When it comes to growth, advertising is hard to beat: In the past year, Amazon’s physical stores added $660 million in sales. Third-party seller services grew by $3 billion, slightly outpacing advertising growth of $2.4 billion. Subscription services, including Prime, added more than $1 billion. AWS was the golden goose with $5 billion in growth. Ecommerce sales – Amazon’s supposed main offering to consumers – actually ticked down by $400 million, due to manufacturing and supply-chain issues last year. Q4 2021 revenue totaled $137.4. billion, with advertising accounting for 7%.
Advertising has an attractive runway though, Olsavsky said. There are “great feedback loops” between the ad services business and its advertisers.
“Longer term, the Amazon DSP opportunity is something we’ll continue to work and refine,” he said.
Also, unlike growth of its retail business, advertising growth doesn’t entail massive investments in new hires. Amazon hired 273,000 new employees last year (what labor shortage?) but still fell well short of what it needed to meet demand, Olsavsky said. In 2020, the company hired more than 400,000, and it wasn’t for lack of trying in 2021.
The labor pool has tightened, he said, and the company has raised wages and benefits.
That makes the scalable, low-hanging fruit of ad sales growth attractive indeed.
The other big announcement from Amazon was that the company will raise the price of a Prime subscription by $20 annually, or $2 per month, depending on payment choice. The monthly fee totals $14.99, up from $12.99. Netflix also recently raised its premium streaming plan by $2 per month, from $18 to $20.
The news is not a surprise, however. Amazon was rumored to be preparing for an increase. It previously raised Prime prices in 2014, 2018 and, now, 2022.
Still, the subscription increase signals strength for Amazon in a keystone business, especially considering how prized subscription revenue lines, streaming media subscriptions in particular, have become to Wall Street investors. And let’s not forget Prime Video is a SVOD (and mostly ad-free) experience.
Amazon Prime offers a raft of benefits, not just the video library that is a Netflix analogue. But among so many subscription services offering free or heavily discounted rates, or services that launched at unsustainably low price points, Amazon stands out for its ability to increase revenue without discounting or turning to advertising to subsidize content costs.