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Thursday, April 03, 2003

Google Ads to Show Up on Amazon.com

Nearly three years ago, I wrote an article about GoTo.com's progress, wondering whether publishers were beginning to partner with GoTo's paid search in order to "shore up weak balance sheets."

Maybe that's not the most delicate way of putting it, but in any case, Amazon's new deal with Google has the potential to add a nice jolt of incremental ad revenue to Amazon.com's very busy site. Who knows, this might even be enough to keep Amazon profitable amidst an increasingly stubborn recession.

The economics of paid search are compelling, as has been borne out by Yahoo's fiscal resurgence in the past year. Amazon is in a low-margin, high volume business, which has prevented it from breaking away from break-even territory. Ebay, by contrast, is a low-touch business that takes a piece of commercial transactions but doesn't actually have any inventory. Low costs, fat profits.

Advertising revenues generated by keyword-based advertising are an extremely high-margin proposition for Amazon. You take all those page views that are already happening on a daily basis, and monetize them... with no need to ship anything or incur any cost whatsoever (other than sending Google its revenue share).

For Amazon, it's a no-brainer. 99.5% of the time, consumers may not find any of the text ads relevant to their needs. But so long as they click every so often, Google and Amazon collect dollars from advertisers.

Is this the most significant example to come along of an e-commerce company trying to supplement its own sales with an advertising model? I'd be interested to hear what others think. The only other (failed) example that I can recall was Buy.com. Remember their splashy IPO, and their bold differentiator - the claim that they would "lose money on every sale" but still turn a profit because they'd be selling so much banner space on the site? That failed, obviously... but then again, Buy.com is no Amazon.com, and banners were never as effective as small keyword-targeted text ads seem to be.

Posted by Andrew Goodman




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