Emily Bratton:
People don't understand the behemoth that Amazon is, Amazon, from a retail perspective, I think can fail, there's definitely the opportunity for that. Amazon as a company cannot fail.
Mike Fowler:
Welcome back to Retail Oriented, if you missed part one of this conversation with Emily Bratton, our VP of digital, maybe go back and take a look at that or listen to this one, or watch this one first and then go back and take a look at it. But there is some really good information there that ties these concepts together around brick and mortar and e-commerce, so you're probably going to go back and take a look at that.
But if you're here for the first time, my name's Mike Fowler, I am the VP of Sales Strategy here at Sales Factory, and I'm with VP of Digital, which is also e-commerce, Emily Bratton, so thanks for being here, Emily. What are all the things that Amazon represents to us? Because I don't think the average consumer has a real clear understanding of what is everything that's Amazon that's touching my life. So can you expound on that a little?
Emily Bratton:
Yeah. Well, and I think that's the great segue off of Amazon versus Walmart as we just talked about retail. And a lot of people don't think about all of the other things that Amazon has, so I actually made a list so that I didn't miss anything. But this actually goes back to maybe over five years ago, there was a Gizmodo article, so for all the nerds out there, where this person, she tried to avoid the big five, so like Facebook, Google, but Amazon was on our list and so she has this whole long article about trying to avoid Amazon in her life. And basically, her conclusion is, it's impossible. And I think that people don't understand the behemoth that Amazon is. Now, some of these things on this list, they've now purchased since even that article was written so now it's even more unavoidable.
Mike Fowler:
And this list will change between now when we're filming and when you listen to this, maybe even six months from now, right?
Emily Bratton:
Yes, 1000%. So if we think about Amazon in our lives, let's start with the Kindle, we already talked about Amazon started as a bookstore, so of course, they have a book reader. The Amazon Echo, so all of those listening devices in your world that you say, hey, Alexa, all those, hey, Alexa devices. Ring cameras, so if we all just got an alert on our phone that there's a stranger on our porch, Amazon probably sent that to us. If you're a gamer, Amazon owns Twitch, so massive streaming platform. Don't forget Amazon owns Whole Foods, so an entire grocery retailer that we didn't talk about when we were talking about Amazon versus Walmart because we think of Whole Foods as its own brand. Audible-
Mike Fowler:
And on that, Amazon has done a commendable job of keeping Whole Foods Whole Foods, right?
Emily Bratton:
... Yeah.
Mike Fowler:
You felt almost no shift other than you scan your Prime app and get a further discount on their sale things, but you don't feel that it's different. And they've done a great job of keeping their brick and mortar retail what it was intended to be.
Emily Bratton:
Well, and I talked about the Amazon bookstore, that is not really a thing anymore, when Amazon pivoted from that, what did they pivot? They bought an actual brick and mortar retailer instead of trying to invent one. So definitely a smart move that they have one foot in brick and mortar with the rest of their many feet in all these other things. Audible, so anytime you're listening to even podcasts like this. Prime video, and let's not forget along with Prime Video, Thursday Night Football, so Amazon bought the rights to Thursday Night football, so if you're watching Thursday night football, you're engaging in an Amazon activity. Freebie, they actually just started a TV competitor platform. IMDB, so anytime we want to go and look up, what is that actor and that one thing? That's Amazon.
And then Zappos, so I think maybe Zappos isn't as big of a deal as it used to be, but I actually think Amazon saw a competitor in Zappos because Zappos is known for the best online customer service experience in America, they won every award, whatever that was a decade ago. And that's Amazon, their founding pillar is customer service, so I think in Zappos, they actually saw a threat and instead of trying to compete with a threat, they just brought them along for the ride.
Mike Fowler:
And Zappos a decade ago, before Prime was such an intricate part of our lives, they were two days shipping on a pair of van. I remember that back in the day, I was like, how are they getting me these shoes so fast, it's incredible? And so they were early days with the really quick response times on supply chain and shipping, so it's interesting that-
Emily Bratton:
Well, and if you think of Amazon, started as books and has now become a behemoth, that's where the risk was. Zappos is only shoes, but shoes turns into clothes, turns into everything. And then the last big one that we would be remiss to forget about, because it is the most avoidable of all of them, is AWS.
