July 17th, 2023: Federal Trade Commission sues Amazon, TikTok plans new US eCommerce venture, my digital transformation talk at The Lead event in New York City, and Amazon Prime Day roundup
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
<insert recorded ad>
It’s July 17, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Federal Trade Commission Sues Amazon
Tiktok Plans New US ECommercce Venture
My Digital Transformation Talk at The Lead Event at in New York City
Amazon Prime Day Roundup
- and finally, The Investor Minute which contains 7 items this week from the world of venture capital, acquisitions, and IPOs.
==
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
==
[PAUSE]
BUT FIRST in our shopping cart full of news….
Federal Trade Commission Sues Amazon
FTC data shows that the American consumer lost nearly $8.8 billion to scams in 2022, and, while half of that is investment-related scams, at least some of those are related to deceptive Amazon practices concerning Amazon Prime.
What’s happening?
The Federal Trade Commission filed suit against Amazon in the US District Court for the Western District of Washington, alleging deceptive practices around its Prime membership rpgoram. In particular, the bad practices are things that are related to dark patterns online. Dark patterns are deceptive websites that enroll you in things which are not obvious, cost consumers money and frustration, but are easy or attractive to click on.
While I haven’t seen these personally, friends of mine who are not Prime members say that if you visit Amazon it is extremely difficult not to accidentally sign up for Prime, even if you are trying hard not to. This is what the FTC is investigating.
It’s helpful to review the purpose of the FTC or Federal Trade Commission. The organization was created in 1914 to really break up the big monopolies and trusts, but today has two goals:
First, Protect the public from unfair or deceptive acts or practices in the marketplace.
Second, Protect the public from unfair methods of competition in the marketplace and promote fair competition.
So what is the likely outcome of this situation? Well, it’s helpful to review a few of the things that the FTC has done in the past explicitly with regards to retail and eCommerce:
* In 2023, the FTC has proposed new rules to enable a simple Click to Cancel mechanism for any website offering subscriptions. This helps consumers who are unable to find out how to cancel extra subscriptions easily.
* This year, the FTC is also alleging that Walmart is responsible for failing to protect consumers from fraudulent money transfer scams.
* In 2022, Rihanna’s Savage X Fenty was fined $1.2 million for failing to disclosed automatic charges related to VIP memberships, among other violations.
Class-action lawsuits are also on the rise for other deceptive practices like items that are permanently on sale, or inaccurately representing the suggested retail price of an item.
So for Amazon, the likely outcome is twofold if the FTC wins its lawsuit.
First, Amazon will have to change its website to remove any confusing Amazon Prime subscription language, buttons and links.
Second, Amazon will be forced to return money to consumers who signed up accidentally and didn’t realize it.
Just to give you some example, if you’re on Amazon’s Video part of the website, and you don’t have Prime, instead of just offering you to pay for a single video, it basically makes it seem like the right thing to do is to sign up for Prime to access this one video. Which in my opinion is a little misleading.
This isn’t the big price for FTC Commissioner Lina Khan, however. Rumors are swirling that a much bigger lawsuit is pending against the crown jewels of Amazon, its Marketplace. We’ll see what comes of this, but the thinking is that Amazon charges a lot of fees to sellers which while technically are optional, in practice are not optional. This, along with Amazon’s Buy Box algorithm which is notoriously secret.
For other merchants, mostly if you are using standard toolsets with clear language for consumers, you don’t have anything to worry about with the FTC and you will not likely hit their radar. However, anything that an average consumer might consumer deceptive will almost certainly reach the FTC’s radar if it affects a large number of consumers which can be the case for Enterprise and even growing mid-market brands.
[References:]
Our Second Story
Recent Digital Transformation Talk at The Lead Event at in New York City
Last week I participated in The Lead event in New York City. In addition to meeting some new and old friends, I also moderated a panel discussion on Wednesday called NO MORE SPREADSHEETS: MODERNIZING PEOPLE, PROCESS, & TECH TO STAY COMPETITIVE. In other words, we talked about digital transformation with Juliette Arnaud from Supreme, Jed Berger from Kenneth Cole, and Parinda Muley from Beautycounter.
The talk went off extremely well and I hope if you were in the audience you got something out of it.
Some of the topics we discussed included talking about the role of project managers and program managers, organizational design, and achieving alignment on a vision.
Our talk probably also had the most swearing of any talk out there, which is maybe surprising for a talk about digital transformation, but given how hard it is maybe it’s not.
As far as the Lead itself, I enjoy the event but mostly think it’s a great one day event but not quite not a two day event. This particular venue also had a number of challenges including being entirely too hot to do a conference in a basketball gym in the New York City summer, not quite enough food, and definitely not enough seating. I’ve been going to conferences for 20 years, and I saw over 50 people sitting on the floor last week. I’ve never seen that before. I do expect to be back next year, but I can only imagine it will be at a different venue as this one they have already outgrown.
A few themes stood out from the panel, namely: Team, Sponsorship, and Goal Setting.
