With 2020 well underway. I thought it would be fun and insightful to look back at our 2019 Amazon predictions in anticipation of our annual predictions post coming later this week. 2019 proved to be a rollercoaster of a year, offering up some scary changes and unexpected loops. Let’s go through our predictions together and see what we can learn from the year.
1. Major Brands Get Smart About Amazon Organic Ranking & Sales
In what can only be described as a continuation of previous years’ policies, major brands made surprisingly little progress on this front in 2019. A majority of top brands continue to express trepidation with Amazon’s inability/refusal to properly regulate or restrict unauthorized sellers. In addition to lax regulation, major brands (particularly apparel brands) continue to struggle with counterfeit or knockoff products that persistently flood the Amazon marketplace.
Despite Amazon taking additional steps to regulate these unauthorized activities, the delicate balance between increased revenues vs increased costs, coupled with the burden of brand exposure at the risk of brand dilution, creates a perceived Faustian wager which often prevents the worlds best-known brands from fully embracing Amazon…for the time being.
A telling example of major brand woes is Nike’s decision to withdraw in November of 2019 after a 2-year pilot program. Nike’s decision comes despite the apparel juggernaut being one of the few brands shoppers explicitly search for…“Nike shoes for men”. Even with this incredible keyword advantage, Nike and Amazon failed to create the synergy needed to justify the shoe giant’s wholehearted commitment to the Amazon space. For example, when searching for the keyword phrase “men’s shoes” on Nike.com results yields 741 options compared to 28 with the same “keyword phrase” on Amazon.com. This disparity in selection is primarily attributable to Nike’s resistance to committing their full product line. Nike feared Amazon undermined the brand by eliminating elements of product exclusivity and unique customer experience. These worries, coupled with the frustrations of unauthorized 3rd party sellers, forced one of the world’s largest brands to make the difficult decision to withdraw from the space for the time being.
As Amazon continues to make improvements in both UI, branding, customer care, and the catastrophe of counterfeiting, it is likely that brands like Nike will eventually be forced to negotiate a detente in the months and years to come. This being said, the democratization of delivery and logistics, paired with the diversification and globalization of the e-commerce shopping habits displayed in younger generations, will force Amazon to justify the rising costs of advertising while continuing to improve their customer experience if they expect to further seduce the world’s largest and most sought after brands to their platform.
2. Amazon PPC Becomes Less Profitable But More Important
If Amazon trends for 2019 could be summed up in one sentence it would be: “The year that advertising activated.” This sleeping giant of dormant revenue has long been seen as a vast, untapped, oil field of pure profits for Amazon. After many years of prospecting, Bezos and Co. began to drill in 2019, creating both fear and uncertainty for newcomers and veteran sellers alike.
In reaction to this seismic shift, 2019 saw brands and retailers spend close to 10 billion dollars on Amazon advertising in the US alone (the equivalent of 14% of Amazon’s 2019 3rd quarter retail sales), an increase of more than 33% compared to 2018. As PPC costs began to rise in the early part of the year, many sellers found themselves in the midst of fierce bidding wars for the most competitive keywords within their products’ unique categories. The accompanying decrease in ROI for cost per click ads sent ripples through the community, forcing sellers to rethink advertising budgets and more closely evaluate risk in competitive or oversaturated markets.
In anticipation of this market disruption, Amazon opened up new analytics and built out a full learning console to educate sellers on the parameters and realities of this new paradigm. With advertising revenue estimated to grow in excess of 17 billion dollars by 2021an estimated 9.7% of the Admarket), Amazon is poised to join Facebook and Google in what will be a triumvirate of ad giants for years to come.
As early as 2018 Viral Launch anticipated this change and was proud to launch Kinetic in an attempt to guide our customers through the shifting sands of this new PPC landscape. Kinetic offers our customers detailed PPC analytics, as well as managed PPC services, to help ensure the maximum competitive advantage in this ad-driven reality. As 2020 gets underway, we are excited to iterate, improve, and update this software in the coming months to offer our customers more features and powerful, data-driven results.
In years past Amazon has often been compared to the wild west of online retail. With the reality of these new advertising demands and cut-throat economic constraints, it’s clear that a new sheriff has come to what was once a lawless internet boomtown. This being said, if history has taught us anything it’s that every time a once rough and tumble boomtown grows into a more ordered and lawful city, that growth only brings with it more opportunity for those who can anticipate the changes and adjust accordingly.
