Why news companies should steal a page from Amazon’s book on diversifying revenue


If you were to put a .44 Magnum to my head and ask me for one — one! — thing that is most challenging for news media companies, I’d say: finding more revenue streams.

So where do you look for new revenue streams?

If I were you, I’d go to Amazon.com. Not only can you find basically anything worth buying there, but you’ll also be able to learn a lot about how to diversify your revenues.

To “old people” like me, Amazon is still associated with books and, to some extent, music, videos, and other media products.

But if you ask digital natives, they just see a store. And they’re right. Amazon, which started selling books online in 1995, now has more than 20 million different products in stock, most of them non-media goods.

But let’s leave that aside for the moment and look at another aspect of how the retail giant is developing its business.

Last week, eMarketer published research on Amazon’s ad revenues (see chart below). The growth rate, as well as the bulk of revenues, is amazing. In two years, Amazon has doubled its net ad revenues, from US$419 million in 2011 to US$835 million estimated for this year.

Compare that to a news media giant like The New York Times, where both print and digital advertising revenues are declining — 13.3% and 4%, respectively. Digital ad revenues for the Times were US$46.5 million in the first quarter of 2013. That’s 24.3% of total ad revenues, which total US$191 million for the news company in the first quarter.

If you look at the estimated figures for 2013, Amazon will have more ad revenues than the entire New York Times Company, print and digital included. (In 2012, the Times had a total of US$883 million from print and digital advertising.) Pretty impressive for an online retailer, I’d say. 

Amazon is not only challenging traditional media companies, but also taking a bigger chunk of the lucrative search advertising market, worth almost US$20 billion. Google, of course, is untouchable in this field, taking almost 75% of U.S. search ads for an estimated US$14.39 billion in 2013, according to eMarketer (see graph below).

But guess what? Amazon is growing faster than anybody — this year surpassing Microsoft, which has had amazing growth since the launch of Bing, the company’s own search engine. Amazon is increasing search ad revenues at a pace of 46.8% versus 34.3% for Microsoft. Google is still growing at 12.5%, which is impressive considering its market dominance.

So Jeff Bezos, the founder and CEO of Amazon, who started selling books online 18 years ago, is now making more money on advertising than The New York Times, which has been selling ads since 1851.

How did that happen? 

A major part of that, I’d say, is about the culture of constant change and innovation that Bezos has developed at Amazon, and about his obsession with the customer.

But let’s also leave that aside for the moment and look at one thing that has been vital for growing the advertising business: Amazon’s obsession with Big Data.

In digital advertising and marketing, Big Data is becoming the worldwide dominant currency, much like the dollar was for trade back in the days.

Bezos has used data-driven customer focus to innovate and be able to take big risks, convinced by the data that he’s doing the right thing. We all know how Amazon’s intricate algorithms turn present shoppers’ habits into custom recommendations for new buyers.

“Determine what your customers need, and work backwards” is one of his ground rules. Big projects like the Kindle tablets and e-book readers have been launched because Bezos, internalising hundreds of data points, believed people would want an e-book reader that could download any book in 60 seconds or less.

The flip side of this: If customers don’t want something, it’s out — even if it means breaking up once powerful departments.

Amazon tracks performance against some 500 measurable goals, of which about 80% relate to customer objectives. Weekly reviews keep track of what is on course — and where attention is needed.

An example of the attention to details: Amazon metrics show that a 10th of a second delay in page rendering can translate into a 1% drop in customer activity.

Amazon has made use of Big Data to personalise the site for each user, thus eliminating classic customer segments like “soccer moms,” which are way too imprecise for a company obsessed by consumers and data.

Now the retail giant has turned that knowledge into new revenues from advertising. According to eMarketer, the bulk of Amazon’s ad revenues come from ads placed in or near search results that appear when a person searches Amazon for a product.

“Key to further growth will be the plethora of consumer purchasing data Amazon gathers through its core business, retail sales. Ad-selling competitors such as Google and Facebook lack such data — and therefore its targeting potential,” eMarketer concludes.

The key takeaway from the story of Amazon is for news media companies to be experts at gathering not only information but data, and to use that data to venture into new revenue streams.

Jeff Bezos did so. Back in 1994, just 10 months before launching Amazon.com, Bezos took a four-day course (four days!) on how to sell books. The class was sponsored by American Booksellers Association. He then changed how books are sold and later how retail is conducted.

And I’ll be damned if Jeff Bezos won’t play a major part in changing advertising. Again.

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