AMZN Crushing Mobile

As BI reports, Amazon is dominating the mobile commerce space. Oppenheimer highlighted by just how much saying …“At the end of 2014, Amazon had roughly the same number of mobile unique visitors as Walmart and eBay, in the US. As of December 2016, Amazon has more unique visitors than the apps of those two companies’ combined,”.

And outside of Walmart and Ebay, the rest of the entire retail industry is way behind to the point you could be forgiven for writing them off entirely in the future of mobile commerce:

amzn-mob

So we have an Amazon dominated mobile commerce landscape in the near future. But long-term, perhaps as has always happened, the Internet will throw something new at us.

Amazon and Walmart Face-off

It looks like the big two in retail, Amazon and Walmart, are going to collide both online and offline. Following the Jet.com acquisition, Walmart are talking up future ecommerce initiatives and their impact on the stores business.

Likewise now Amazon plans to more aggressively get into physical retail as noted by WSJ.

With curbside pickup, Amazon will have to contend with Wal-Mart, which plans to bring the service to nearly a quarter of its roughly 4,600 U.S. stores by the end of next year, executives said on a conference call last week .

So will Walmart’s physical competency beat Amazon’s digital expertise? Time will tell but if you were to bet on anyone you’d be hard to bet against Amazon. The digital pie is growing and the market already says Amazon’s future earnings will continue to rise. The same can’t be said about Walmart, especially when you consider the customer base that was built on the middle to lower class is stagnating.

Should be fun to watch.

Yup, Ecommerce is Hard

WSJ reports Walmart is in talks with Jet.com, the barely one year old ecommerce startup:

For Jet, a takeover by an old-line retailer would demonstrate the challenges of attempting to go it alone in the hypercompetitive e-commerce market.

This business is capital intensive, heavily reliant on brand and a massive slice of luck..

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Dollar Shave Club

Stratechery has a nice piece on the Unilever Dollar Shave Club purchase. Noting something we also discussed with respect to FMCG:

I suspect this sort of disruption will not be a one-off: the Internet (and e-commerce) has so profoundly changed the economics of business that it is only a matter of time before other product categories are impacted, with all the second order effects that entails.

Read the piece here.

Offcourse whilst it’s a good deal for founders and investors, it does raise concern as to why another pure-play ecommerce company could not reach the public markets.

AI and Discovery

Watch Amazon’s David Limp explain more about Alexa – the voice based device and shopping service – and their use of AI in commerce.

Alexa is a ‘computer in the cloud’ and could change the face of ecommerce due to the fact it really hits on the discovery rather than typical mission based approach of ecommerce today.

The World is Flat…and Fast

The Economist has a good piece on why the world is getting flatter and faster. This is to the detriment of large companies, particularly those in the FMCG space. They note:

Yet these advantages are not what they once were. Consolidating factories has made companies more vulnerable to the swing of a particular currency, points out Nik Modi of RBC Capital Markets, a bank. The impact of television adverts is fading, as consumers learn about products on social media and from online reviews. At the same time, barriers to entry are falling for small firms. They can outsource production and advertise online. Distribution is getting easier, too: a young brand may prove itself with online sales, then move into big stores. Financing mirrors the same trend: last year investors poured $3.3 billion into private CPG firms, according to CB Insights, a data firm—up by 58% from 2014 and a whopping 638% since 2011.

If you’ve got a good product, it’s never been easier to get it out there.

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Declining Online Advertising ROI

Anyone in ecommerce – particularly those selling third party brands or running marketplaces – know the important of online advertising. Without Google Adwords or Facebook Ads, many remaining pure-play ecommerce websites would be doomed. And offline counterparts would struggle growing their online business. But ad placement has become extremely automate these days and it’s destroying any kind of ROI from online advertising. So as a online merchant, do you increase online ad spend or focus on ‘organic’ customer acquisition? (or dare I say it, offline advertising!?)

Below are five companies who provide some details about their online advertising budget: Ebay, Amazon, TripAdvisor, Expedia and Priceline. Combined, they have spent over $10 billion on online marketing in FY2015, mainly on digital ads. Their ROI of online advertising is declining: businesses need to spend more for every additional dollar of sale.

Change in advertising and sales, from 2010 to 2015 (source: SEC 10-K filings)

online ad 2

Since 2010, their online ad spending outgrew their online B2C sales. This is a general trend in e-commerce: Google’s revenues are up 156% from 2010 to 2015, while online B2C sales roughly doubled. This is clearly not sustainable.

Now one might say online advertising (and advertising in general) can always be improved. However, the marketing departments of these huge online businesses are already well versed in online ads, true insiders to the market, and even their advertising efficiency is declining. One can only imagine the dreadful returns for outsiders, companies like Verizon or Walmart. Very few companies are transparent in their ad spending, so it’s impossible to really know what’s going on in their marketing departments.

The decline in bang for every ad dollar spent is proof that the expansion of online advertising is being done to the detriment of customers, in ever less productive campaigns.

Automation

The growth of ad exchanges, demand-side platforms, and programmatic buying has removed much of the need of human intervention in the process. User tracking enables advertisers to identify in real-time who is visiting any given website, and to match the visitor with an ad, instead of relying on the website’s content to draw an approximate profile of who might be viewing the webpage.

Automation has brought down the cost of deciding whether it’s worthwhile to place an ad, and user tracking has made websites’ content less relevant. It has become economical to place ads on low-end websites for cheap, because the marginal cost of placing an ad has become so low.
This means that the growth of online advertising has happened on subprime ad space. The industry’s argument is that it’s still worth their customers money, thanks to algorithms that check everything about the user, his browsing history, the cookies on his browser, his hardware data. This is a compelling case, because the prime as space on the Internet (websites such as The Economist, the New York Times) are very expensive. However, customers paying for their ads to be displayed have practically no way of making sure their ads are being displayed to the right people.
Brand

Moreover, the industry has been pushing for more advertising budgets to be allocated to “display ads”, particularly on mobile, where Internet users click on ads much less than on desktops. The huge red flag with this practice is that customers have no means of knowing if their ad dollars are being spent efficiently. With pay-per-click, at least someone is coming to their website. With display ads, they are merely paying for exposure and such vague concepts as “brand awareness”.

It’s not even clear if a visitor actually sees a “display” ad, and the industry is trying to set up a “viewability” standard for this type of ads. Currently, it is assumed that an ad has had a “reasonable chance of having been viewed by the visitor, if at least 50% of its pixels were displayed on the visitor’s browser for at least one continuous second”. This definition alone lets you understand how murky this type of advertising actually is.

“Display” caught up with pay-per-click in 2015, and is projected to reach $32.2 billion in the US in 2016, vs $29.3 billion for PPC. But the bigger question is, has time caught up with online advertising as a whole? And if so, as a merchant, what do we do about it? Is brand the solution and future of marketing period? Share your thoughts in the comments.