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Amazon.com, Inc. (NASDAQ:AMZN) Mimics Google and Kills Ad Revenue

Amazon.com Inc. stock surprise

Amazon.com Inc. seems to have woken up from a slumber when it realized that it was sending potential buyers to other sites with the pay-per-click ads on its site. The Wall Street Journal reports that Amazon is ready to ax pay-per-click ads starting from October 31. The move is a subtle mimic of Google’s ad business that seeks to relegate third party sites to the background.

Amazon Minion Shipping Boxes

Amazon says it will replace those clickable ads that show in the bottom of search results with text ads. No official reason was given for the change but it is easy to understand that Amazon won’t like to drive traffic to other retail outlets especially when are powered by a rival – Google.

An Amazon spokesperson confirmed the decision saying the firm is “constantly reviewing the services we offer partners to help them best reach our customer base.”

How much is a click worth?

Amazon makes some money from ads displayed on its site and the firm does make serious money from those ads. Amazon  has prime online real estate for ads as businesses try to display their goods to Amazon’s almost 280 million customers.

Amazon makes between $0.10 and $2.05 per click from the ads on its site. eMarketer posits that Amazon made about $1.03B from ads last year and that the firm is on track to make $1.26B from ads this year.

However, $0.10 is minute when considered from the point of view of how much Amazon is likely to make if those customers actually buy from sellers on its site. Pay-per-Click ads poach buyers away from Amazon – all for a measly $0.10. Consumers typically start their product searches on marketplaces such as Amazon. It’s a loss for Amazon to allow those consumers leave its site for other sites.

However, the real cost of those clicks to Amazon might be the valuable data about user patterns that Google obtains when buyers click those ads. It is no longer news that Amazon is Google’s biggest rival in the product search business and Amazon’s marketplace gives it an edge over Google in the product search space.

From the ads, Google might know buying preferences for particular products and brands across different demographics. The data will hold much value for Google is creating ads that will bring the biggest ROI.

Using Google’s move to fight Google

The Amazon decision to clamp down on pay-per-click ads is similar to Google’s move to restrict marketers from buying YouTube ads via third-party companies through the DoubleClick ad exchange.

Nathan Barling, global chief data and technology officer sums up the move by Google   and Amazon to clamp down on third-party ads saying: “retailers using these links have access to a vast amount of search intent data. Once they understand the kinds of products that attract people away from a particular site, they can use that information to build an advertising audience.”

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.