Despite a competitive landscape that is growing fiercer, Amazon’s advertising business has continued to grow. And 2023 presents unique challenges for Amazon.
Pacvue’s Co-Founder and President Melissa Burdick shared her insights on Amazon’s Q4 earnings and advertising growth on Bloomberg Technology. With broader implications for brands advertising on Amazon, Melissa detailed her outlook on innovations and adjustments Amazon will tackle in 2023.
Watch the full video and read transcribed sections below:
Despite recent headcount reductions, it seems like parts of Amazon remain bloated. Do you think they will become nimbler in terms of future hiring and reductions?
Absolutely. They hired half a million people in 2020, and they have over 1.5 million employees. So, relative to that, 18,000 employees are 1.2% of total headcount and 6% of corporate headcount. And in the face of slowing growth and slowing demand, headcount reduction is something to think about, as they will have to look at their bottom line.
How will Amazon react across Amazon Web Service (AWS) and Amazon Ads as we ramp into 2023? And does sluggish growth for AWS worry you?
Well, the two businesses at Amazon that are very profitable are advertising and AWS. So, those are definitely areas that they plan on continuing to invest in. They’re definitely both slowing. AWS’ market share has dropped from 43% to 34%. They have a lot of competition with Microsoft and Google. And right now, all companies are looking at cutting costs. And one of the first places you go to make cuts is AWS. So, I think that is going to be a big challenge this year because companies are looking to be efficient themselves and that will impact AWS.
What’s your long-term outlook on Amazon’s business model, particularly your thoughts on AWS as the fortifying profit center?
“Amazon has become a services business. It’s over 50% of their revenue across AWS, advertising, and subscriptions. And so that will continue.
And I think one thing that Amazon is well known for is its innovation. The thing they can’t control is the demand and the cost-cutting part that other people are doing, and that impacts AWS. Advertising is a bright star for Amazon—they’re doing so many things there. Prime video for the first time has surpassed Netflix as the top streaming service. Amazon talked about 100 million viewers watching Lord of the Rings. More people watching streaming means more advertising revenue for Amazon. And so that is a big start for them.”
What’s on the regulatory horizon for Amazon in 2023?
“The DOJ definitely has Amazon as a target. It’s really hard to call them a monopoly with so much competition. They actually have a slipping market share with AWS, but that’s not to say that it’s not going to be a distraction. It’s something they’re going to have to answer. It happened before with private label, they had to answer that. So, it will continue to be something that all of these tech companies are dealing with, but I see less of a leg to stand on.”