October 2nd, 2023: FTC files suit against Amazon, Amazon to rollout Prime Video ads, Is the IPO market healthy? And Shopify takes a stake in B2B marketplace Faire
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s October 2nd, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
FTC Files Suit Against Amazon
Amazon To Rollout Prime Video Ads
Is the IPO Market Healthy?
Shopify Takes a Stake in B2B Marketplace Faire
- 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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Just a reminder to stay tuned until the end for my Final Word for the week.
BUT FIRST in our shopping cart full of news….
FTC Files Suit Against Amazon
Yesterday, Sam Walton, founder of Walmart, must have been looking down from heaven and smiling as the FTC and 17 States Introduced a Suit in the Western District of Washington Against Amazon. I read through the lawsuit, and wanted to highlight a few things the lawsuit claims:
* Amazon Has a Durable Monopoly In Online Superstore and Online Marketplace Categories
* The Feedback Loops Between These Monopolies Amplify Amazon's Advantage
* Anti-Discounting Rules and Fulfillment By Amazon Reinforce These Monopolies
Lot to prove and unpack.
1 - The market description is even the right one.
2 - There is in fact a monopoly in this market.
3 - There are specific tactics to prop it up.
4 - There is significant harm to the market, most specifically to consumers.
Very hard to prove.
3 Likely Outcomes to Consider
1 - Amazon Gets Fined.
2 - Some Kind of Breakup
3 - Congress Regulates Some Specific Kind of Behavior.
Here are a few things no one is talking about:
* All the consumer benefit that has come from Amazon. Someone has to say it.
* Walmart, perhaps the largest player in all retail in the world, literally runs the same playbook as a "second-mover". And it's working.
* Shein and Temu becoming billion-dollar companies in the same US market almost overnight, seemingly not needing to participate in Amazon's game.
* Millions of entrepreneurs starting on Shopify and other DTC platforms, not needing Amazon.
Make Point about Marc Andreessen and power law dynamics in Internet platform markets.
Bottom line, this will take years to play out, and even longer to seek any remedy, but will generate some interesting headlines along the way.
[References:]
https://www.linkedin.com/feed/update/urn:li:activity:7112775866752872449/
https://www.aboutamazon.com/news/company-news/amazon-ftc-antitrust-lawsuit-full-response
Our Second Story
Amazon To Roll Out Prime Video Ads
Amazon Video has always been the stepchild of streaming. A little worse content than Netflix, HBO (Max?) and even AppleTV, but hey, it's free. Now you can have your questionable content served with a side of ads.
Here are a few of the updates shared by Amazon that are coming in 2024:
* The free Amazon Video plan without ads goes away and in its place, the free tier is going to have ads on it.
* A new $2.99 per month subscription will be ad-free, except for live events. This means your typical TV shows and movies.
* Live events like Thursday Night Football (which of course often exclusive and users have fewer choices) will all have ads in them.
First, you knew this was coming for two reasons -- one, advertising revenue is just too valuable to ignore.
And two, Amazon's advertising business needs to keep growing. For that to happen, Amazon needs more surface area to show customers.
Still, Amazon has two big problems overall with its advertising business. One is that Google and Meta have more surface area to display ads than Amazon, because ads are displayed on consumer-generated content, and second, TikTok is getting all the user attention and growth.
Both would need to change for Amazon for it to challenge for that top advertising spot in the future.
Sadly, I've resigned myself to an ad-filled future, because Amazon Video is not worth the extra fee in this household. I suspect many viewers have already made the same calculation.
[References:]
Our Third Story
Is the IPO Market Healthy?
I’ve been hearing some grumblings about recent IPOs in the popular press, and I thought I would take a moment to give my take on this.
The grumblings go something like this:
* The valuations of these companies are down significantly from their past private company valuations.
* The IPOs popped on the first day, but many of them are trading below their initial prices.
* As a result, companies should really stay in the private market and forget about IPOs.
To be clear, I think this is a load of crap.
First, the private market valuations were only based on the combination of access to easy money, the greater fool theory - in other words, there is always a bigger sucker out there, as well as fear of missing out.
So let’s get that out of the way from the start. Those days are not coming back in the next 2-3 year with these interest rate policies.
Second, investors need liquidity. In companies like Klaviyo and Instacart, they are over 10 years old, which means early investors are perhaps only getting paid back by buyouts of future private market investors and not the more liquid public markets. You can’t stay private forever, or else not only do you have investors upset, you also have tax liability issues — hello Mr. Stripe who missed their IPO window about 3 years ago now.
Finally, an IPO is a mile marker on a company journey, it is not the destination. The great thing about an IPO as opposed to an acquisition, management gets to stay in control. As you can see from Shopify’s CEO Tobi Lutke, and Amazon’s Jeff Bezos, Microsoft’s Bill Gates, and Apple’s Steve Jobs, there is a tremendous advantage to founder-led businesses in the public markets. It’s like a cheat code for the business.
Remember than 99% of the value of Amazon was generated after the IPO, not before it. Great companies will continue to grow if they execute in the right way.
