This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
When it comes to the search advertising market in the United States, there's Google and then there's everyone else. But Amazon (NASDAQ: AMZN) is making the case that it deserves some recognition among the companies chasing the Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary's market share.
This year, Amazon will take nearly 13% of search advertising spending in the U.S., according to an estimate from eMarketer. That's still well short of Google's 73% share, but it's about twice as much as its next closest competitor, another tech giant, Microsoft.
What's more, Amazon is growing its share of the market while practically everyone else is losing theirs. eMarketer expects the online retail giant to expand its market share by 3 percentage points over the next two years while Google loses 2.6 percentage points.
Granted, the overall market continues to expand as marketers shift advertising budgets from traditional media like print and television to digital media. Search ad spending will grow 18% this year, according to eMarketer's analysts. Amazon's growing market share is of much more importance to Amazon investors than it is something for Alphabet investors to worry too much about.
A lot of growth left in the core ad products
The bulk of Amazon's $11 billion in advertising revenue comes from ads in its search results pages: sponsored brands and sponsored products. eMarketer's estimates suggest more than $7 billion of that revenue will come from U.S. search ads.
Amazon's ability to continue expanding its search ads stems from a couple of factors: search volume and average price per ad.
Amazon takes a large share of online product searches. That's fueled by growth in Prime memberships, which encourage its subscribers to at least see what's available on Amazon with their free-shipping benefit. Growing Prime memberships combined with the overall growth of e-commerce has led to a greater number of searches on Amazon.com.
As Amazon starts to saturate those searches with advertisements, strong demand from marketers has led to higher average ad prices. Results from over the summer indicate there's still room for growth in average ad prices as marketers compete for the top spot in search result pages.
Amazon's ability to attract new marketers and grow spending for its sponsored brand and product ads will continue to fuel growth in its ad business for several more years. eMarketer expects Amazon to grow its search ad business about 30% this year, and it won't slow down very much over the next two years.
Time to ramp up video advertising
While Amazon's search advertising business continues to grow, it's starting to make a business out of video advertising on its Fire TV platform, its user-generated content platform Twitch.tv, and its ad-supported licensed streaming entertainment service IMDb TV.
Last fall, Amazon updated the terms of its Fire TV platform, requiring most ad-supported channels to provide around 30% of ad inventory to Amazon in exchange for distribution. Fire TV has become large enough for Amazon to make such a demand; it now has 37 million active accounts.
It's also growing engagement on Twitch fairly quickly, and IMDb TV has shown enough success early for Amazon to increase its investment in ad-supported content.
Amazon now has a huge amount of video ad inventory, but it could take some time for demand to catch up with supply. Earlier this year, Amazon integrated its various ad-buying platforms into a single environment, bought an ad server from the bankrupt Sizmek, and continued to innovate with new ad products, which it focused on at its first-ever AdCon earlier this month. All of those efforts should help Amazon expand marketers' reach from its very successful search ads to its video ads.
The continued growth in search ad revenue should give Amazon a long runway to grow demand for its video ad products and a deep well of marketers to draw from as well. While the days of 100% year-over-year revenue growth for Amazon's ad business may be behind it, there's still a lot of room for Amazon to continue outpacing the growth of the rest of the search advertising market as well as the overall digital advertising market.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
