August 9th, 2021: Amazon’s Drone Program and Advertising Business, Walmart Sells Software, Square’s $29B Acquisition of AfterPay, Shopify’s Recent Earnings
It’s August 9th, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on the show:
- What will Square’s $29B move into the Buy Now Pay Later space mean for other players?
- Amazon’s drone program seems to have crash-landed
- Finally, Amazon’s Advertising Business may have more potential than the rest of its business combined.
- Shopify’s Recent Earnings Call Highlights the Continued Growth of the Platform But A Few Concerns As Well
BUT FIRST in our shopping cart full of news….
Walmart to start selling Enterprise software and Adobe Magento customers soon will be able to connect with Walmart’s Marketplace
There was an incredible amount of confusion in my network last week over some announcements made by Adobe and Walmart, so let me see if I can try and break it down.
Last week the companies announced two things.
One, Adobe customers will be able to more easily send their product inventory into Walmart’s Marketplace, which is a growing online channel.
Second, Walmart will start selling elements of its technology platform together with Adobe’s Commerce Division. The technology appears to be related to Store pickup functionality, something you would normally find in an Order Management System.
On the surface, it sounds like a big deal. Walmart, Adobe Magento, big news!
Except a few things are all wrong with the release.
First, almost no one understood the release. I even heard that Walmart was going to be selling Adobe customers marketplace software, rather than access to its marketplace. Adobe’s CEO didn’t make the situation any better with his buzzword salad interview.
Second, this partnership is not exclusive. Walmart offers every platform access to its marketplace, including Shopify and BigCommerce, which both already announced this in the past year.
Third, Walmart has never actually created Enterprise software before. Even that by itself means you should take this release with a giant grain of salt. Who will market and sell this software? How is this a match for Adobe’s SMB and Mid-market Magento customers?
How many retailers were quoted in the release as beta testers? Not one. That is a critical point from my point of view because people want to know if the software is real. Another retailer testing it would build trust within a skeptical community.
Fourth, the software won’t even release this year.
So why announce it now?
Simple - Adobe and Walmart both trying to gather attention. Adobe I feel more than Walmart, who is being squeezed by Shopify, BigCommerce, and all these new headless eCommerce startups.
If you ask me, we could be seeing the death rattle of Magento in the market altogether if this keeps up.
References:
https://www.cnbc.com/video/2021/07/30/walmart-and-adobe-team-up-to-sell-e-commerce-technologies.html
Our second story —
What will Square’s $29B acquisition of AfterPay mean for its competition?
The Buy Now Pay Later market is ridiculously hot right now, let me catch you up on what’s been going on this year before I get into Square.
Buy Now Pay Later is a technology that allows buyers to pay in split installments which often has the effect of raising conversion, average order values, and repeat consumer purchases for merchants that adopt it. It’s no accident why it appears on almost every website these days, it’s quickly become table stakes.
In January this year, Shopify cashed in to the tune of $2 Billion Dollars on the Affirm IPO, and putting its thumb on the scale of its ecosystem.
Just last week platform competitor BigCommerce decided on the company Sezzle as its preferred buy now pay later partner, going the more traditional platform route of not anointing an exclusive pick for its customers.
Big Commerce and Shopify are taking two clearly different approaches to their partner networks.
Square, however, made the most waves with its massive twenty-nine billion dollar acquisition of AfterPay. You might say Square is the retail-POS first digital technology firm of this generation, whereas Shopify might be seen as the eCommerce-first provider. However, Square has long been a powerful payments company as they were the first person to introduce the widespread ability to take credit card payments from any iPhone.
Another X-factor here is that both AfterPay and Klarna have become demand-generation tools, successfully launching their own consumer shopping portals with promotions for its merchants. Whenever a provider can bring you new customers, that is always a positive.
The biggest question I had about this acquisition is - how the hell did Paypal miss this?
My own network is divided on this. Some say that Paypal already have this covered. Given the enormous merchant adoption of market-leader Afterpay in the market, that is very much in doubt, however.
Paypal has been aggressive on other acquisitions, it’s possible Square just outbid them.
I’m really not so sure. I just see this as a huge strategic mistake on Paypal’s side.
Over 15 years ago, eBay tried and miserably failed to build its own payment technology in-house to fight Paypal. While Paypal already has financing technology in its platform, it is not widely adopted.
Is Paypal repeating eBay’s old mistakes by thinking they have this covered???
References:
Square/Afterpay news
BigCommerce news
Shopify news
Our third story —
Amazon’s drone program seems to have crash-landed
Coming in from the UK, a story from Wired talks about how Amazon has all but shuttered it’s infamous drone program.
The story indicates that there has been a ridiculous amount of staff turnover - including over 100 people let go which has led to misdirections and public failures.