3. The Reign of Building Brands Off Amazon
2019 saw US e-commerce grow an estimated 17.3% in the 3rd quarter alone. This growth constitutes the largest spike since the 4th quarter of 2011. Online retailers generated $145.7 billion in online sales in the third quarter compared to $124.2 billion a year ago, according to the Department of Commerce. To no one’s surprise, Amazon was at the vanguard of this growth with 29.4 billion dollars in retail revenue. Retail giants such as Walmart and Target also saw significant growth, surpassing analyst’s initial projections for the year.
This being said, the building of brands outside of the Amazon space was hampered by a combination of both lack of innovation and Amazon’s sheer market domination. E-commerce storefronts such as Shopify have become popular sales channels for emerging brands but have struggled to make significant brand breakthroughs for sellers looking to differentiate themselves from the Amazon pack.
Adding to the stagnant growth of non-amazon brands is the entrenchment of consumer behavior as it applies to a growing (Amazon only) default mode, particularly when it comes to buying behavior in Q4. Smaller sites have continued to struggle with ways to break consumer’s growing dependency on Amazon to fulfill both their personal shopping needs as well as their family and friends wishlists. This dependency is only fueled by the increasingly common practice of giving Amazon gift cards for Holidays, birthdays, and special events.
Despite the many uphill challenges facing smaller e-commerce sites, Viral Launch maintains a bullish outlook for emerging brands’ opportunities to develop a customer base apart from Amazon in the coming years. Case studies like that of Nike (mentioned previously) demonstrate that larger brands are keeping Amazon accountable to change, while smaller more boutique brands will continue to benefit from improvements in online marketing platforms, improved mobile apps, and a leveler logistical and shipping ecosystem.
4. Successful Brands Will Continue to Grow Significantly
People often say that “success breeds success.” I’ve also heard it said: “More money, more problems.” The dichotomy of these two truisms neatly encapsulates the difficulty facing many successful Amazon sellers. With greater success comes the desire to capitalize on increased revenues. At the same time, potential market capitalization and expansion comes at the risk of overreach or glut.
For the most part, “successful” brands did see significant growth or at least marked stability in 2019. The market disruptions caused by additional PPC costs and ranking fluctuations surely caused concerns for many top sellers, However, the data seems to indicate positive growth. Over the past decade third-party sellers have grown from 30% of total sales on Amazon to 60% in 2019. The number of sellers with $100,000 in sales reached 280,000 in 2019, up from 200,00 in 2018. This influx in competition does indicate a struggle to sustain market supremacy for some top-level sellers, however, we maintain the belief that better and deeper performance is outpacing wider participation.
The latest figures show that only 5% of the top sellers joined in 2019, while only 30% of top sellers have joined within the last 3 years. The reality remains that less than 20% of active sellers do $100,000 in yearly sales and only 2% surpassed 1 million dollars. This by no means indicates that the window of opportunity for Amazon selling has closed. However, it’s becoming increasingly clear that the competitive advantage of deep experience will only increase in the years to come.
5. Fewer New Entrepreneurs Begin Selling On Amazon
Amazon reached 3 million active sellers worldwide in 2019, an increase of 17.7% from last year. The global marketplace saw 1.2 million new third-party sellers join one of 16 global marketplaces after both Singapore and the United Arab Emirates were added to the platform. These numbers indicate a steady and robust global growth trend for Amazon, who has become increasingly aggressive in exploring untapped markets. However, a closer look at the domestic numbers does indicate a potential cooling in the number of new entrepreneurs who are entering the US market.
2019 saw 250,000 sellers join the US space, which adjusted for churn comes closer to 54,000 additions to the overall seller pool. The United States is currently the slowest growing market on Amazon despite its outsized 38% active seller share. Last year’s additions constituted only 5.1% of the global growth for Amazon as a whole. Now these numbers in no way indicate that the fervor amongst potential new sellers has died out However, there are some indications that a large majority of entrepreneurial-minded men and women who may be drawn to Amazon have either already started to sell, or more likely churned out of the system.
The likelihood that the US market will see a resurgence in new sellers is contingent upon a number of unknown and unpredictable factors, chiefly, sustained low unemployment numbers and the continued stability of the US and global economy. A sustained period of economic growth has doubtlessly encouraged new entrepreneurs to take their chances selling on Amazon. However, if the economy begins to show signs of weakness in the months or years to come, we may see an even greater decrease in the number of new sellers who throw their hat into the ring.
The good news for current sellers is the possibility of less competition and again: the deepening of performance. If, as some metrics indicate, the pool of sellers becomes even more narrow in the years to come, it will present an opportunity for current sellers to bolster their positions and rankings while growing their brands.
6. Major Changes in Reviews and Rankings
Shakespeare once asked…”What’s in a name? That which we call a rose By any other name would smell so sweet.”