Mike Fowler:
... Unavoidable of all of them.
Emily Bratton:
Totally unavoidable. So this is not just the US's largest cloud provider, this is the world's largest cloud provider for web hosting, DNS, CDNs. AWS is as complicated and as intricate as you want it to be, it is a behemoth all by itself, essentially. And it's actually where Amazon makes most of their profit from, it's actually from AWS, it's not from the retail side of their business. So I think a lot of people would be surprised by that.
I think it would probably be impossible to understand just how big AWS is and how many websites you go to that are powered by AWS. But just as a starting point to understand the scale, we're talking about well over 20 million different IP addresses around the world. So if we were to try to avoid Amazon, not only would we not be able to watch Prime video, no Jack Ryan for us, we would also not be able to watch Netflix. So while they're competitors, Netflix actually runs off of AWS servers.
Mike Fowler:
That's going to surprise some people out there that they're like, what?
Emily Bratton:
Yes. So no entertainment for us, broadcast television only is basically where we're going.
Mike Fowler:
Or radio or something.
Emily Bratton:
Most of your news sites, so all of the major ones, CNN, Wall Street Journal, New York Times, all AWS, even Slack. So at Sales Factory, we don't use Slack, but how many companies use Slack as their internal communications platform? Slack runs off AWS, so think of all the companies that wouldn't function without AWS. So I think it's really hard to articulate just how humongous AWS is, and it's not just web hosting and web servers and that kind of stuff, it's also like business intelligence and that's a whole other side of their business, data lakes and all of this stuff.
AWS is a humongous piece of the overall pie, I wrote down they did 17 billion in revenue from AWS last year, so I make that every day. But that starts to get us to, people start to ask, can Amazon fail? Amazon, from a retail perspective, I think can fail, there's definitely the opportunity for that. Amazon as a company cannot fail because way too many people depend on AWS to either run their business or run their e-commerce platforms or run their technology, whatever it is.
Mike Fowler:
You heard it here first, Amazon can't fail, there's too much reliant on it. Let's talk a little bit about profitability and where all those profit streams are coming from. So we talked about and we've started to establish just how big Amazon truly is, which I think is going to be enlightening for some folks. I think most average consumers out there have no idea that they're interacting with Amazon when they turn Netflix on their smart TV, you are interacting with Amazon at that time.
Let's talk about, where are their profit centers, where are they making money? Because traditionally, we would think of a e-commerce or a brick and mortar retailer making money off the goods that they're selling, but that may not always be the case. So can you tell us a little bit more about that?
Emily Bratton:
Yeah, well, I think where I'll start is actually, we talked about one P versus three P, so reminder that one P is Amazon as the retailer. And I mentioned that Amazon controls price, so you actually give up control of price when you enter into that one P relationship with Amazon. Now, there are things manufacturers can try to do, not accept POS that are below map and things like that, but at the end of the day, Amazon can play whatever games they want to play and they will. So if Walmart has a lower price, they will eat into their own profits in order to sell that product to the consumer. So price matching races to the bottom, those are the things that Amazon is known for, it's why plenty of manufacturers we talk to, they're like, no, we can't go on Amazon because they're afraid of this race to the bottom, price erosion, kind of all of these things.
Inherently, when we talk about price erosion, Amazon is giving up profit, so we need to not forget that, that's the flip side of price erosion. But they are willing to do that just to be the winners because as Amazon wins, they become a more integral part of our life, we depend on them more, and then one day in the future, maybe price erosion doesn't matter quite as much. The other lever in that is Prime, so we've talked a lot about it that they've taught us two-day shipping, all of these things. And Prime is actually a revenue center of itself, they just increased the price, most people didn't even know that they did it-
Mike Fowler:
Or didn't care.
