Online Retailers will Pivot or Die

Amazon Advertising

Online Retailers will Pivot or Die

2020 is the year Retailers pivot their online business to a more profitable model.

It’s easy to look back and recognize pivots are often required – even for big companies.

Remember when Netflix rented DVDs? Now, it’s a streaming company.

Look at Apple.

Apple used to be a computer company. Now they’re an iPhone company.

And they’re becoming a services company.

Services is Apple’s second largest business – twice the size of computers

These businesses grew because they pivoted to where the money had moved to.

The same is true for Amazon.

Amazon isn’t really a retailer anymore.

Here’s Amazon’s Q3 2019 numbers:

  Q3 2019 Revenue % of Total Revenue
Online stores 35,039 50%
Physical stores 4,192 6%
Third-Party Sellers 13,212 19%
Subscriptions 4,957 7%
AWS 8,995 13%
Other (Ads) 3,586 5%
Total 69,981 100%

Retail sales are shrinking as a percent of total revenue so only half of their revenue now comes from online retail sales.

Retail is now the slowest growing part of their business.

So how are they rapidly growing total revenue?

Simple.  They are using retail to build their fastest growing revenue stream.

No, not AWS.

Not Prime.

Advertising. 

Ad revenue is growing twice as fast as the retail business.

And faster than any other business unit.

Amazon Advertising
Source:  Amazon Q3 2019 Y/Y Growth Data

Amazon is a media company.

Advertising now makes up 10% of Amazon’s online retail revenues and most, if not all, of the retail profits.

The ad business is subsidizing the low margin e-commerce business.

Let me repeat that. Without the ad business, Amazon wouldn’t be able to hurt their retail competitors like they are.

Walmart caught on last year. They are also becoming a retail media company.  This week they announced that their ad platform and ads API are open for business.

eBay, too.

And Kroger.

And BestBuy.

As this new decade starts, doing nothing is not an option

If you don’t start making money from ads, you may become Blockbuster.

Who? – –