This age-old question of what’s in a name could never have been more true then when Amazon elected to change its classic naming convention in 2019 from reviews to ratings. Of course, this simple, semantical twist held a far more important and disruptive change. The ability to leave ratings without a written review (one-click rating), coupled with a variety of changes to the ranking algorithm, threw the system into what at times felt like chaos this year. Reliable methods for bolstering rankings, such as product giveaways and coupons, became less and less effective and the reality of a world of PPC predominance became abundantly and at times painfully clear.
Wild fluctuations in rankings were experienced by both newcomers and established sellers alike as Amazon seemed to endlessly tinker with their ranking systems and established protocols. (INSERT BLOG POST AND PODCAST ADDRESSING THIS PHENOMENA)
Veteran sellers have (for the most part) grown accustomed to Amazon making major changes to rankings over the years, and in due time resourceful sellers and consultants have always learned to adjust. This being said, 2019 will surely be looked back upon as a watershed moment for ranking changes, as the culmination of years of subtle tectonic shifts suddenly crest, taking sellers on a wave that left many dizzy and some drowned.
7. Facebook Begins Its Path of Becoming The Second Largest Ecommerce Site
I imagine that Mark Zuckerburg and the executives at Facebook won’t look back at 2019 with the fondest of feel-good memories. Thrust into a firestorm of controversy regarding the companies privacy policies beginning in 2018, Facebook continued to court controversy throughout 2019. However, as anyone who tracks markets knows, there is a wide chasm between public perception and publicly traded profits.
Despite widespread fears of anti-trust legislation in the early part of the year, 2019 saw Facebook make huge gains, surging back to a near-record stock price just weeks ago. The ability of Facebook to absorb such huge public scrutiny while continuing to display investor confidence is precisely why Viral Launch remains so bullish on the social media giant. While the media continues to argue (about what I would personally characterize as legitimate concerns), Facebook is quietly making gains in the e-commerce landscape and beyond.
In 2019 Facebook acquired a number of small media and technology companies to help expand its Marketplace platform. Plans have been put in place to develop live shopping features as well as expansive updates to Checkout, their new Instagram shopping platform. The unsurpassed mixture of loyal and engaged subscribers, coupled with a multi-quadrant demographic, makes Instagram the holy grail of endorphin-fueled impulse shopping. The secret, of course, is leveraging these technologies to create a unique market position that can begin to cut into Amazon’s bottom line. I don’t know about you, but I’m not counting Zuckerburg out from being able to convert some of their huge market capitalization into technologies and tools that set Facebook apart from Amazon in 2020. Besides, I would not be surprised if Facebook wants to gain back some of those precious ad dollars they lost to Amazon last year!
8. International Markets are the New Gold Rush
Continuing our theme of political and social uncertainty in business, this past year brought a slew of unknowns in many aspects of our global, economic, and political landscapes. Escalating uncertainties concerning Brexit, China, and the Middle East have kept businesses, investors, and entrepreneurs on the edge of their seats. A mutual disdain for Chinese tariffs showed that these obscure financial instruments might be the one thing in this world that can bring Wisconsin farmers and Wall Street financiers together in fear and disgust.
The devastating effects of tariffs, coupled with risk-averse investors, created a landscape that caused this prediction to not fully manifest. No doubt international markets still present a huge growth opportunity in the coming years. This being said, for the time being, many sellers are waiting for the results of a slew of international trade talks to conclude and uncertainty within political landscapes to calm before wading into these potentially bountiful waters.
On a further international note, 2019 saw the year that Amazon pulled the plug on its Chinese operations. Amazon entered China in 2004 and after much consternation and disagreement, the ill-fated partnership finally dissolved in July of last year. Below is an excerpt from an email sent to multiple publications.
“We are notifying sellers we will no longer operate a marketplace on Amazon.cn, and we will no longer be providing seller services on Amazon.cn effective July 18th. Sellers interested in continuing to sell on Amazon outside of China are able to do so through Amazon Global Selling.”
Obviously, this announcement in no way severs relationships with China based sellers who constitute 42% of all active sellers across all 16 marketplaces.
9. Seller Fulfilled Prime Comes Into Vogue
Many top-level sellers entered 2019 with high hopes for Seller Fulfilled Prime. This program which enabled 3rd party warehouses to fulfill prime orders was seen as the natural evolution for high-level sellers who had invested heavily in warehouse facilities and third-party logistics providers for their businesses. The hope for this program was to generate significant savings for sellers by tailoring various logistical and shipping needs thereby reducing overhead and unneeded expenditures.