Emily Bratton:
... Didn't care. I've heard plenty of stories from friends where husband and wife both had Prime memberships and didn't even know it, it's just like money we throw away every year because you have to be a Prime member. I didn't mention it in my background, but Jed teaches at Wake Forest and I will teach an e-commerce day and the question I always start with is, I ask people to raise their hand, how many people have access to a Prime membership? And these are 17-year olds or whatever they are, and everyone raises their hand. And then I say, leave your hand up if you purchased your Prime membership, they all put their hand down because they're using their parents or whatever.
Prime, last year was 25 billion just on its own, which actually in this class we will show the market cap of all the retailers and then just show Prime, and it's like Prime is a top 100 company all on its own or something like that. But there's a downside to Prime, so what do you get with Prime? Free shipping, someone has to pay for the shipping, it's not just like magically comes out of thin air. And then I also talked about Amazon increasing their physical footprint with distribution centers and all that, there's a ton of capital expenditure happening in order for Amazon to increase their network. So I looked it up, they, today, own around 70 planes, planes are not cheap to operate, so there are a lot of expenditures that go into Amazon winning so much so that if you were to really look at their balance sheet, and I am not a CFO, but they lose money on retail, they just have to. And in a lot of ways, that's probably where advertising came from.
Advertising was the attempt to make up some of the ground or the revenue that they were losing from some of these other things. So I wrote it down, they almost did $40 billion last year in ad revenue, so that's a lot of money to attempt to make up for these losses that they're taking in order to be the winner. AWS certainly helps all of this, so AWS is highly profitable, yes, there is capital cost that goes into actually having data centers and things like that, but the cost is not nearly as high as the cost on the retail side of the business. So overall, Amazon, wildly profitable, but if you were to just look at retail as a microcosm, it would probably not be a profitable business.
Mike Fowler:
Thinking about AWS versus shipping a keychain in a day, they can't be the same levels of profitability.
Emily Bratton:
Well, and we just talked about what's a behavior they're teaching us buying onesie, twosies. From a manufacturer perspective, you want to ship bundles because you can give your customer a better price because shipping costs so much money and shipping costs so much just by the space it takes up. We work for a water company, they sell empty five gallon bottles, if you buy just one and they ship it to you, it costs like $31, if you buy two, it costs $39. Somehow it's only $8 more for two and it's because of the shipping. So if you think about this behavior of, I just buy a keychain or a flashlight or whatever, Amazon, 1000% is losing money on sending that to your house and getting it on your front doorstep. Especially if you're not bundling those carts together, that's where they can start to make up the ground is if you build a cart of eight items and they can put it all in one box or whatever.
Mike Fowler:
But it's so valuable to them to have that control over the consumer's decision and how they're finding and interacting with brands, it's worth it to them or they've established that it's worth it to lose it.
Emily Bratton:
Yes, 1000%.
Mike Fowler:
I've got a two-part question here, but I want to start with, because Amazon is so big, and I don't want to describe this in a negative way, but they've got tentacles in every aspect of our life. And I think we as consumers, are beginning to understand just how much control they have over our lives and our decisions. What do they do best? What is at the core of Amazon's business today? Are they a retailer? Do they host all the websites that we are on every single day? Where is their core competency? Or do they even have one? Are they just so big that they've got multiples? So this is just opinion, we didn't talk about this question ahead of time. What do you think that they do best today? Because it'll change tomorrow.
Emily Bratton:
I think if you go back to Bezos, there's this really famous interview of him in the eighties where he's just like, the most important thing is the customer. I actually think that's what they do best, I think you could ladder it up to that, whether the customer is a business or the customer is a consumer. If you think about, so manufacturers find Amazon so difficult to work with because of this fact that they always will put the customer first, so returns are super easy on Amazon. That is super not great for manufacturers, returns is the most annoying thing from a manufacturer perspective, but Amazon's like, nope, it has to be easy. And then if you think about on the business technology side of things, if the customer is a business and they have a real challenge with their technology, the AWS teams will help engineer a solution for you, it may cost a lot, but they will help you do it.
I have been on calls with AWS before, and really the sky is the limit. If you put a technology challenge in front of them, they will problem solve to a solution and I think that's why AWS has become central to so much of the technology world. So that's probably what I would ladder it up to, and that's really the standard they have to continue to hold themselves to. And unfortunately for manufacturers, I think they will continue to do so.
