Amazon ads arm surges 87%

Here is the marketplace news that captured our attention this week.

Amazon Ads Arm Surges 87%

Amazon has posted another set of impressive results for the second quarter, led by a surging advertising business as brands continue to pivot their marketing strategies toward digital. This shift brought in $7.9bn to further swell Amazon’s coffers over the quarter and represents a marked improvement from the 77% growth registered last quarter and 41% growth logged a year ago.

Amazon’s share of the entire US advertising market is now in excess of 10%, a proportion that is only likely to rise further as recent trends toward online shopping demonstrate their staying power.

There is an expectation that growth rates will recede further over coming quarters as a pandemic-fuelled sales surge passes.

Tambo’s View

Amazon’s Q2 earnings results were one of its most anticipated yet, and they did not fail to disappoint. With 14% of all online global spend passing through Amazon, it continues to hold the fort through its horizontal expansions, lucrative acquisitions and partnerships with small businesses. The challenge for the second half of the year will be sustaining growth and maintaining sales as physical shopping returns and Covid-19 restrictions ease. That said, with more and more consumers shopping online, and a potential second Prime day in October, Amazon will undoubtedly be a major player in retail in the second half of 2021.

Amazon Expands Deliveries To Serve Unlikely Clients: Its Rivals

Amazon Multi-Channel Fulfillment (MCF) is a lesser-known subdivision of the company’s highly successful Fulfillment By Amazon (FBA) programme. Where FBA stores, packs and delivers to Amazon customers, sometimes in as little as a day, MCF offers much the same for sales on other websites, such as Walmart, eBay, Etsy, Shopify and several others.

Sellers gain the convenience of keeping their stock within one system, while Amazon grabs a slice of its competitors’ business — leveraging the immense capabilities of its delivery network, the capacity of which has more than doubled in the past two years.

MCF has existed in some form since 2007, but Amazon is now pricing it more competitively with other logistics providers; entering into new software partnerships to promote and streamline its use; and implementing workarounds designed to circumvent the objections of competitors who would prefer Amazon did not deal with their customers.

It means that on top of its approximately 40 per cent market share of US e-commerce, Amazon stands to gain an even greater understanding of the shopping habits of global consumers.

Amazon has not given any indication as to how much of its capacity is being used to handle MCF orders. Etsy and Walmart also declined to comment on how much they use the service. Overall, however, logistics analyst Marc Wulfraat estimated Amazon could handle as many as 7.5bn packages in 2021, not including those it sent off with the likes of FedEx or UPS.

In May, Amazon launched a waiting list for sellers interested in joining a pilot programme that would place MCF orders into unbranded boxes.

While it may seem counterintuitive for Amazon to make it easier to sell on other stores, the push for MCF comes as sellers increasingly seek to diversify where they place their products, thanks in part to the elevated demand across the entire e-commerce sector owing to the pandemic.

In July, Amazon announced it would be directly integrating MCF with BigCommerce, a leading management software provider for “omnichannel” sellers — those who sell goods across multiple stores at once.

But one potential stumbling block for MCF will be Amazon’s continuing struggle to add extra capacity to its network quickly enough. The company has imposed strict stock level limits in its facilities, frustrating sellers who have had to make alternative arrangements.

Tambo’s View

Amazon has spent years building one of the most efficient and optimized supply chains in the world and its multi-channel fulfillment program is now trying to redefine how enterprises use supply chain capabilities. In doing so, Amazon is now in a strong position to better understand the shopping habits of global consumers. However, in order for MCF to be attractive for sellers, Amazon must address its struggles to add capacity to its network and revise storage restrictions which discourage businesses from using the service.

Amazon Pilots Whole Foods Delivery

Amazon is taking on a delivery fee for Prime members who shop at Whole Foods Market in several U.S. cities, an indication that the economics of grocery delivery continue to pose a challenge for even the world’s largest online retailer.

Shoppers were informed of a $9.95 service fee for deliveries beginning Aug. 30 in the Boston and Chicago areas, as well as Manchester, New Hampshire, Portland, Maine, and Providence, Rhode Island.

