Amazon Shapes the Future of Ecommerce

As Amazon faces its largest antitrust lawsuit to date, the company has continued to roll out programs and expand capabilities to further cement its dominant position in the industry.  

This report by Pilothouse’s Lead Amazon Media Buyer, Clifford Donovan, goes deep on what changes, improvements, and innovations are at the forefront of the platform.

Let’s dive in: 👇

📦 Ecommerce

Brands selling on Amazon have historically faced challenges in controlling their brand image, reputation, and access to customer data.

Over the past couple of years, Amazon has been expanding its offerings to brands, allowing more control little by little. As a shopper, you may have noticed your favorite brand's "Amazon Storefront" (accessed by clicking on the brand name underneath a product title) has become more robust. You may have also noticed more imagery in advertising from brands on the site, as large images or videos have taken over the top of search placements.

On the backend, Amazon has begun to give brands more access to data, with access to first-party data on search queries, customer purchase data, and brand market share. Although most would still suggest that many improvements are needed, Amazon is clearly making a concerted effort to make the platform more friendly to brands.

The largest change, and the most significant signal that Amazon is attempting to expand to own the entire ecommerce industry, has been “Buy with Prime”. The program allows brands to add an Amazon checkout option to their own Direct to Consumer website.

To be clear, “Amazon Pay” has been around for years as an alternative payment option, and it has always been possible to utilize Amazon’s fulfillment network for a direct to consumer website. Buy with Prime marries these two options and gives “Prime” shipping speeds for the first time outside of Amazon. In a surprising move, they even struck a deal with Shopify and made an official app integration.

All of these moves point to Amazon as the central provider of all things ecommerce. Although they already control roughly 60% of the ecommerce market, a large share of purchases happens on individual websites, primarily hosted on Shopify’s platform.

This combination of “Buy with Prime” with Amazon’s efforts to expand brand control on the platform suggests that Amazon may work towards a more direct Shopify competitor by allowing brands to build/host their website directly within the Amazon ecosystem.

📊 Logistics

Amazon has continued to move from using 3rd party shipping companies to bringing logistics in-house, rapidly building a “last-mile transportation network that’s now the size of UPS.”

This continued investment into expanding its logistical capabilities has set Amazon apart from all its ecommerce competitors. Their innovation in shipping has even coined the term “The Amazon Effect,” as customer expectations have shifted to expect fast, free shipping. This effect will continue to become more pronounced, as Andy Jassy announced in his recent Letter to Shareholders that Amazon is “on track to have [their] fastest Prime delivery speeds ever in 2023.”

Amazon’s shipping advantage is no longer just in the last mile but also in supply chain logistics. Over the past few years, Amazon has invested in a massive, global ocean and air freight logistics operation. They’ve expanded this offering of global logistics operations to their 3rd party sellers, providing an efficient path for goods to be transported from the manufacturer directly to an Amazon fulfillment center without the need for middle-men logistics providers.

More recently, they’ve even opened up Amazon Warehousing and Distribution, allowing companies to fulfill larger wholesale orders to brick-and-mortar retail (still in process).

💰 Advertising

Amazon’s Advertising business has been rapidly expanding, to now generating a massive $31 billion per year.

Previously, Amazon’s ad business was exclusively utilized by brands that sold directly on the platform. However, as Amazon has expanded over time, so has its share of attention.

Not only is Amazon.com the 6th most visited website in the US, but they also have a massive network of 1st party and affiliated platforms to distribute their advertising via owned properties such as Twitch, Prime Video, and the massive network of Amazon Publisher Services.

Amazon is also constantly expanding the viewership of its content platforms, with branded TVs, exclusive streaming rights to Thursday Night Football, and an overall content budget that’s seen significant growth over the past few years.

Their growing investment in advertising was further exemplified recently as they announced they would add ads to Prime Video.

The large advantage Amazon has in this space is its ownership of the entire customer journey, from content viewership to purchase attribution.

As Apple brought in OS updates to reduce user data tracking and Google plans the same, attributing sales back to advertising campaigns via Meta, Google, and others has become increasingly difficult. This attribution advantage is obvious in terms of Amazon.com sales directly, but, pushing it one step further, via their ownership over Whole Foods, Amazon advertisers have access to in-store purchase behavior and unprecedented attribution of brick-and-mortar sales to digital advertising campaigns.

These content platforms, with this level of attribution, open up an unprecedented opportunity within the advertising industry to measure the direct result of, well, TV commercials.

👀 Let’s tie it all together with a simple scenario that may very well be a near reality:

Imagine you’re a brand that produces a product overseas.

Your product is sold in brick-and-mortar retail stores, on Amazon.com, and your own website. Amazon could be the freight carrier that brings your product across the ocean to the US, the warehouse that stores the inventory and restocks both brick-and-mortar and Amazon fulfillment centers (FCs).

Your website, hosted within Amazon, has orders fulfilled by those same FCs and delivered by Amazon. You run ads on Prime Video and Thursday Night Football and get direct conversion data from customers who buy your product from Whole Foods, Amazon, and your site.

In this scenario, Amazon generates revenue on:

  • The international freight
  • The storage
  • The shipping to FCs
  • The shipping to customers
  • The advertising
  • The purchase

That’s also not to mention they host the servers every step of the way, as they are the leading global cloud infrastructure provider (Netflix, Airbnb, and even Fortnite all run on Amazon Web Services).

Is this consolidation advantageous for the average consumer?

That’s up for debate. On one hand, Amazon’s growth in supply chain market share has led to impactful moves towards more sustainability, notably, their continued rollout of electric delivery vans and the switch to more sustainable packaging. However, Amazon is already facing scrutiny for its “monopoly power,” and is now facing a lawsuit from the FTC. Further expansion and control of the industry will likely draw even more regulatory inquiry.

Despite this, Amazon’s growth shows no sign of stopping anytime soon, and its increasing vertical integration continues to make the company an evermore appealing (and possibly necessary) platform for brands to ship, sell, and advertise their products.