Unfortunately, due to an array of quality control issues, coupled with a high barrier to entry, the program was suspended in 2019. At the time of publishing, Casey spoke with an SFP customer who informed him that Amazon plans to parlay this program into what is being called FBA Onsite. Details about this program are not yet known at this time, however, I think it’s safe to assume that it will contain many of the aspects of SFP with perhaps more regulations and stricter qualifications. Regardless of what name the new program settles upon, it’s safe to say that the concept of seller fulfilled shipping is not going anywhere. Far too much money is on the table for Amazon to resist mitigating a portion of the risk in favor of equitable partnerships with high-level sellers as the benefits of same-day or two-day shipping will not be strictly limited to Amazon products in the near future.
10. More Amazon-Owned Brands
This particular prediction presents an interesting case study in the difference between the profitability and success of AmazonBasics and the growth of Amazon Owned brands. As stated in last year’s post, some countries such as India have banned Amazon from creating further Amazon-owned brands, citing monopolistic practices. This, of course, has not stopped Amazon from continuing to expand both their Basics brand and Amazon-owned brands through their Accelerator program. Amazon added more than 100 brands in 2019 and shows no signs of slowing down. This being said there are some misconceptions about the profitability of these brands and their long-term viability in the future.
AmazonBasics constitutes 58% of all “Amazon-owned brands” and represents the bulk of Amazon brand revenue. In fact, 81% of all total sales come from just the top 10 Amazon brands, including Basics, Essentials, and Collections. Basics thrive in niche markets such as batteries or paper products, markets where fragmentation and price-point pressure fuel their success. On the contrary, many Amazon private label brands such as Belei hope to exist in the much more competitive worlds of beauty and skincare. After launching in March of 2019, Belei began to receive a swath of negative reviews, forcing Amazon to not only adjust their price points but give the prominence of the product within the search results. None of these actions had a great effect and the brand continues to languish in warehouses unsold and for the most part unknown.
What is the lesson here? For all their data and all their power, Amazon has never been particularly good at fostering brands. Their basics lines do great business because consumers are not invested in battery brands or toilet paper the way they are invested in their skincare routine or health drinks. 2020 will surely see Amazon continuing to leverage its power to create countless new brands, and they have the cash flow to allow the majority of these loss leaders to fail. What I’ll be looking for in 2020 are Amazon-owned brands that are invested in marketing brands that use their unbelievable prominence and page positions in a way that breaks through the noise and create devotees. If Amazon can display the ability to do this, well then anti-trust laws might actually be in the conversation.
11. Less Ads Showing on Page 1 of Search Results
In my role as a brand consultant for Viral Launch, I log onto amazon.com anywhere between 30 and 50 times per day. Every time (and I mean every time) I do, my heart sinks a little at how truly ugly the sight actually is. I know that might sound a little hyperbolic but you have to understand the little graphic design nerd in me, the one that cannot stand mixed typefaces and cluttered images. For me, these visual sins are akin to fingers on a chalkboard. Of course, I say all this tongue in cheek and Casey knew he was being a bit bold when making this prediction last year. However, when forecasting the possibility that Amazon might reduce ads on page one, Casey was tapping into the hope that Amazon might embrace one of its core values…delighting customers! If you’re anything like me, you’re equally bummed about this prediction being so, so wrong.
Perhaps we did not fully account for the lengths which Amazon would be willing to go to maximize those precious new ad dollars. Or perhaps we thought they would invest in creating new user interfaces to provide aesthetic experiences without the need for more Ads. Alas, we got this one wrong and the world is uglier for it.
12. Amazon Significantly Outpaces Other Retailers in an Economic Downturn
To conclude our journey through 2019, we end on this final and gratefully wrong prediction for 2019. Despite a slew of economic forecasts in 2018, the economy held strong and outpaced many economists’ (and brand consultants’) predictions. This, of course, does not mean that the current climate will last forever. An economic downturn is inevitable in the coming years. For the purposes of our discussion here, how ready is Amazon for that downturn?
I will leave you with this parting data point. In the first quarter of 2019, Amazon’s online sales accounted for less than 50% of the company’s total revenue. For the first time since the company’s founding in 1994, AWS, Prime, third party marketplace, and advertising, outpaced the retail sector of the company. Amazon sold 29.4 billion dollars worth of product, which only constituted 49.4% of its revenue.
I don’t know about you, but to me, this seems like a strong case for Amazon’s future regardless of the economic forecast. Retailers such as Wal-Mart and Target have made valiant efforts and significant gains within the last year. We have seen competitors innovate and iterate in every conceivable contortion all in an attempt to catch the king. But I ask you this: if I took away 50% of any of these competitors’ revenue in 2020, do you think they would live to see 2021?
I don’t think so.