On the team side, it’s critically important that you have the right people on board with a digital transformation of any kind. This includes representatives from all the relevant departments, but also roles you might not think about like procurement, finance, project management and product management. I find many of these roles overlooked. To talk about procurement for a second, in any billion dollar company, you are often going to find a byzantine procurement process that has built up over the years. Even having done this so many times, I still to this day underestimate the time that it’s needed to jump through the hoops needed by procurement and legal in order to get a contract over the finish line. Even if I could predict it accurately, if I wrote out what I thought the actual date would be on a project plan, everything would think it was ridiculous until it happened.
On the sponsorship side, of course your project needs sponsorship or else it will never be approved. What’s more interesting is how you use project governance to keep your sponsors updated on an ongoing basis. The frequency and content of updates to your sponsors constitutes how you will manage their expectations of success or failure, which is one of the most difficult parts of digital transformation that no one talks about.
Finally on the goal-setting side. Digital transformation is difficult and requires all players to be aligned on the same goals. Many times, you have some idea what results will be achieved, but sometimes you have a basket ideas designed to improve a particular metric, but are unsure if all of them will work. In many cases, a team needs patience to succeed.
If it sounds like your team could use some help with a major project, reach out to me and I’ll be glad to listen and offer my advice.
[References:]
Our Third Story
Tiktok Plans New eCommerce Venture
TikTok has made headlines with its plan to launch a dedicated Shop in the United States, and rumors suggest that inventory acquisition is also on the table. However, let's cut to the chase: this ambitious venture will face significant hurdles.
Historically, social media platforms integrating eCommerce have operated under a simple premise:
* They already boast massive traffic.
* Purchasing a product usually involves multiple clicks, hindering conversion.
* Why can't we add the conversion part to the discovery part?
The perennial challenge lies in user intent. TikTok primarily serves as a place to indulge in bite-sized entertainment, fostering a culture of short-lived engagement. Unless users have the right mindset to purchase, conversion rates will disappoint.
Once a creator scales, another issue TikTok will have is that setting up an eCommerce storefront is a breeze. When operating at scale, it becomes crucial to maintain control over the brand's online presence—preferably on an owned platform, not a third-party site. (This may not be as critical during the early stages since building an audience takes precedence.)
TikTok is banking on a single game-changing innovation: the belief that Meta (formerly known as Facebook) stumbled due to inadequate control over the overall user experience. Like Amazon, TikTok plans to establish warehouses and take direct possession of inventory to ensure availability and prompt delivery.
Here's what TikTok is likely to encounter:
* Less than 1% of creators will excel in this format, garnering immense success. The news, however, may exaggerate and create the impression that everyone thrives.
* The rest will sell products sporadically, with only a select few emerging as winners who might eventually migrate toward direct-to-consumer (DTC) strategies.
Consequently, TikTok's approach might prove more fruitful than Meta's, which heavily relied on social commerce over several years. But ultimately will fall short of expectations.
To increase the odds of success, TikTok should consider the following strategies:
1 - Organize weekly events that foster engagement and excitement.
2 - Offer compelling time-limited discounts, enticing users to take action promptly.
3 - Introduce a subscription model for buyers, granting them exclusive product access. This solves the user intent problem. If you subscribe to millions of creator drops, you demonstrate intent.
4 - If TikTok does to purchase inventory which I sincerely hope it does not, it should adopt the successful approaches of Shein and Temu: provide creators with valuable data insights and facilitate small-batch creation. Don't attempt to do much forecasting.
[References:]
[PAUSE]
And Our Last Story
Amazon Prime Day Roundup
Another year and another Prime day in the books. As I thought about Prime Day this year, I found myself not as excited as usual. What’s new under the sun here? Just another promotional day in between graduation day and Labor Day to clear out the warehouses. Let’s dive in regardless and see what we can find.
Adobe reported prior to Prime Day that they forecast about $13 billion in total online sales driven, which was expected to be about 10% higher than last year. Personally I do expect that shoppers will continue to trade down and use private label brands on Amazon Prime Day, which luckily, that’s most of what’s Amazon.
Amazon has introduced a new idea to their Prime Day, the invite-only deal. You can see the deal - including the price and the % off. But you can't buy it.
In the Amazon app you can request access to the deal, and then wait for approval by email. Email, really? I was expecting at least an in-app notification.
So why is Amazon requiring consumers to jump through hoops to get access to the best deals? Well, because it can, but also for two reasons:
* creating engagement and perceived scarcity, and
* curating precious inventory for what is likely real scarcity
To get access to these deals you not only need to browse. You need to click and engage. Now you are invested. If you're invested in one deal, you will likely be invested in looking other deals. Any DTC marketer knows: engagement and time spent on site improves conversion.
It's a similar strategy to how influencers use exclusive drops to their audience to gauge demand while limiting their production runs of those products. It also has the benefit that you can generate excitement with a potential doorbuster, but limit the impact on the P&L statement due to limiting their number.
Other firsts that I am seeing on Prime Day.
Amazon is partnering with travel booking site Priceline to offer discounts during Prime Day. This included an additional 20% off of Priceline’s Hotel Express deals. I thought this was curious but it does show that Amazon is really the “Everything Store.”
Another new one on me is that Amazon has launched a Tiktok game show on Prime Day.
