The Anti-Amazon Alliance

Author: Ben Thompson (Stratechery) URL: https://stratechery.com/2020/the-anti-amazon-alliance/ One-line: Once the Internet made shelf space effectively infinite, discovery and distribution split apart — and an “anti-Amazon alliance” of Facebook ($META), Google, Shopify ($SHOP), Stripe and the logistics layer now lets differentiated merchants leave Amazon’s platform.

Key claims

• Physical shelf space provided both distribution and discovery for consumer packaged goods; large CPG players like P&G could leverage existing brands to win shelves, and shelves themselves drove customer discovery.
• The Internet made shelf space effectively infinite, so the solutions to discovery and distribution developed differently — just as newspapers’ editorial and advertising were only bundled because of who owned printing presses and trucks.
• Facebook ($META)‘s scale inverts the old advertising game: instead of moving people down a funnel toward a stocked shelf, advertisers iterate targeting and creative to convert customers immediately.
• Facebook is only one layer of a non-Amazon E-Commerce stack: Facebook finds customers, Shopify ($SHOP)/WooCommerce build storefronts, Stripe/PayPal handle payments, 3PLs package and ship, and USPS/FedEx/UPS deliver.
• 49% of Internet shoppers start their searches on Amazon, only 22% on Google (eMarketer); Amazon’s share is far higher among Prime subscribers (over half of U.S. households).
• The antidote to an integrator is modularization — which is why Shopify ($SHOP), not Walmart, is Amazon’s true competitor. Shopify is diversified, so it “succeeds (or fails) in the aggregate.”
• Amazon (incl. 3rd-party sales) was ~6% of U.S. retail vs. Walmart’s ~9% — current e-commerce growth rates won’t last forever, especially for physical goods with marginal costs.
• The market response: differentiated 3rd-party merchants should leave Amazon’s platform sooner rather than later — you can’t be in the anti-Amazon alliance while asking Amazon to find your customers, stock your inventory, and ship your goods.

Notable quotes

Shelf space was long the linchpin for large consumer packaged goods companies: Swiffer had widespread distribution the moment it launched because P&G could leverage its other popular products when it came to negotiations with retailers… shelf space provided both distribution and discovery.

The reason this works is the sheer scale of Facebook; there are so many people scrolling through so many feeds and swiping through so many stories that the advertising game is basically the inverse of what worked before: instead of carefully planning a multi-pronged advertising campaign to over time move people down a funnel to a purchase decision in front of a stocked shelf, advertisers iterate their targeting criteria and ad content over time to convert customers immediately.

When the Internet digitizes what used to be analog assets, we often find out that jobs that were once done together end up in radically different places. The classic example are newspapers… once the Internet came along advertisers, which cared about reaching customers, not supporting journalists, switched to Facebook and Google, which had aggregated the former and commoditized the latter.

The antidote to an integrator is modularization; that is why I wrote last year that Shopify ($SHOP), not Walmart, was Amazon’s true competitor.

Shopify is massively diversified. That is the beauty of being a platform: you succeed (or fail) in the aggregate.

That, though, points to an obvious market-based response: 3rd-party merchants, particularly those with differentiated products and brands, should seek to leave Amazon’s platform sooner-rather-than-later. It is hard to be in the Anti-Amazon Alliance if you are asking Amazon to find you your customers, stock your inventory, package your products, and deliver your goods.

Notes

• Quote on the Purchase Funnel by Edward Strong (on the origins of “attention, interest, desire, action, satisfaction”): #Sales #Marketing

  Many changes in selling procedure have of necessity been made in the past fifteen years. Among them is the growing recognition of the buyer’s point of view. The development of the famous slogan — “attention, interest, desire, action, satisfaction” — illustrates this. In 1898 E. St. Elmo Lewis used the slogan, “Attract attention, maintain interest, create desire,” in a course he was giving in advertising in Philadelphia. He writes that he obtained the idea from reading the psychology of William James. Later on he added to the formula, “get action.” About 1907, A.F. Sheldon made the further addition of “permanent satisfaction” as essential to the slogan… These changes have taken place so gradually that many salesmen and advertisers have failed to appreciate their inherent relationship to each other or their significance… the easist way, and in fact the only way, to guarantee that this will be achieved is for the seller to present his proposition from the buyer’s point of view.

• The non-Amazon E-Commerce stack:
  • Facebook helps find the customers
  • Shopify ($SHOP) or WooCommerce build the storefronts
  • Stripe or PayPal handle payments
  • Third-party logistics providers package and ship the goods
  • USPS, Fedex, and UPS deliver the actual packages
• Marketing channels with marginal costs (e.g. Attentive) can help create incentives for higher quality marketing; no-cost or low-cost channels are bound to become dumping grounds for attention experimentation (e.g. email, Facebook ($META), etc.)
• Search in Retail: 49% of Internet shoppers start their searches on Amazon, only 22% on Google; Amazon’s share is far higher for Prime subscribers. #brick-and-mortar
• Amazon (incl. 3rd-party merchant sales) ≈ 6% of U.S. retail sales vs. Walmart ≈ 9% (Benedict Evans, Dec. 2019). #e-commerce penetration

How it connects

• Ben Thompson / Stratechery — author and publication.
• Shopify ($SHOP) — the modular “anti-integrator” cast as Amazon’s true competitor; diversified platform that wins in aggregate.
• Facebook ($META) — the customer-acquisition layer whose scale inverts the advertising funnel.
• Amazon — the integrator the alliance forms against.
• Aggregation Theory — the lens on how the Internet split discovery from distribution.
• Purchase Funnel — the Edward Strong history of “attention, interest, desire, action.”
• Walmart — the head-on, binary-outcome challenger contrasted with Shopify’s diversification.
• Sequel: Platforms in an Aggregator World (Ben Thompson’s follow-up a month later).