Is Amazon's retail business entirely supported by advertising?

For third-party sellers, it is difficult to make money by simply leaving their products on the platform. Advertising has become an important marketing tool, but it also costs a lot. On the other hand, for the platform, advertising has become its main source of income, and this is also the case with Amazon.

According to Marketplace Pulse, without high-margin advertising revenue, Amazon's retail business would become increasingly unprofitable. Amazon reportedly didn't break even until 2015 , and since then, as advertising revenue has grown, Amazon has also used that growth to fund other retail businesses.

Excluding AWS, Amazon's retail business had operating income of $ 6.3 billion in 2021. These retail businesses include online sales, physical stores, third-party markets, advertising, and Prime membership . This also includes $31.2 billion in almost pure profit advertising revenue. If the advertising business is left out , Amazon will face a loss of nearly $24.8 billion.

In the fourth quarter of 2021, Amazon's retail operating loss was US$1.8 billion, the highest loss in six years . Without the compensation from advertising , the loss would have been a much higher US$11.6 billion.

Advertising is clearly Amazon's most profitable business unit. It is now nearly half the size of AWS and generates more operating income.

Google, Meta, and Amazon accounted for 74% of total global digital ad spending in 2021. According to the latest company report , Amazon's advertising and promotion costs reached $16.9 billion in 2021, which may make it the largest advertiser in history. Amazon's advertising investment increased by 55% year-on-year in 2021 , the fastest growth in a decade and more than double the 20.6% increase in the entire retail industry .

Thanks to Amazon 's expansion into new areas and strong revenue growth across its various business units , Amazon 's total revenue increased 21.7% to approximately $470 billion in 2021. As this growth is likely to continue in 2022, further increases in Amazon's advertising spending are also likely.

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