All this means to me is that Amazon’s Prime Day marketing team is working overtime to find ways to make a simple promotional day just a little bit more interesting. Still the money number for Prime Day is pretty straightforward, and it looks like Amazon is still not moving the needle here. The number of Prime members estimated by Consumer Intelligence Research Partners in March of 2022 was 170 million. March of this year? 167 million, down about 2% for the first time in Amazon’s history.
Does that 2% decline in Prime memberships represent Day 2 for Amazon?
On the other hand, I think there is going to be a love-hate relationship between Amazon and Tiktok going forward. A Chinese company looking to build its own engagement and marketplace for US consumers that has the aggregate power to control the top items on Prime Day is a serious business risk for Amazon going forward. While we’ve had social media in the past, I don’t think anyone has seen anything quite like Tiktok.
[References:]
[PAUSE]
Hey, Watsonians, this is Rick. If you haven’t joined other listeners in our online community, you’re only getting half the value from this podcast. Our community contains members from all around the world discussing the most interesting topics we cover on the show. Just last week we were discussing how many and for what reasons product searches start on Tiktok versus Amazon.
You can join the conversation now at community.rmwcommerce.com.
Now a word from our sponsor Commercetools:
When a multi-billion dollar beauty brand’s eCommerce platform neared the end of its life, the entire business was at risk — including the ability to serve customers. By switching to Commercetools and embracing a more flexible MACH architecture, the retailer’s vision for connecting in-store and personalized shopping experiences became a reality. The brand can now roll out new features within days, securing its position as a modern brand that uses technology to its advantage. If you are being held hostage by your technology platform and your developers have thrown up their hands, tell them to start a free trial at www.commercetools.com today.
It’s That Time Friends, for our Investor Minute. We have 7 items on the menu today.
First
Marketing Technology Holding Company Brandtech Group acquires AI-based Ad Generator Pencil
It definitely seems like the marketing world is the first adopters of generative AI-technology as the service that BrandTech acquired, Pencil, was doing just that. For a brand, Pencil suggests static and video based ads for you, and uses analytics to predict their performance in advance. This cuts not only your creative time, but helps you make decisions as to which creatives to use.
Second
Markeptlace Management Software ChannelEngine Acquires European Seller Software Provider Vendiro
ChannelEngine was founded in Europe and is one of the few independent software companies covering the global eCommerce marketplace space. This acquisition adds Vendiro’s European marketplace focus allowing ChannelEngine to double down on a strength. Congrats to Watsonians CEO Jorrit Steinz and VP Revenue Jordi Vermeer on the news.
Link: https://www.channelengine.com/en/blog/channelengine-welcomes-vendiro
Third
Store Service Provider Leap Raises $15M in fresh capital
Leap helps direct to consumer brands secure their own stores. The company raised a $50 million Series B in January 2022. While many Direct to Consumer brands do need a retail footprint, this is a tricky market to be in because you need to guess which customers will have enough staying power. And then, you could end up just being training wheels for when they can operate their own stores without Leap’s help.
Link: https://www.retaildive.com/news/leap-raises-15-million-funding-dtc-physical-retail-stores/653769/
Fourth
Automated Warehouse Robotics Company Dexory Raises $19 million Series A Funding
Dexory uses autonomous robots to scan the contents of a warehouse and them use that data in order to create a real-time view of a warehouse’s stacks and items. The obvious application is inventory management, something important to any large retailer.
Fifth
Cart.com Announces $60 Million Series C Funding Round at $1.2 Billion Valuation
Supply chain and logistics provider Cart has a number of assets, the largest of which is their supply chain operation obtained from its acquisition of FBFlurry. The company has acquired other assets SellerActive and AmeriCommerce which round out its offering. While this valuation looks like a big win for Cart, I get the sense that existing investors did not reprice the round, it simply offered the chance for new investors to get in at the previous valuation. This means there could still be pain ahead of the company is forced to revalue from its previous pandemic peak valuations.
Sixth
French Luxury Group Kering Group acquires fragrance brand Creed Beauty
Creed Beauty, founded in 1760, was the largest global independent player in the fragrance market and will likely form the foundation of the Kering Beauty category. Kering owns several major fashion brands like Gucci, Balenciaga and others. Kering created its beauty division in February of 2023 to help its other major brands develop beauty products. I suspect that strategy is going well and this allows Kering to use Creed in the future to manufacture fragrances for all of the Kering Group brands.
AND FINALLY …
Shopify’s Launches Its Venture Capital Website
If you have listened to this program for any length of time you know that for years, Shopify has been investing in various companies in the eCommerce industry, many of which are part of its App Store. Some of its previous investments have included companies like Stripe, Melio, Gorgias, Tapcart, TripleWhale, and Yotpo.
Previously, how to pitch Shopify on a venture investment was somewhat opaque and so this new website makes it clear to companies how to apply, and who is currently in the portfolio, which is helpful.
One strange thing I noticed on the Shopify VC website
Link: https://betakit.com/shopifys-venture-arm-unveils-portfolio-in-new-website-launch/
https://shopify.vc/
[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 production partner for the series is CitizenRacecar. The show is produced by Jose Baez; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.