Amazon rolled out delivery from Whole Foods stores, a perk offered for free for Prime members whose orders exceeded $35. As that rollout was going on, Amazon also dropped a $14.99-a-month charge for delivery from its existing Amazon Fresh grocery business, essentially making free food delivery a standard perk for paying Prime members. The fast-shipping and video streaming club costs $119 a year in the U.S.

“This service fee helps to cover operating costs, so we can continue to offer the same competitive everyday prices in-store and online at Whole Foods Market,” the company said in a notice sent to some shoppers last week. Grocery pickup remains free, the notice said.

A Whole Foods spokesperson described the new delivery fee in some markets as a pilot program, saying the company preferred to use the charge to help cover the costs of equipment, technology and delivery rather than raising food prices.

Whole Foods delivered more than three times as many orders in 2020 as in 2019, the spokesperson said, as shoppers avoided stores during the pandemic, and average basket sizes are up since the beginning of the year. The chain struggled during lockdowns with a steep decline in visits for prepared foods, a staple of Whole Foods stores in urban areas.

Tambo’s View

This announcement is reflective of the challenges that many supermarkets and grocery delivery firms are experiencing when it comes to making profit. Supermarkets in the UK have struggled to make online deliveries profitable due to the cost of packing, delivering and expensive refrigerated vans. Similarly, on-demand grocery startups like Getir and Dija are paying riders above supermarket industry rates between £10-£11 an hour. What's more, all of the on-demand brands have decided to hire pickers and riders as proper employees rather than gig-economy workers.Additional fees incurred by the customer is one solution to this problem. In Amazon's case, while the new fees likely won't pull customers away from Prime entirely, they could threaten Amazon's burgeoning online grocery business as shoppers look for cheaper alternatives like Walmart+. The pilot also opens the door for other firms to experiment with free or lower cost services to try to cut into Amazon's business.

Tambo believe the the increased level of competition by new market entrants could in fact place grocery brands in a much stronger negotiating position with Amazon moving forward. This will be great news for a sector that has seen margins squeezed more than any other by the marketplace giant during the pandemic.

Twitter Grab A Piece of E-commerce Pie With Shop Module

Earlier in the year Twitter let us know that they were testing out the potential for shopping on their platform. This week Twitter has announced the launch of a pilot of the Shop Module, a feature that allows them to explore how shoppable profiles can create a pathway from talking about and discovering products on Twitter to actually purchasing them.

The Shop Module is a dedicated space at the top of a profile where businesses can showcase their products. When people visit a profile with the Shop Module enabled, they can scroll through the carousel of products and tap through on a single product to learn more and purchase — seamlessly in an in-app browser, without having to leave Twitter.

Twitter wouldn’t be the first or last social media platform to test the waters for ecommerce. It is not surprising that social media platforms would want to take advantage of their expansive member base. Eerily, even before the Pandemic began businesses selling on social media sites and apps were predicted to rise and given the current circumstances, these platforms have been pushed to develop shopping features that meet the new much larger demand for ecommerce.

Currently, Twitter is starting small with a handful of brands in the United States. People in the U.S. who use Twitter in English on iOS devices will be able to see the Shop Module. As they learn, Twitter is creating deeper partnerships with businesses that reflect whom they’re building for with a new Merchant Advisory Board. The board will consist of brands that have established themselves as best-in-class examples of merchants on Twitter. With their partnership, Twitter hopes to more easily address the needs of businesses of any size or vertical in their product innovation.

Tambo’s View

Twitter’s entry into online shopping comes at a time when major tech companies and social platforms are ramping up their investments in e-commerce. Facebook has made significant moves into e-commerce with shopping features across Facebook, Instagram and WhatsApp, including with initiatives like online storefronts, integrated checkout, product drops, video shopping and more. Shopify has also partnered with a number of tech platforms, including Facebook, TikTok and Google, to make it easier for consumers to connect with products sold by its merchants. This move will give Twitter the chance to keep learning about which shopping experiences people prefer on the platform, and to eventually turn e-commerce into another revenue stream for the company.