Mike Fowler:
Well, we talk a lot at the sales factory about understanding the consumer, we beat that drum to death because it is so important. And you've just illustrated for Amazon why that is established, this behemoth of a business, focus on what their needs are, help them to solve them, and you will win in the long run. It may be painful at times, but if you can solve a consumer's problem the way they expect it to be solved, then you're going to win. So it makes sense even as a manufacturer or another retailer to be paying attention to how do your consumers consume and be there to solve their problems and make it frictionless for them, right?
Emily Bratton:
Totally.
Mike Fowler:
Emily, we've talked about just how much Amazon is integrated into every aspect of our life, whether it's buying the keychain that we've talked about or a flashlight or getting on the internet, checking the news, watching Netflix, they're in everything, we've talked about how they win by serving the consumer. Where do they have risk in their business, and they may not have risk in every aspect of their business, we've talked about they are too big to fail in some aspects, but where do they have risks in their business?
Emily Bratton:
I can think of two risks that I see for Amazon, so let's start just with retail. To me, the risk is actually the marketplace. So if we think about third party sellers, we haven't necessarily talked about it, and they are the bane of a lot of our manufacturer clients in that they make very similar goods at much lower costs. This concept of Chinese factories selling direct on Amazon is becoming more and more commonplace, and in a lot of instances, it may be the exact same product just without the manufacturer brand on it. Plenty of our goods are made in China and we just are putting a brand on it, and if the factory can sell it direct, then they can undercut you with price and all of these things. The marketplace is where I see the most risk, so as a consumer, I trust retailers, and why I trust them, or this is at least my opinion, is what we talked about, the curation.
I trust that they put tide and gain on the shelf because tide and gain are the two best laundry detergents, I am trusting their ability to pick the best products for me. So again, solving the end user's problem, retailer do this for us, and they have curated that for a long time, and that's where consumer confidence in retailers comes from. But if you think about the marketplace, one of the advantages is more assortment, more choice, but one of the disadvantages is the possibility of eroding that consumer trust. So if I pick some laundry detergent that's no name but is half the price of tide and it breaks my washing machine or something, I have no idea, or doesn't wash my clothes or whatever it is, I'm all of a sudden going to say, well, why was Amazon selling that?
I think that there is a major risk with these cheap lower grade quality goods that are just competing on price. But over time, that could definitely pose a problem for Amazon, especially when you combine it with, there is still a problem of fake reviews on Amazon. And I suppose the invention of reviews was to fight against this, that's Amazon's attempt to say, well, we're not telling you what the best product is, but everyone else is telling you what the best product is, well, with fake reviews, I may think it's the best product, but it's actually not. So Amazon, to me, they really have to get control of that, they have to understand how fake reviews are happening and they have to create a system where you can truly understand how good a product is.
Mike Fowler:
I think that's super important because we've talked about, and I've talked about on this podcast and other content that we've put out, that trust is the number one economic driver in the world, in humans trust is how you make decisions for things that you're going to purchase. And we may think that that's not the case because, there's no penalty for Amazon, I can just buy it and return it. But that is eroding trust just a little bit every single time that you have to go to Whole Foods and return like a box of five things that none of them worked out, so that becomes annoying over time. So it's important to remember just how important that consumer trust is and making sure that you're keeping that so Amazon's got some risk there. You mentioned two, is there something else you wanted to hit on?
Emily Bratton:
Yeah, so the second is actually the behemoth, I think that's the risk. We see this starting to play out in Europe, Amazon is at the center of a lot of potential regulations and penalties and these kinds of things. To me, that's one of their major risks, is trying to stay together. There is becoming increasing support for breaking apart these different pieces of Amazon, so if you were to take AWS and make it its own company with its own board, its own shares, that is actually a risk for the retail business because we just talked about, it keeps Amazon afloat in some ways. But even on the retail side, the concept of fair competition starts to be at risk, so as they started to go into Amazon basics, there was a feeling that they were utilizing sales analytics from existing products to understand where there was opportunity to undercut manufacturer brands with an Amazon basic product.
