Shopper Marketing

I think the street is not appreciating the subtle changes in amazons and biz.

There was lots of head scratching at Amazon being the partnership Pinterest had announced as opposed to Google.

The combination of Amazon announcing a 2.99 ad tier combined with this suggests to me some profound changes at Amazon.

1) per the note I referenced, Amazon Ad Biz is part of the retail flywheel. It drives the 1p, 3p, and with video ads, the subscriber flywheel. Wall Street analysts still don’t seem to get this, even though it is pretty obvious based on my conversations within the channel for 5 years.

2) IF ads were viewed as its own business, a sponsored search would be close to 85 percent EBIT margin. I have heard multiple sell-side analysts say it is an 85 percent margin biz. That is just wrong.

3) The sponsored product results load has gone up profoundly if you look at the ratio of how I estimate 3p GMV (I could be wrong, but it is at least 30 percent take rate relative to amazons last disclosure) – if not higher at FBA as a percent of the mix continues to increase. Since the ad biz ramped up in 2016, if you look at that ratio, it goes up.

I don’t know the right maximum ad load, but you hear about sellers’ complaints bc the cost of doing biz on Amazon – 3p fees plus ads keeps increasing.

3) retail margins in us – not as easy to unpack, but if you look at the FX impact on their ad biz, it is mostly us and is probably 2-3 percent maximum.

4) while all the video investment (hard to quantify as it drives the prime sub flywheel) may be 20-30 percent – we don’t know, but it doesn’t matter to this point – lower than 85 percent but accretes margin.

5) Off-Amazon partnerships like Pinterest and now Snap may be even lower, but it also doesn’t matter – lower than 85 percent but accretes to margin.

6) Wall Street should appreciate that everything amazon is doing in their ad biz is accretive to North American margins, and all of this is negative for Google.