If the company was a flash in the pan, then neither staying in the private markets or going public will have a hope of saving it.
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And Our Last Story
Shopify Takes a Stake in B2B Marketplace Faire
Shopify took another swing at the B2B Marketplace world by investing in Faire.
What's Faire? Faire connects brands looking to sell inventory in independent retailers at wholesale prices. In other words, a B2B marketplace. As a marketplace, it needs to benefit both sides. Retail buyers are looking for new brands to stock for their consumers in stores. Brands are looking for distribution channels to sell their products through.
Here are the terms of the arrangement:
* Faire now becomes the recommended wholesale marketplace for Shopify.
* Shopify POS is now the recommended provider for the Faire community.
* There are a lot of features coming for the Faire, Shopify integration — more than I expected.
What do I think about the deal? (Speculation)
* For the POS partnership alone, I think the deal is probably worth it for Shopify. Shopify is doing what no eCommerce platform I’ve known has done in the past, try to own the POS stack as well as the eCommerce stack. This likely makes it more and more difficult for payment providers and POS vendors to partner with Shopify going forward similar to how you don’t see alternative checkout providers on Shopify anymore.
* There is values alignment between Faire and Shopify, both supporting independent retailers. And in particular, this deal is about Shopify Point of Sales. Whether or not Faire does a fantastic job, they have access to a lot of retailers.
* I hear extremely mixed reviews about Faire from brands I speak with. The expense is a big part of that, but the service levels are also consistently mentioned. COVID and the end of COVID likely has not been kind to independent retail. Retailer cash flow is tighter, and web traffic to Faire from public sources seems off significantly in the past year.
* What is Faire valued at? The key question. In May 2022 they were valued at around 12 billion post money. I would expect their current valuation to be a tremendous amount less than that.
* Under the radar news is that Faire is involved in a lawsuit, making it more difficult for them to raise capital — yet another reason the valuation is likely on the lower side.
* Let’s say that the fair valuation for Faire is in the $1 billion range now that we are back in valuation reality ($100M revenue at Faire on mixed growth? My guess 🧐). I would expect that Shopify for its part would want about 8% of the company. That would put Shopify’s investment at around $80 million.
* This is kind of the nail in the coffin from the previous B2B Marketplace Handshake acquisition, though they did get Glen Coates out of it 🙂
* Given the length of the upcoming roadmap, it could be that Shopify’s stake is even larger than this, or the valuation is lower than even my discount.
Did Shopify secure favorable marketplace terms for Shopify merchants as part of the deal? Extremely likely, but time will tell.
You will start to see more deals like this from companies that are having trouble raising money. It’s highly likely that Shopify takes a peak at almost every eCommerce venture deal above $100M in valuation. For Shopify, at the right valuations this fuels their ecosystem and they avoid another distracting acquisition.
[References:]
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Shop Circle Raises $120M Series A
Shop Circle acquires and operates a suite of e-commerce software-as-a-service (SaaS) businesses, and is the largest eCommerce SaaS aggregator I know of. The $120m Series A funding will be used to build AI-driven consulting solutions.
Second
Amer Sports Confidentially Files for US IPO
Finnish sports goods manufacturer Amer Sports, 52.7% owned by Hong Kong-listed ANTA Sports, has confidentially filed for a US IPO. A potential 2024 IPO would raise up to $3b for Amer Sports to grow its global retail footprint.
Third
Footwear Brand Birkenstock Files for IPO
European footwear brand Birkenstock, majority-owned by L Catterton, has filed for a US IPO. The company has websites in more than 30 countries and likely will use the new funding to open retail locations in new global markets.
Fourth
GXO Logistics to Acquire PFSweb
Contract logistics provider GXO Logistics has acquired luxury fulfillment platform PFSweb for $7.50 per share or an all-cash deal valued at $181M. GXO Logistics will focus on the growth opportunities in jewelry and collectibles, activewear, and CPG categories.
Link: https://www.globenewswire.com/news-release/2023/09/14/2743203/0/en/GXO-to-Acquire-PFSweb.html
AND FINALLY …
Parade's Capacity Management Platform Raises $17M
Freight capacity management platform Parade has raised a $17M venture round. The new funding will be used to build features for freight brokers and to more easily book freight from conversations. But seriously folks, does the world need another freight booking platform? I think my count is up to 274 of them.
Link: https://finance.yahoo.com/news/parades-ai-driven-platform-nabs-123000175.html
Today’s final word for the week of October 2nd: Lawsuit.
It’s hard to ignore the fact that the government and a big number of State Attorneys General have filed their monopoly lawsuit against Amazon. Let’s be real, Amazon has brought the retail world a tremendous amount of innovation and also created many casualties along the way. However, these casualties are not necessarily different than what retail used to look like before when Walmart was the big retail bully on the block. Oh, did I mention Walmart? Likely they are the biggest beneficiary of a lawsuit like this. Predictably, Amazon responded with a 300 page note about 5 minutes after the lawsuit dropped. I laughed when I read it because it’s obvious they have been writing this note for the past 5 years.
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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.