We're in the business of knowing Amazon. With the world’s most comprehensive digital retail performance tools and intelligence at our disposal, understanding the past, present and future of ecommerce is one of our most important assets.
Now in the first days of the new year, we can't help but look ahead. And we must admit (whether it fills you with hope or with dread) that Amazon will be a big part of all of our lives in 2019. The question is: what does the retail and technology juggernaut have planned? What has Amazon been up to at the turn of the year and how will those plans come to fruition in 2019 and beyond?
Here at Edge, predicting Amazon's next moves is a big part of our job. But the complex and subtle forces applied by competing channels, supply chains, regulations and consumer interests – each of these factors subject to rapid and surprising changes – makes prediction a broad and long-term game. So to inform brand manufacturers and other stakeholders, we're not going to limit ourselves to Amazon's short term goals. Instead, we're going to break our predictions out by distance: what's a hand's breadth away, what's 10k feet away and what's 40k feet away.
Part 1 – The Short Term
To start, let's look at our predictions for what Amazon's going to do in the very near term and how it may affect the ecommerce giant's partners and competitors in the immediate future.
1. Amazon's Panda
This time last year, there was a huge market for people willing to write reviews in exchange for coupons or other deals on products listed on Amazon. This was not a black market by any means – until 2016, Amazon had no policy against incentivized reviews – but it was still kept under the radar in an effort to hide review biases from shoppers. Then at the beginning of April 2018, Amazon finally cracked down and banned thousands of reviewers for breaking the company's review policy or using their account for 'commercial purposes.'
Then, just weeks before the holidays, the news broke that Amazon had fired numerous employees for leaking insider info to malicious sellers. This info was being used to manipulate Amazon's search algorithms in order to fraudulently gain a higher search ranking against competitive products. Other malicious practices include sellers flagging their competitors as counterfeit or trademark infringement in order to get their listings temporarily pulled from search results.
For most online shoppers, Amazon is even more popular than Google as a search engine – but, like Google, this means that Amazon's value to these shoppers is correlated to the quality of its search results. That's why this is the year that Amazon releases their version of The Google Panda Update, a major search filter launched by Google in 2011 which flagged and blocked low quality sites from appearing in search results. With the Panda update, Google cracked down on black hat SEO and other techniques used to game the search ranking algorithms.
Amazon is overdue for its own version of Panda. In 2019, we can expect Amazon to improve their search algorithms to be smarter about favorite high quality products and complete detail pages while filtering out keyword-spamming, plagiarism and untrustworthy reviews. This is bound to have some direct impacts on brand strategy which won't be immediately apparent until the updates take effect.
Brand Implications: Monitor your performance carefully in order to identify any once-good practices that may become disfavored – such as long, keyword-heavy titles – and to adapt to the changes as quickly as possible. If you are looking for white hat SEO strategy, tactics, execution and performance monitoring for online retail, Edge can help.
2. The Year of 3P
Amazon was once controlled by first party vendors (1Ps), meaning brand manufacturers that sell inventory directly to Amazon, who then sells it to the customer. For shoppers, these items appear on the platform with the label "Ships from and sold by Amazon.com". But their share of Amazon's sales has been shrinking year after year as third party vendors (3Ps) increase their presence.
2018 was the first year that 3Ps, who use Amazon as a marketplace to sell directly to consumers, consistently controlled more than half of the platform's sales – and this fact has not been lost on Amazon. Currently, 1Ps have many advantages over 3Ps, including access to A+ content, premium advertising tools and the ability to merge 3P sellers onto their 'parent' 1P product pages. But the retail and tech giant has begun to roll out the red carpet for 3Ps by reducing fees and expanding some formerly 1P-only features such as Subscribe & Save and Prime eligibility. By adding this fuel to the already growing fire of 3P market share, we expect third parties to control as much as 70% of Amazon's unit sales by the end of 2019.
Beyond simply adapting to a clear shift in the market, this investment in 3Ps is also a way for Amazon to hedge its bets against the likes of Walmart and Target. According to our forecasts, the 3P market will account for 64% of global ecommerce sales added through 2022 and those merchants will favor the platforms that offer the best features and lowest fees. Amazon is not going to simply allow Walmart to maintain that competitive advantage.
Brand Implication: Because the competitive advantage of being a first party is shrinking, some brands may consider selling as third parties. By using Amazon solely as a marketplace and fulfilling orders directly from the manufacturer's warehouse, brands could set their own prices and increase their profit margins.
3. Alexa Leaves the Shopping to You
One advantage that's not panning out for Amazon is that consumers are not using Alexa for shopping. Jeff Bezos said so himself when he stated that “most shopping will be facilitated by having a display” and now the practical user data has proven him right. So in 2019 Amazon will give up on marketing Alexa as a shopping assistant and focus on its other uses.
On the consumer side of things, these uses are simple. The Echo Wall Clock, made available in December (just in time for the holidays) pares Alexa down to one of its most popular functions: a voice-activated timer. But this is just a scout for an advancing force of everyday products enhanced by Alexa. A year from now, Alexa will be to technology what cranberries are to juice – it will be in everything.
Brand Implications: Identify which products would benefit from Alexa-compatibility and consider incorporating Amazon's voice technology into the next generation, especially (but not exclusively) for brands in electronics or appliances.
The crackdown on poor merchants, the expansion of the 3P marketplace and the ubiquity of Alexa are all things that are going to have an immediate impact on brand manufacturers. Accounting for Amazon's approach to these areas is a major requirement of developing a competitive and sustainable strategy for 2019.
We're going to continue our look at Amazon next moves tomorrow with our predictions for the medium term. These are next steps for the retail and tech juggernaut that may not affect sellers immediately, but for which sellers should plan accordingly in the near future.
Stay tuned for Parts 2 and 3 - Medium and Long Term predictions - coming soon!