on any large platform.