We just talked about, we trust retailers, that's also why we trust private label, because the retailer's name is actually on the product. If they were truly using sales analytics of other manufacturers in order to make their decisions, that would be a major issue in the United States of America, so that would not be a fair business practice. I definitely think that's where Amazon starts to run into some roadblocks, is just how big they are. If you can start to prove that they are limiting competition by their acquisitions and all of these things, then there starts to be an argument that you have to somehow break them apart in order to reestablish competition.
Mike Fowler:
In the consumer's mind, do you see that as this battle, especially, I'm thinking of American consumers because that's what I am and that's the easiest for me to reconcile, but I think it comes down to this battle of convenience versus control. You want the ease and the convenience of all the ways that Amazon is benefiting your life, but Americans do not like to be controlled by anything, whether it's government or any facet of their life and that's not partisan, most Americans don't like to be controlled. And so do you see that as just this fine balancing act that Amazon's got to get right all the time?
Emily Bratton:
Yeah, I definitely think so. Well, and I think they will just lose some consumers because of it. It's just like, plenty of people our age have abandoned Facebook because they felt like Facebook was trying to control their lives, or maybe their kids' lives in some places, and they have abandoned those platforms because of this feeling like, I can't get away from Facebook because they bought Instagram and all of this stuff, Meta is a behemoth in and of itself kind of situation.
And maybe it's okay to lose some consumers over that, but I definitely think Amazon probably does a better job than Facebook of trying to bob and weave and pivot. And part of that probably is the customer first mentality, that we still have a very high level of trust in Amazon, the same level of trust, if not higher than our brick and mortar retailers. So it may take time for that to start to erode, but I also don't think you hear about it a lot and that could pose a potential issue for Amazon.
The last presidential election cycle, I think we started to hear about it, Elizabeth Warren was very anti Amazon, very anti-humongous corporations. As we come to another one, it just depends on what's the environment, what's important to Americans at that time. But if it becomes a narrative, again, probably increases the risk.
Mike Fowler:
Well, you have left us with a lot to think about in terms of all of retailers and consumers, but specifically Amazon and how they're interacting with our lives today. How important do you think it is for manufacturers out there and a lot of our clients to partner with the right folks to help understand these channels and navigate all of this? Do you think it's like, it's got to be done? Do you think it's best done in-house, third party? Do you have to have experts at every single facet of Amazon's business, or how does that work best, do you think?
Emily Bratton:
I think that's a good question, it probably depends on the size of the company. I definitely think larger manufacturers are considering the center of excellence because, this delves into a totally different subject, but e-commerce lives somewhere between marketing and sales. And that's just a historic problem that I think at Sales Factory, we feel like we bridge that gap. We're sitting here, I'm on the marketing side, you're on the sales side-
Mike Fowler:
Here we are.
Emily Bratton:
... So we are the bridge. And e-commerce and retail media perfectly find themselves in the middle of this, so in the world of manufacturers, sales and marketing, if you're small, probably the same person actually, and then as you grow, those centers become farther and farther apart from each other. So you build a marketing team and you build a sales team, and they get separated and separated. E-commerce is now forcing those things, maybe not to come back together, but there's this concept of a center of excellence that sits in the middle of them that understands sales and understands marketing to help both of those teams utilize e-commerce to its full potential.
I think just depending on your size, that center of excellence, it may be an internal team of specialists that you hire, and I definitely think that's a viable approach. But if you're smaller, maybe you can't necessarily afford to do that, and maybe an agency is that center of excellence for you that they can start to sit in between those two areas. I do think, for manufacturers, long gone is the day where you could avoid Amazon. We didn't necessarily talk about it today, but we think about Google as the search engine, but how much did we just say, well, if I just needed a flashlight, I don't go to Google to understand what flashlight to buy, I go to Amazon to understand what flashlight to buy.
When we think about search engines, don't forget that if I'm in the shopping mentality, I'm probably starting on Amazon. And that's why we already said visibility and being in stock, that's the most important thing to sell your product. So if you're not visible on Amazon, then you start to have a problem. So to me, Amazon is unavoidable, it's just figuring out exactly how to use it to your advantage.
