July 3rd, 2023: Amazon gets open letter from activist investor, Amazon announces Prime Day, Google Domains sells to Squarespace, and Google launches virtual AI try-on feature
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s July 3, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Amazon Gets Open Letter from Activist Investor
Amazon Announces Prime Day
Google Domains Sells to Squarespace
Google Launches Virtual AI Try-On Feature
- and finally, The Investor Minute, which contains 7 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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BUT FIRST in our shopping cart full of news….
Amazon Gets Open Letter from Activist Investor
Amazon received an interesting open letter from an activist investor named Bernstein last weekproposing the following changes for Amazon:
First, Amazon should trim or seek a new owner for its healthcare business, underwater international markets like Brazil and India, and scale back on its fulfillment business. This would likely greatly reduce Amazon’s yearly spending.
Second, Bernstein recommends that Amazon double-down on its media and advertising and Buy With Prime businesses. Advertising I understand, but media is more of a head-scratcher. Amazon has not been very successful with Amazon Video, and I don’t know many people who would pay for it if it were on its own. Buy With Prime is a bit of a head-scratcher recommendation, but instead I would recommend that Amazon build a true third-party business to consumer fulfillment operation. If you want to invest in Buy With Prime, a true UPS competitor is very much what is needed.
My thoughts on this letter are that this is a giant fishing expedition. Most of the suggestions seem like a grab bag of items. If Amazon really wanted to be smart, just:
Don’t spend so much on fulfillment.
Invest more in advertising and AWS.
Done.
See? That analysis provides just as much value.
Usually, I only listen to reporters speaking about activist investors in one situation:
when the percentage of the stock they own is clear.
Otherwise, it’s a nothingburger to Amazon. People criticize the company everyday. In this case, I see no indication this firm owns any appreciable percentage of Amazon.
That said, this is a great public relations stunt by the investor Bernstein. Mission accomplished.
[References:]
https://www.businessinsider.com/bernstein-brutal-open-letter-amazon-ceo-andy-jassy-day-one-2023-6
https://community.rmwcommerce.com/t/that-bernstein-open-letter-to-amazon-ceo-andy-jassy/1092
Our Second Story
Amazon Announces Prime Day
Well, Amazon’s Prime Day is on the horizon and coming soon. The official dates are July 11th and 12th. Is it just me, or does Amazon Prime Day not seem as exciting as it used to be?
Perhaps we will cover that another time. One element of Prime Day this year that I thought was interesting was the promotion of deals offered by merchants in Amazon’s Buy With Prime merchants.
While Buy With Prime was announced last April, it's easy to forget the program has not yet been live six months. This year's Prime Day gives the program a chance to see what the team has been doing, and here's what I've learned so far:
* Amazon has a Buy With Prime deals page on the website - driving traffic off Amazon for Prime Day. You almost have to stop for a moment to let that sink in. Amazon is driving traffic away from Amazon, aaaaand then kind of back to itself for checkout?
I spent a little time looking at Amazon’s Buy With Prime Deals Page and want to offer a few more comments on its promotional efforts for Prime Day.
* I counted up all the brands on Amazon’s Buy With Prime deals page and found about 100. This is pretty good progress for the program so far, and I would estimate at least 10 times this many are in the program. That said, I’m sure those are more long-tail merchants in the program. If there is a major vendor in the program, wouldn’t you want to sign up for Prime Day promotions?
* I would say 99% of brands I do not recognize. The top brands I do recognize with deals are: Wyze, Anker, Targus -- primarily in electronics, and 2 of the 3 are essentially Amazon-native brands that have broken out.
* Many of the products on Prime Day Deals are what I call "first-purchase profitable", even despite the fees. I estimate many of these items have 80+% gross margins.
Quite a few of the items have virtually unprovable benefits and charge high prices. Health and Beauty are rife with it.
I just have to say this out loud because I have thought it for a long time… If Health and Nutrition ever get real FDA regulation, a lot of D2C and marketplace brands are in trouble. Until then, though, these brands are going to the moon!
* The most damning critique of Buy With Prime is of all the deals I looked at, I couldn't think of a single item that wasn't already flooded on Amazon. For Amazon, that may be a win because Buy With Prime badges are on D2C websites that weren't there earlier, but is it truly a win for the consumer?
