There aren’t many chasms quite so gargantuan as the one Amazon has left on the e-commerce market. The giant was built for the pandemic—and will likely emerge from it stronger than ever. Is there any hope for the newer competition in the market such as Facebook or Google?
In today’s article, we catch up with leading strategic e-commerce consultant and Lengow Day speaker Rick Watson, who shares his vision of the market.
(Link to video at end of article.)
Sure! My name is Rick Watson. After spending the last 20 years as a technology entrepreneur and operator exclusively in the e-commerce industry for companies such as ChannelAdvisor, Barnes & Noble and Pitney Bowes both in the domestic and cross-border industries. I launched my own e-commerce consulting firm (RMW Commerce Consulting) in 2019.
60% of consumers are searching on Amazon for your products, even if you’re not there. So you might as well be.
We all know that Amazon is king in the e-commerce world right now. In 2019, they made about $335 billion GMV via retail, distributed between first-party Amazon products (somewhere north of 60% and increasing in that ratio) and third-party or marketplace sales. Advertising on Amazon, which wasn’t even a thing 10 years ago, is a $14 billion business and is growing 40% year-over-year. At the end of last year, Marketplace Pulse reported about 3 million sellers on Amazon. That’s enough to give you a sense of the type of major challenge that these other players are dealing with.
We’re talking about one of the most innovative companies on the planet, but for a competitor to actually take down Amazon we need to take a look at the giant’s weaknesses. Amazon is not without problems. The number one risk to Amazon is that brands and consumers continually have trust issues with the platform. The number one topic? Competition from Amazon, who will copy your product. Here’s the big problem for challengers: brands and retailers know this, and agree to it anyway, just to be on Amazon. Over 60% of consumers are searching on Amazon for your products, even if you’re not there. So you might as well be.
Amazon has a hard time introducing new brands outside of AmazonBasics. However, the likelihood of Amazon copying and being better than your brand is a lot smaller than most people think and that’s a weak spot for the marketplace. Unlike AmazonBasics, private label or house brands have a Brick & Mortar footprint, consumers can physically experience the brand before they see it in an Amazon search result. This trust issue goes for buyers, too, who are wary of buying on Amazon because of the authenticity of the sellers or items on offer. Categories that pose challenges for Amazon are electronics and branded merchandise. Try to get any kind of official Apple plug or connector on Amazon. You could spend all day looking and still not be sure if you bought the right thing. Amazon is not always the best place to shop.
So, what we’re looking at here is: “How do we take advantage of the weaknesses of Amazon and turn that into something that’s great?”
Google is fantastic about satisfying intent-driven searches. From an e-commerce point of view, anything you type into the search engine signifies user intent: I want to do X. I want to buy Y. I want to research Z. These are all things that marketers, brands, retailers can take advantage of, advertise against and find the solution to. Meanwhile, 80% of the searches on Amazon are unbranded. From a consumer intent point of view, Amazon is increasingly a white goods or private label marketplace rather than a place that’s friendly for brands. However, that is something they are trying to change!
Consumers search on Google to find something authentic from independent third-parties, with good reviews. All these things are valuable in the consideration process and are huge opportunities for Google to improve on and monetize.
Amazon isn’t where you go to interact with brands, it’s where you go to buy something.
Facebook and Instagram are extremely relevant to mainstream brands. Paid social advertising on Facebook is one of the most effective forms of advertising for brands, creating engagement when it’s done right. Facebook seems to have this down with its Instagram property, more than anyone else. Facebook Marketplace is more like Craigslist. It’s not really for brands and for mainstream retail companies. Beauty and fashion brands have had huge success with Instagram Shopping that has created tens and hundreds of millions of dollars GMV in a very short timeframe. Instagram is a place where you follow, find and interact with brands. This is unique and number one in the world and it fits into an Amazon weakness. Amazon isn’t where you go to interact with brands, it’s where you go to buy something. Consumers go to Instagram to see the new line for the latest fashion brand that I like a lot, sometimes more often than the brand site itself. Commerce is one of Mark Zuckerberg’s top three priorities and this is a huge strength, given that it’s an advertising company.
First off, Facebook and Google have no major or significant marketplaces to speak of. They started as social media platforms and search engines, of course, you can sell certain things on Instagram but it’s very nascent compared to really the powerhouse of Amazon.
Google is a great tool to understand consumer intent, despite the increase in the share of searches that Amazon keeps growing. It started at around 10%. Now well over 60% of all commerce-focused searches start on Amazon. Google has the big problem that its entire business model runs on pushing traffic off the site versus keeping them on Google site.
The high margin of an advertising business is actually the biggest risk for these advertising and software companies trying to directly compete with Amazon. Retail and e-commerce is not a high margin business. You won’t make 90% margins like you do on a software business or an advertising business. You’ll make 25% or 50% at wholesale, and on the backend, you need to take into account returns, fraud, software fees, and a number of elements that you don’t have to worry about in an advertising business. It’s hard for a board of directors to put dollars behind that initiative.
Amazon probably is pretty safe from the competition over the next couple of years but there are definitely some challenges on the horizon. My long term view is that Amazon is its own worst enemy in many cases with the proliferation of fakes and trust and all the rest. If I was Amazon, I’d be focusing on this rather than the competition to avoid consumers going elsewhere for products.
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