eCommerce Strategy Consultant - Rick Watson - RMW Commerce Consulting

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February 14th, 2022: Meta’s shrinking advertising lead, new CMS and eCommerce churn data, Amazon’s advertising, and what modern retailers must do to survive

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It’s February 14, 2022  and this is the Watson Weekly - your essential eCommerce Digest!

Today on our show:

  • Recent Earnings Calls Indicate That Meta’s Advertising Lead is Shrinking Quickly, and Google is the Biggest Beneficiary

  • CMS and eCommerce Churn Data Shows WordPress Maintaining Market Lead, Shopify Gaining on WooCommerce

  • Amazon Advertising Graduates from "Other" and 3P Seller Units Set Record

  • Modern Retailers Must Prioritize Differentiation and Freshness to Survive


- and finally, The Investor Minute, which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.

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To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.

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[PAUSE]


BUT FIRST in our shopping cart full of news….

Recent Earnings Calls Indicate That Meta’s Advertising Lead is Shrinking Quickly, and Google is the Biggest Beneficiary

You can feel the major sea change going on in advertising right now. Two trends have been apparent for some time:

1 - The rise of Amazon for organic and advertising-based product searches over the past 5-7 years, at the expense of Google primarily.

2 - The continued loss of share at Google, particularly to Facebook (especially once they figured out mobile) and to some extent Amazon, along with the idea that there were two types of advertising experiences:

There are those advertising experiences in which you, the consumer, didn't know the brand you were looking for up front,  were not actively searching and are based on borderline creepy accurate user models.  This is Facebook’s approach.

Alternatively there are advertising experiences when you proactively sought products,for example, something like Valentine’s gifts.  This is Google’s model.

In the past year, there has been a major shift that is now becoming clearer.

Facebook is in another one of its occasional "reboot the business" modes as it continues to scramble to deal with the rise of Apple’s new privacy posture.

In its earnings call, Facebook reported that it is "rebuilding [its] ad infrastructure." Seriously, Zuckerberg said this. That doesn't sound simple, and any Facebook advertiser right now knows what I'm talking about. Targeting and data is hot garbage. Yet ad rates have not declined enough to make up for that reduced experience.

Now, Google is the primary beneficiary, and to some degree other retail ad networks like Amazon are profiting as well. I believe Google in particular has a generational opportunity to wrestle retail ad share back from Meta.

More than what Google is doing right, this is by and large just "right place, right time" for the search giant.

The reason there has been a flight back to traditional pay-per-click advertising from paid social is because advertisers are already familiar with the format and using it today. Google continues to add options for advertisers to spend money. But options need opportunity, which is what we are  now seeing and s why it's suddenly different.

Based on its earnings report, Google's retail ad revenue growth in Q4 outpaced all other segments, which highlights advertisers' flight to safety.

Furthermore, I think Google and other advertising networks also have an opportunity to improve and take share for those non-intent based searches.

I can’t help but feel that Facebook/Meta seems unfocused and lost. Mark Zuckerburg on his recent earnings call mentioned "seven major priorities." 

Seven? Reall? What transformational leader has ever said that? How can one organization have so many core priorities? If I'm TikTok right now, I am in pure land-grab mode.

Suffice to say, Apple's iOS changes were either terrible timing for Facebook on the heels of a generational increase in ad spend, or a primary reason that motivated Facebook to switch into the metaverse mode in order to change / get ahead of the narrative.

Facebook has a track record of navigating its own disruption, and I think more than anything Zuckerberg hopes that Sheryl Sandberg, his COO, has yet another rabbit to pull out of her hat.


[References:]



Our Second Story

CMS and eCommerce Churn Data Shows WordPress Maintaining Market Lead, Shopify Gaining on WooCommerce

Rick Viscomi, one of the maintainers of the HTTP Archive, tweeted some interesting data from a report he is working on that tracks churn for different JavaScript frameworks and CMS’s over a specified period of time. He detected the changes using the open source Wappalyzer project.  His findings are as follows:

First, he found that WordPress picked off 9,000 sites from competitors but also lost ground to other CMS’s.

The sites are migrating away from WordPress and going to Drupal, Wix, and Squarespace, in addition to  a wide array of smaller website builders like Duda and Tilda.

Second, the eCommerce space is much more competitive with Shopify right on heels of WooCommerce.

Focusing in on eCcommerce for a moment,  it appears that while WooCommerce is more or less breaking even, Shopify is gaining a ton of ground, particularly on Woo.  This is not so surprising based on the price/performance ratio of Shopify right now.


[References:]


Our Third Story

Amazon Advertising Graduates from "Other" and 3P Seller Units Set Record

Last week, Amazon reported Q4 earnings and here are a few callouts from my side:

* Amazon 3P seller units are up to 56% of Q4 unit sales, making it the highest share of third-party units in a Q4 ever.

* In a huge change, Amazon Advertising is now broken out in earnings reports! It’s not hidden in “Other” anymore!  Take a bow, Advertising!