That’s still unclear at best.
* While I was looking at these deals, I couldn’t help but think that there is not a really unique selection here — I felt I could be literally on any deals website like AliExpress, Wish or Shein.
Of course, I do understand this is Amazon's selection these days–- and by that I mean Chinese third-party sellers – but more and more I don't feel that a third-party-most future is beneficial for Amazon. Third-party selection can easily move and will go where the traffic goes.
Amazon’s strategic selection must be first-party and if other categories are moving to more of a "fast-fashion"-type model based on social media trends, is Amazon already behind the times?
* While I’ve always said that Buy With Prime needs to focus on traffic generation, I definitely believe that if the program is to be successful, it needs to drive a surprising amount of traffic to a direct to consumer website.
If Amazon is not able to drive traffic to its merchants, I have difficulty believing this program will be around in 5 years. With that said, I truly think that the majority of Amazon's focus with this program should be in improving Amazon’s multi-channel fulfillment program (or MCF) packaging and as well as demand generation.
Where’s Shopify in all this? Oh, I forgot to mention this key point: I clicked through quite a number of the websites in Amazon’s Buy With Prime Deals page, and what platform would you guess runs all their stores?
Of course, the answer is Shopify. Literally no other platforms.
So, yeah, Amazon needs to secure that deal with Shopify if this program is going to be relevant, like at all.
[References:]
https://www.retaildive.com/news/amazon-prime-day-target-summer-sale-july/653485/
https://thekrazycouponlady.com/tips/store-hacks/walmart-big-save-event
https://www.linkedin.com/feed/update/urn:li:activity:7079437123459633152/
Our Third Story
Google Domains Sells to Squarespace: Does It Mean Anything?
Recently, Google announced it would be getting out of selling website domains, which I am sure is a painfully low-margin and slow business for the company.
Major website provider transition events don't happen very often, but there are examples in the last decade. One big difference this time is that the asset is domain registration, not websites. That is a critical difference.
That said, it's still useful to look back at the last two times website transitions happened:
In 2014, BigCommerce was chosen as the partner for eBay as it closed its eBay ProStores platform and Magento Go.
* At the time, 50,000 stores used BigCommerce.
* eBay's Platforms had 10,000 stores at the time, so BigCommerce gained an additional 20% merchant count immediately.
This gave BigCommerce needed validation at the time.
In 2015, in an irony not lost on me, Amazon closed its WebStores business and chose Shopify as its partner to migrate its merchants to.
* At the time, Shopify had 175,000 merchants.
* While no official estimates were released then, Scot Wingo's estimates at the time said there were approximately 2,000 Amazon Webstores. (Though this seemed low to me, even at the time.)
Despite the number, it is widely credited that this gave Shopify a boost compared to other platforms at the time - after all, Amazon, the king of eCommerce, was anointing Shopify to help its customers. Think Amazon wants a mulligan on that decision?
In 2023, things are new.
* Google is selling its Domains business to Squarespace, which includes 10 million domains. While these are not all websites, that's a big number and includes "millions" of customers.
* While not a direct competitor as you might think (Shopify is much more advanced), at the low end I do see small service-based businesses or single-product businesses sometimes choosing Squarespace for their eCommerce or transactional websites. So there are some eCommerce-adjacent concerns to consider here.
Of course, I have more questions than answers about this deal:
* What percentage of these 10 million domains are attached to websites, and where are the hosts for these websites today?
* What kind of incentive programs will Squarespace offer these former Google Domains to develop their web assets on Squarespace?
* What other companies were bidding for these assets?
* Will there be any future regrets by any parties (including Google) for letting this business go? (GoDaddy, Namecheap in particular, but it's not outside the realm of possibility that Shopify took a look).
I expect that if Shopify did pass on this deal, the primary reason would be that no one knows who owns these domains and how likely they are to develop into eCommerce. The hit rate could be very low from an upsell point of view.
[References:]
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And Our Last Story
Google Launches Virtual AI Try-On Feature
This past week, Google released a new AI try-on shopping feature which leverages Generative AI. The introduction of such features raises more than a few questions about the future of eCommerce.
