April. The 2016 annual results report from Amazon, determines its growth is driven by AWS, whose net profit has doubled compared to the previous year. However, there is one piece of information that may be worth taking a look at; page 68, ‘net sales by type’. For the first time there is a specific epigraph that – still listed under “Others” – talks about the sales of certain advertising services. It has doubled in one year. Also, revenues from subscription services – including Amazon Prime and Amazon Prime Now – have tripled.
June. Amazon buys Whole Foods.
August. While some people at Google were busy signing an agreement with Wal-Mart; others were busy researching. The research they published shows that, compared with two years ago, users are now 3x more likely to look for stores that are open at exactly the same time they are searching for a product; increasingly, consumers expect service on-demand.
The Rise of “Open Now”
Source: Google Trends June 2015 vs. June 2017. U.S.
What Amazon is building.
Over in Seattle, they have their strategy, and it looks something like this;
- Phase 1: It’s the year 2000. Amazon is in the products business, specifically distribution. For 10 or 12 years Amazon acted as the final link in the chain, point of sale. It was growing rapidly, but it was not making much money (in terms of margin).
- Phase 2: It’s the beginning of 2007. Enter the advent of B2B services; a process of horizontalisation. Services for product makers: from AWS (which made Amazon and Bezos rich), to Amazon as a sales platform (of products or recently services), to Amazon as a payment platform or Amazon Fulfillment.
- Phase 3: The business of knowledge. The company that invented big data for use with consumers, reinvents itself as a company of creation and extraction of value from data. They increased their value by offering B2C services too. They introduced products like the Kindle, Amazon TV, Kindle Fire, and Amazon Prime (perhaps the most disruptive product of all).
- Phase 4: World domination. But have they really achieved this? I think so, but let’s examine this claim in more detail.
Is Amazon seeking companies advertising budget? Are Placement and Promotion partially to converge?
As Bloomberg has said, Amazon’s acquisition of Wholefoods accelerates the need of many retailers to rethink their strategy. Will Amazon become a key player in the advertising sector? Should/could brands spend almost their entire marketing budget, except for product development, with Amazon as the only marketing services provider?
Amazon already know that millions of users are spending a good amount of time using their services. Amazon will be put to the test in the advertising environment in several ways:
- Discovery or branding. Spoiler warning: this is the subject on which we have the least clarity. I am reminded of a particular satirical video (which I could not find!) that predicted that Amazon was about to buy out Facebook ;-). For me, Facebook is the new TV, but with a better business model. But it is not there yet. Television is still the Queen of Branding, and Amazon is not Facebook (although a joint venture would be unbeatable, if it happens remember you read it first here 😉 Amazon has some advertising formats specifically tailored for discovery and branding, true, but it is much better positioned to compete with Google than with Facebook. For now, that is, but what will happen if Amazon Prime continues to grow at it’s current rate and Amazon still provides users with the basic version of Amazon Video?
- The next phase is ‘interest’. Here, Amazon has a hen capable of producing golden eggs and they know it. Google too, but Amazon is growing faster. They have two main advantages;
- Targeting based on previous purchases. This driver seems to me key if you want to sell something in the very short term…better still than knowing what interests me (Facebook) or what I am searching for (Google), is to know what I have already bought. In Phase 1, Amazon did this in a masterful way. Now they offer that advantage to advertisers too. For fast moving consumer goods or FMCG, (low price, recursion, low decision time) this type of targeting is particularly beneficial.
- Be here, now. The trend we talked about at the beginning of this article is key. Amazon knows. Google knows. The micromoments that occur during the decision making process are becoming a more important part of the consumer journey. For now Amazon are content to promote products at the side of the consumer’s basket instead, just like in the supermarket. But what if Alexa starts gaining in popularity and meets Gartner’s forecast, that by 2020 30% of online searches will no longer be conducted via the web? They will then have the opportunity to change the way that low time decision making purchases are made.
- Finally, the purchasing phase. Will this “sponsored product” format land if consumers consider it intrusive? Is this what the consumer wants? Why not? If a consumer needs a product and they’ve simply forgotten to add it to their basket, it stops being intrusive. Unlike any physical retailer Amazon has knowledge of who I am and my habits during the buying process. Not just in the moment I pay, take out my loyalty card and it´s too late for the retailer for trying to suggest new purchases.
Could Amazon get a brand’s entire marketing budget? Product Co-creation in retail.
Product, Placement and Promotion. Previously we were quick to discard Product Marketing as unrelated to Amazon. But they could get into it. Will Amazon get into the product development business by offering brands a co-creating with customers platform? Forbes has said that the future of retail could well be in product co-creation. At Good Rebels we see it like this; if we look at the overall picture, co-creation communities are a part of own brand communities. This is of particular interest to us, and it’s something we have been working on for some time.
Some key insights regarding said communities written within the linked article provided by my companions David and Luis include;
- Size of the community,
- Levels of activity (actions done, topics published, …)
- Vitality (interaction, most viewed themes, reading times, threads created, comments, etc.)
- Influence (recognition and prescription).
Would a brand community operated on a platform provided by Amazon be a simpler opportunity for brands on the road to co-creation and community branding? Amazon can provide brands with a large community, it may also offer levels of vitality – a key factor – since Amazon has enormous strength in this area, at least when it comes to product reviews. Could they have users not only review products but also help to define them?
Also, Seattle could well offer incentives for users in order to boost activity and influence within the co-creation community. They could offer users benefits for their participation from among its broad portfolio at no extra cost, while charging brands for the whole service.
Is this Amazon’s plan? Will they manage to exert such impressive control? The ingredients are there, they’re already well prepared. However, it is extremely difficult to predict anything in such a changing environment as this. One thing is clear; Amazon has tasked itself with becoming the most customer-centric company in the world and, in a world where HCO (Human Centered Organizations) are achieving a solid competitive advantage, one of three legs has already been completed.