Amazon will capture 12.9% of the U.S. search advertising market by the end of this year, according to eMarketer. That represents growth of 30% over last year, outpacing the 18% growth of the market as a whole. Shares of Amazon were up 1.3% to $1,759.00 on Tuesday.
Google (GOOGL - Get Report) is the dominant player in the search ad market, with 73.1% market share in 2019. Amazon is the second-largest, followed by Microsoft (MSFT - Get Report) at 6.5%. According to eMarketer, Amazon is poised to chip away at Google's lead over the next two years. By 2021, Amazon will capture 15.9% market share, while Google's will shrink a bit to 70.5% share.
Amazon has been growing its ad business at a robust clip: In its second quarter earnings release, the e-commerce giant posted 37% growth in its "Other" segment, which is largely comprised of ad revenue. That segment brought in $3 billion for the quarter.
"Amazon's dominance throughout the consumer purchase journey, across an increasing number of categories, is creating a hyper-competitive environment for brands and retailers," explained Dani Nadel of Feedvisor, a retail intelligence firm. "Advertisers need to shift their media spend to get discovered, connect to high-value consumers, and capitalize on this growing Amazon demand -- supported by attribution data and ROI metrics to reinforce a strategy of continued investment."
Analysts point out that Amazon, compared to Google and Facebook (FB - Get Report) , has a unique advantage in that it's already a shopping destination. In August 2018, PiperJaffray analyst Michael Olson estimated that Amazon's market share of product search was "well above 50%." In income terms, he projected that by 2021, the high-margin advertising segment could surpass AWS as a profit contributor.
Over the past few quarters, Amazon has been boosting its slate of advertising options and luring marketers and brands to spend more ad dollars on Amazon's platform.
Earlier in the fall, Amazon rolled out a new sponsored products option and ways in which marketers can brand their ads. Soon after it also hosted its first advertising conference, pitching attendees on how to build or create a brand on Amazon as opposed to simply buying display ads.
"Amazon has built a $10 billion direct-response advertising business practically overnight. But the AdCon event in Seattle last week illuminated Amazon's ambition to move up the funnel and establish itself as the best platform on which to build a brand," John T. Shea, chief growth officer at Teikametrics, told TheStreet.
Shares of Amazon are up 12.8% year to date.