Amazon Profits Fueled by Ads
Sean Frank, CEO of Ridge, on the state of ecommerce post-COVID
Amazon is most valuable when many brands fight for visibility inside its marketplace, not when Amazon owns the shelf itself. Retail is a low margin business with inventory risk, returns, and markdowns. Marketplace ads are much cleaner economics. Brands pay Amazon to win placement in search results, then also pay referral and fulfillment fees when the sale closes. That makes third party sellers more profitable to host than products Amazon buys and sells directly.
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Amazon reports advertising services as a fast growing revenue line, with quarterly ad revenue rising from $12.8B in Q2 2024 to $17.7B in Q3 2025. The company does not break out ad operating income, but retail segment margins remain far below what a software like ad business would imply, which is why ads are widely understood to carry a disproportionate share of profit.
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For sellers, the money stack keeps getting taller. Beyond referral fees and fulfillment, Amazon introduced the low inventory level fee in April 2024, then revised it after seller pushback. The pattern is that once demand is captive, Amazon can keep layering charges tied to logistics and ranking, while sellers keep paying because the traffic is hard to replace.
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This is the same playbook now spreading beyond Amazon. Marketplace software vendors like Mirakl are pitching retailer media networks because ads can carry 70 to 80% margins versus traditional retail margins closer to the low single digits. In practice, the marketplace becomes less a store and more an auction for attention.
The direction is toward a more financialized marketplace where the winning sellers are not just best at sourcing product, but best at buying placement, managing inventory thresholds, and protecting contribution margin. That pushes ecommerce toward larger brands and sophisticated aggregators, and away from casual merchants who cannot absorb rising take rates.