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Amazon Lays Foundation for Giant Video Advertising Business

Get ready for a lot more video ads on Amazon video content.

Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

In many ways, Amazon’s advertising business still remains a mystery. The company doesn’t break out the size of it in its earning reports, and Amazon exec presentations on it at industry events are often low on details.

But, for what it’s worth, research firm eMarketer estimated in the summer that Amazon’s ad revenue would top $800 million in 2013. That would mean the ad business represents about one percent of Amazon’s overall revenue, which would explain why the company has seemingly taken a slow and steady approach to expanding it; it’s not a core part of the overall business so the company can afford to be patient with it.

Today, however, Amazon is shedding a little more light on where it hopes to take its ad business. It is announcing that it has inked a deal with video ad company FreeWheel to provide the technology for Amazon to build out its video advertising business. (FreeWheel works with large media companies, including ABC, ESPN and NBCUniversal, which is an investor in Re/code parent company Revere Digital.)

FreeWheel is essentially responsible for putting the right video ads in front of the right Amazon customers.

In short: Get ready for a lot more video ads on Amazon video content.

The two companies started working together in the fourth quarter, according to Amazon ad boss Lisa Utzschneider, with FreeWheel serving some video ads in front of short-form videogame trailers that Amazon surfaces in search results. (Search results on Amazon for “Tiger Woods Golf,” for example, include some of these trailers, and the Pampers pre-roll ad I saw on these videos was served by FreeWheel.) Utzschneider said Amazon would start showing more types of videos in its search results, from product demos to movie trailers, with FreeWheel inserting ads where appropriate.

FreeWheel also gives Amazon the technology to overlay “Shop Now” and “Learn More” features into the video ads.

But perhaps more interestingly, FreeWheel has also been working with Amazon to serve video ads into a selection of TV show episodes on the Kindle Fire, according to Utzschneider. She said Amazon worked out deals with television networks last year to stream the first episode of hundreds of TV shows for free on the latest models of the Kindle Fire tablet.

Providing a free appetizer is obviously a way to lure viewers in with the hope that they will like the show and pay up for future episodes.

But if Amazon starts seeing a lot of demand from advertisers for these digital commercials, one could imagine Amazon working out some deals to expand the number of episodes or shows offered for free through an ad-supported model.

Utzschneider won’t say one way or the other. But it’s clear that Amazon is now committed to investing in video ads in a meaningful way.

“What we’re seeing and hearing is that our advertising partners are very, very interested in working with us to make the customer experience that much more relevant with video,” she said.

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