I couldn't demo the features personally but the features released include:
- The ability to see clothes on various body types and skin types.
- New guided refinements to allow you to use color, pattern, and style to find items similar to what you are browsing... which could help your shopping process.
The feature uses a diffusion AI model with inputs of a product image, and also a person in order to generate many different colors, sizes, and model types from limited inputs.
A few thoughts:
* Virtual try-on is definitely the future of online shopping, and I don't see why it couldn't replace going to the store in some instances.
Previously this type of technology was more common in categories like beauty/cosmetics and eyewear. This shows you how new types of AI models can help enable experiences in new categories as well.
* I do believe that when you are in a "brand or style discovery" mode of shopping, these types of features can be very helpful. There's no reason the AI couldn't generate dozens of recommendations for you in styles and colors to match your body type, even with your own image.
In a few seconds.
* That said, these features showcase what Google's Generative AI models can do, and in terms of purchase capability are likely not a replacement for a brand's website.
* As such, I expect to see third-party developers of merchandising solutions and the eCommerce platforms themselves add these features natively into their applications.
* I wouldn't be surprised to see similar types of functionality show up in Shop App, which appears committed to experimenting with the uses of AI in shopping.
While these are incremental improvements from previous shopping enhancements that may have been available from third-parties, it does show what companies like Google can do to "raise the water level" across eCommerce by providing foundational tools, models, and algorithms in order to improve shopping.
[References:]
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It’s That Time, Friends, for our Investor Minute. We have 7 items on the menu today.
First
French B2B eCommerce platform DJust raises $13 million from NEA.
The company wants to create a B2B platform and follow in the footsteps of another great French platform provider, Mirakl. And that’s not where the comparison ends; the founder of Djust was on Mirakl’s founding team and spent 10 years there.
Second
Fulfillment management provider Flowspace acquires RetailOps.
Flowspace has been a nationwide 4PL provider offering unified visibility into a network of third-party logistics facilities. RetailOps was founded by eCommerce veteran Sam Moses, which provides a suite of software solutions focused on eCommerce back office operations like warehouse managment, product information management, and order management.
Third
Overstock acquired Bed Bath and Beyond assets.
Well, it finally happened, Watsonians. Bed Bath and Beyond is officially dead. It’s almost sad to see this once iconic chain sold for only $21 million. The company is hosting a separate auction for its Buy Buy Baby chain.
Link: https://www.cnn.com/2023/06/27/business/bed-bath-and-beyond-overstock/index.html
Fourth
Activewear brand Ten Thousand raised a $21.5 million Series A funding round.
I guess the world needs another new training brand? Everyone wants to take on Lululemon, but not many have been successful doing so. The firm plans to use the money to grow its team and grow its retail footprint.
Link: https://www.retaildive.com/news/ten-thousand-raises-twenty-one-million-activewear-dtc/652933/
Fifth
Baby brand Lalo raised $10.1 million in funding.
The capital was provided by Spinmaster Ventures and the company aims to disrupt a crowded baby and toddler market. Lalo sells items like highchairs, bath items, and toys.
Sounds like they could have used Buy Buy Baby as a retail outlet. Whoops, too late!
Link: https://www.retaildive.com/news/lalo-raises-101m-in-series-a/653021/
Sixth
Fanatics acquired Latin American licensed apparel provider Fexpro.
I have truly lost count of how quickly Fanatics is expanding with all these recent acquisitions. Let’s try: Fexppro, PWCC, PointsBet, and Epi – and that’s just in the last year. The company is definitely taking advantage of this high-interest rate environment to pick up new assets. Yep, sounds like Michael Rubin.
AND FINALLY …
International digital freight company Cargobot raised $6 million.
CargoBot is based in Miami and this Series A is provided by BPBI. CargoBot is a digital freight matching solution that connects shippers, carriers, and freight forwarders. I had thought most of these companies were not doing terribly well, what with the continued decline in freight volume the past year or so.
Link: https://www.finsmes.com/2023/06/cargobot-raises-6m-in-series-a-funding.html
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That’s all for this week! Till next time, Watsonians.....
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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.