First things, first. Anyone who can do simple math realizes that for a drone to carry any items of appreciable weight for a general purpose shipping carrier, it would have to be an enormously heavy device itself, and as a result require an amazing amount of power. This is all very expensive, and that’s before they start crashing into power lines and landing in backyard swimming pools, which every single home in Florida has one of.
To be clear — I’m not really faulting Amazon for its crazy investments. Their big swings are purposeful, and needed.
It needs billion dollar failures to fuel the multi-billion dollar successes. For every Fire Phone debacle and grounded drone, there is a Kindle, and AWS, and an Alexa. Pretty great track record as long as that ratio keeps up.
The question I have is really more for their competition — how dumb do Walmart and Kroger feel right now for following the Amazon hype in their own drone investments?
References:
https://www.wired.co.uk/article/amazon-drone-delivery-prime-air
Our fourth story...
Amazon’s Advertising Business Has Crazy Potential
There are really two questions on my mind this morning in regards to Amazon Advertising on the heels of 84% growth in this division from its recent Q1 earnings report.
The first — Is Amazon Advertising the highest potential and highest valued business unit within Amazon going forward?
The answer here is definitely yes. CNBC reports now that Amazon’s ad revenue is now bigger than Twitter, Snap, Roku, and Pinterest combined. Their revenue just crossed $7B in the first quarter of 2021, and is on almost a doubling pace year over year.
This makes it by far its fastest growing business.
The second is, where could Amazon go next with this, and does Amazon Advertising threaten the health of its own retail business?
The short answer is also yes. Anyone who’s been on Amazon in the past 2 years realizes that most of the search engine, and now product pages are now littered with ads for competitive products. This cannot keep up forever.
Can you imagine if Amazon had its own first-class search engine that would find product or piece of related content like guides and reviews across the web no matter where it is?
It would threaten the very foundation of Google, who has been worried about Amazon stealing share of its product search and been unable to do anything about it for the past decade.
As much as Google is a great company, they have really struggled to innovate (unlike Amazon) outside of their primary search business. Anyone remember Google 20% time which used to lead to out of the box innovations? Me neither.
So if you’re Andy Jassy the new CEO of Amazon, what are you thinking about now? Ultimately I think the answer is simple — nothing is off the table. Bring me bolder ideas than I have already seen in this group.
While Amazon has Twitch, IMDB, Video, Music, and even now MGM, the volume of consumer intent fueled by Google and Facebook dwarfs this number.
Amazon needs more surface area to fuel its ad business, so look for them to continue to acquire media assets, any property with traffic and eyeballs.
But it’s this search engine idea I keep coming back to. Consumers typing in keywords is an endless source of revenue for the company, and jamming those results into the traditional Amazon experience threatens not only the future of its retail business, but also the experience of its advertising business.
While this would require Amazon to likely develop general-purpose crawling technology for other websites, is there really any doubt that the company could pull this off?
References:
And our Final Story:
Shopify’s Recent Earnings Call Highlights the Continued Growth of the Platform But A Few Concerns As Well
Last week Shopify reported its Q1 earnings which showed continued strong growth in their subscriptions business. Here are a few things that caught my eye beyond that.
One, the growth of their Shop App is up to 23 Million Monthly Active Users. It’s clear that the company views this as a key strategic asset for repeat purchases, marketing and retention going forward.
This is something unique to Shopify, and it’s an interesting risk/reward question for them. The risk is that they get in the middle of their brand’s own designed customer experience. I don’t predict this is going to be a big issue ultimately because Shopify will give brands the tools they need to customize how they appear in this app.
The reward is much greater for Shopify. If Shopify has a unique group of buyers that are loyal to them, it makes it that much harder for a brand to leave. This increases their own retention and gives Shopify some control over marketing efforts which is helpful in this segment, as every Shopify store is not always optimized in their own marketing.
One concern that I had coming out of earnings is their R&D spend and retention. Over the past year, Shopify has turned over more than half of its very senior managers. This is a concerning fact for any company, much less one growing as fast as Shopify.
Their Q1 earnings report indicated that R&D spending is 16% of revenue now, and it was previously 19%. For a growth company with as much surface area as they’ve signed up for from Platform to Fulfillment to Payments, I really think that number is going in the wrong direction. I would love to see that number north of 20%.
References:
https://s27.q4cdn.com/572064924/files/doc_presentations/2021/07/Shopify-Investor-Deck-Q2-2021.pdf
https://s27.q4cdn.com/572064924/files/doc_financials/2021/q2/Press-Release-Q2-2021.pdf
That’s it for this week! Till next time.
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Hi, I’m Rick Watson, CEO of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our show is produced by Citizen Racecar. Alex Brower is the producer and also wrote our theme music. The Executive Producer is David Hoffman.
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