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Why Amazon’s marketing costs have increased

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Amazon’s spending on marketing costs has gone up

In the previous two parts of this series, we discussed the reasons why Amazon’s (AMZN) fulfillment and technology and content costs as a percentage of revenues have gone up in the last year. However, Amazon’s spending on marketing costs as a percentage of revenues has also gone up, from 3.9% in 3Q13 to 4.7% in 3Q14.

One of the reason for the increase in marketing costs was Amazon’s increased spending on online advertisements. Amazon spends the most on ads on Google’s (GOOG)(GOOGL) search platform.

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Amazon spends the most on Google’s search platform

According to a report from Ad Age DataCenter’s first ranking based on data from Adgooroo, a Kantar Media company, Amazon spent $157.7 million on ads through Google’s search platform in 2013. As the chart above shows, Priceline (PCLN) is the next highest spender on Google ads, but it spends almost half of what Amazon spends. AT&T (T), Expedia (EXPE), and Microsoft (MSFT) are some of the other players in the list of the top five companies in terms of spending.

The main reason why Amazon spends so much on Google’s search platform is because Google has stepped up its efforts for product listing ads (or PLAs). We covered this move in How Google’s product listing ads business is hurting Amazon.

If Amazon’s increased spending will help it grow its business, then it should benefit ETFs such as the PowerShares QQQ Trust (QQQ), which has considerable exposure to Amazon.

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