* Though at the same time, advertising growth decelerated from 55% year over year growth in Q3 to 33% year over year growth in Q4 likely due to supply chain / inventory issues.  A lot of merchants I spoke with during Q4 were constrained by availability issues.  I expect some of this to recover.

Overall, Amazon’s Advertising unit is a $31 billion business today, based on 2021 numbers. A little less than one third of Facebook revenue is what I calculate.  That is seriously significant progress.

Amazon also called out a few of its advertising priorities, which should be of interest to a lot of Watsonians here.

First, Amazon wants to improve its tool’s usability for sellers and brands.  I hope this means that agencies and technology platforms will get better APIs, too.

Second, video advertising is a huge and unique opportunity for Amazon, relative to other retail media outlets, given their assets across live sports, IMDB, Twitch, and Prime Video.

In supply chain news, Amazon doubled its operations and overall staff in the last two years, skyrocketing to 1.6 million employees.

Amazon mentioned that it could have done better with hiring, as the talent issue continued to cause chaos costs in its network and higher third-party transportation costs.  To me, this means that the company could have taken even more share of its own parcels in Q4 if it had better sorted its staff at the beginning of the quarter.

Fulfillment center spend is moderating going forward, and will more closely match the growth of the business.  Of course, it still represents about 30% of all capital expenditures, which are of course increasing next year.

So a mixed quarter from Amazon, but analysts loved it because Amazon was bailed out by AWS profitability, which I didn’t mention earlier.

[References:]


And Our Last Story

Modern Retailers Must Prioritize Differentiation and Freshness to Survive

Most of you Watsonians know that I’ve been involved in dropship and marketplace-based businesses my entire 20+ year career.  These new business models have brought a lot of positive change to the industry, but also a lot of challenges, particularly for those organizations that dove in head-first without being thoughtful about what their approaches mean for buyers.

Also, it is undeniable that it is harder for mid-market and Enterprise retailers right now than at any time in recent memory due to the fact that the big players like Walmart, Amazon and Target continue to grow and offer more selection and superior experiences.

So what’s a retailer to do?

I was thrilled to have work commissioned by a company named Convictional.  I interviewed some of its customers and also relied on the literally thousands of conversations I've had implementing, building, advising, and operating businesses in this space.

From this extensive research report, two things stood out as critical for retailers:
1 - Differentiation. If you have the same products as the major marketplaces, you are already dead. Your supply has got to be unique.

2 - Freshness. Your supplier base needs to be fresh and updated. You need to be continually improving your ability to tell the stories of these up-and-coming brands that are innovating quickly and can excite customers.

This report not only exposes what's wrong with the current state of technology solutions supporting retailers, but also charts a new path forward for the entire industry in this sector of software, namely Supplier Enablement.

My show notes contain direct links for listeners to download the report.


[References:]


[PAUSE]

It’s That Time, Friends, for our Investor Minute.  We have 5 items on the menu today.

First

A Canadian cross-channel eCommerce demand generation platform Trellis raised  $1.5 million in seed funding.

Keep in mind this is Trellis the Amazon advertising platform, not Trellis the eCommerce agency.  Amazon advertising continues to be a big area of investment, so not surprising to see this trend continue.

https://www.finsmes.com/2022/01/trellis-corporation-raises-1-5m-in-seed-funding.html


Second

Post-sale eCommerce Saas platform Wonderment Secures $6 million in seed funding

Some of these fundraising events puzzle me because I can’t imagine that post-sale tracking is a huge untapped market given that Narvar and others owned this forever, Shopify has its Shop App, etc., but the fundraising continues to happen.  Am I missing something?


Third

ElasticPath, a company I haven’t heard a lot about recently, just received a jolt of energy in terms of a $60 million dollar investment in order to accelerate its product development.

When I have heard about Elastic Path being chosen in the past, it’s when developers or CTOs are leading the evaluation. 

https://www.retaildive.com/press-release/20220131-elastic-path-secures-60m-in-growth-funding/


Fourth

eCommerce financier Wayflyer just raised $150 million to continue to give away loans to eCommerce merchants.

eCommerce financing of both advertising and inventory has become a major sector of the eCommerce ecosystem. There aren't as many of these companies as there are Amazon aggregators, but it feels like it’s getting closer, doesn’t it?


AND FINALLY …

I am hosting a webinar that I wanted to flag for your attention.  It’s a panel discussion I’m leading hosted by RMW Commerce on the intersection between NFTs and Apparel Brands.  The panelists are some of the sharpest minds in the sector I’ve met and if you are interested in attending, the event is coming up on February 17th at 3:00 PM Eastern.

The registration link is at rmwcommerce.com/nftwebinar and you can also find it in our show notes.

https://www.rmwcommerce.com/nftwebinar


[PAUSE]


That’s all for this week! Till next time Watsonians.....


[PAUSE]


Hi, I’m Rick Watson, CEO and Founder 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.

To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.