Mike Fowler:
Emily, I never let any guest escape the hot seat without a couple of rapid fire questions. So I'm going to ask you a couple quick ones, I just want this to be your gut reaction, whatever first pops into your head, just let it fly, all right?
Emily Bratton:
Yeah, at least I don't have to eat hot wings.
Mike Fowler:
No hot wings, don't worry about that.
Emily Bratton:
Cool.
Mike Fowler:
First question, how many Amazon reviews do you read before you make a purchase?
Emily Bratton:
Probably at least four one star reviews and one five star.
Mike Fowler:
You want to know what the issues are?
Emily Bratton:
Yes.
Mike Fowler:
I think that's incredible because that's a lot of consumer behavior, at least a party of two, because I do the same. All right, do you just subscribe and save for anything?
Emily Bratton:
I actually do only one thing, I used to have the little buttons that you could do bounty or something like that, and then the price got so high that we would go to Walmart. The only thing that we subscribe and save on is dog food because of convenience, so it weighs like 50 pounds, and unfortunately, the mailman is who puts it on my doorstep, not me. So that's the only thing that, in our household, we subscribe and save to.
Mike Fowler:
I have got the biggest challenge with getting the right cadence on subscribe and save in any facet of e-commerce.
Emily Bratton:
Multiple times we have had to supplement dog food because the dogs will starve. So it's not like paper towels and we can go find a towel, this is a sustenance for the dogs.
Mike Fowler:
Yeah, I either wake up in the morning and I don't have coffee, there's no coffee in the entire house, or I have 80 bags of coffee, I'm like, what, who's going to do anything with all this? So, all right, subscribe and save, figure it out, get your cadences. If you could have any one piece of advice to give to listeners, to consumers and manufacturers, because remember, they're the same people, if you could give them one piece of advice to get established in the e-commerce world and on marketplace, what would it be?
Emily Bratton:
One piece of advice, maybe the piece of advice is, there's not just one piece of advice that will make it work. Hopefully, listeners can understand from today how complicated the world of e-commerce is, even just Amazon is extraordinarily complicated with one P, three P, FBA, FBM, sponsored products, sponsored brand sponsored display, Amazon DSP, OTT, we could go on and on, we basically need a glossary over here to understand. So maybe that's the single piece of advice, is that there's not one piece of advice that's going to make it happen on Amazon, it's just way too complicated of a web to do it in a easy, simple way.
Mike Fowler:
Sure, there is too much going on out there to just give one piece of advice. I would say probably, if you're thinking about this marketplace or any other, they're all doing a pretty good job of thinking about the consumer. And so if you keep that in mind, understand the retailer, the e-commerce, if you understand their goals, you can better align yourself with them. So keep in mind the consumer and you're probably starting in a pretty good place, but there's going to be a lot of things that you're going to have to do in addition to that.
Emily Bratton:
Totally.
Mike Fowler:
Emily, you talked about sales and marketing and those two groups within a lot of manufacturers and a lot of organizations separating. But it sounds to me like it's really important for all the groups within a manufacturer to be working really closely together to know what each other are doing, but also to be playing off of each other to really get this equation right, not only for Amazon, but because Amazon is influencing consumer behavior for all the retailers, all the places that you're making a decision to purchase a product.
Emily Bratton:
Totally, 1000%.
Mike Fowler:
Well, thank you so much for being on the podcast today, it has been a really enjoyable conversation. You've opened up a lot of doors and a lot of thought channels for us, we're probably going to have to have a subsequent pod just to talk about learn, shop, by and some other things that we've hinted at today, but not really gotten into deeply. So I look forward to that one, again, I just want to say thanks for being here.
Emily Bratton:
Thanks for having me.
Mike Fowler:
There you haven it, another really interesting conversation around all things retail. At home, we want to hear from you guys, so if you have topics or people that you want us to talk to, please leave a comment, hit me in the email, mike.fowler@salesfactory.com. And remember to like, subscribe, hit the bell icon to make sure that you're getting all the great retail content that we're putting out there because there has been a lot of it, and there's going to be a lot more. I Look forward to hearing from you, and remember, when you're thinking about all things retail, it's all about selling in and selling through.