This analysis was first published in SvD Näringsliv, in Swedish, on February 25th, 2022.
What has revenues of SEK 290 billion, grows 32 percent a year and is almost invisible to its users? Amazon’s advertising business, which has grown bigger than Twitter, Snapchat and Pinterest — combined. And Amazon isn’t alone in hiding billion-dollar side projects.
When Google renamed itself Alphabet in 2015, management needed a new way to explain its business to the stock market.
They made it easy on themselves.
Alphabet would consist of two parts: one that grouped all of Google’s products, and one that held absolutely everything else. The latter was called “Other bets”. A few years later, YouTube was also promoted to its own line in the financial reporting.
Inside “Other bets” you find, for example, Waymo, which works on self-driving cars, and health tech company Verily. The total revenue for “Other bets” came in at around SEK 7 billion in 2021. A sizeable sum for most companies in the world. But compared with Alphabet’s other revenues, it’s close to a rounding error — only around 0.3 percent of the total. And even though the costs for the segment are considerably higher, it still gives the company a degree of freedom for new ventures, since investor attention is mostly on the larger numbers.
Hiding billion-dollar businesses isn’t something you do alone.
Facebook Marketplace is reported to be the world’s second-largest marketplace by active users. It sits as a discreet tab in the app and is rarely touched on in owner Meta’s communications. But by user count, it exceeds companies like American eBay and Chinese Taobao. That’s an achievement most other companies would likely want to make a big deal of — instead it sits hidden as an asset that neither lawmakers nor the market keep a close eye on.
The unchallenged number one among marketplaces, though, is Amazon. And they hold the biggest secret in this category.
For many years, Amazon has reported multi-billion-dollar revenues in a category simply labeled “Other”. Out of that category, they have now for the first time broken out SEK 292 billion for 2021 in a new segment named “Advertising services” — in other words, the company’s ad sales. To get a sense of the size: “Advertising services” would be Sweden’s second-largest company by revenue.
Those who’ve used Amazon to buy products may not have even registered that the site or the app has ads. But the model is, to a large degree, identical to the one Google uses — namely, search ads. Since Amazon has many third-party sellers offering products on the platform, there’s a constant fight over who shows up at the top of the search results. To make sure their own products get enough visibility, sellers buy ads from Amazon. When the product is then sold, Amazon gets paid a second time.
The ad volume also hints at the enormous number of visitors Amazon has. Search advertising is an established category, but the challenge tends to be having enough traffic for it to matter. Compare that with a company like Microsoft (which owns the search engine Bing): it had just over SEK 90 billion in ad revenue in 2021. The corresponding figure for image search engine Pinterest was around SEK 24 billion. The world’s second-largest search engine, YouTube (owned by Alphabet), admittedly has several different ad formats, but measured by total ad sales, Amazon is still larger.
The tech giants’ main businesses are so enormous they easily overshadow everything else. But the numbers make a previously unknown picture clear: Amazon isn’t just one of the world’s largest e-commerce companies — it’s also one of the world’s largest advertising companies. And they’ve become so through individual projects and initiatives that have made them far bigger than the competition.
When trying to grasp the scale of the tech giants’ influence, this is worth keeping in mind: their side projects are worth more than many countries’ GDP. Suddenly the idea of regulating them feels a lot less controversial.