Paying the Toll on Amazon

For smaller brands, the price of being found on Amazon keeps getting higher.

Good morning! 

Here at the Morning Report, we don’t cover Amazon for the sake of covering Amazon. But there are days when the impact the Everything Store has on other businesses is too enormous to ignore. This is one of those days.

Here are today’s highlights:

• Shopify has topped Amazon for unique visitors (but not revenue).

• There’s a reason Amazon is now lobbying the federal government to legalize cannabis.

• Having helped destroy department stores, Amazon is now building department stores that will feature its own apparel brands.

• The pandemic has demonstrated what many suspected: We have too many managers.

SELLING THE BUSINESS

Karen Clark Cole has sold Blink in an all-cash deal for $94 million: Long-time listeners to the 21 Hats Podcast may recall that when we started the podcast in 2020, Karen was coming off a stressful year of trying to find an investor who would give Blink, whose clients include Amazon, the wherewithal needed to roll up smaller user-experience design and research businesses around the country. When one big investor finally backed out, Karen took a brief sabbatical and then came back with a different strategy, which has now been executed. The buyer is a publicly traded, India-based IT services business called Mphasis, which has reported annual revenue of more than $1 billion. We will surely be discussing this in a future podcast episode. READ MORE

MARKETING

It’s getting even harder for smaller brands to show up on Amazon’s marketplace: “Search for ‘toothpaste’ on Amazon, and the top of the web page will show you a mix of popular brands like Colgate, Crest and Sensodyne. Try a separate search for ‘deodorant’ and you’ll first see products from Secret, Dove and Native. Look a little closer, though, and you’ll notice that those listings are advertisements with the ‘sponsored’ label affixed to them. Amazon is generating hefty revenue from the top consumer brands because getting valuable placement on the biggest ecommerce site comes with a rising price tag.”

• “For consumers looking for toothpaste on Amazon, getting to unpaid results requires two full swipes up on the mobile app.”

• “In 2018, Amazon leapfrogged Microsoft to become the third-largest ad platform in the U.S., trailing only Google and Facebook. Amazon is capitalizing on its market control, knowing that its website or app is where many consumers begin their online shopping journey.”

• “The cost per click for Amazon search advertising was $1.27 in August, up from 86 cents a year ago ...”

• “Companies that don’t pay the toll are finding their listings buried in search results. At the same time, sellers are paying more overall to Amazon for things like transaction fees and fulfillment services.” READ MORE

ECOMMERCE

Last quarter, for the first time, Shopify-powered sites had more unique visitors than did Amazon: “The average monthly unique visitors for the e-commerce sites powered by Shopify during the three months ending in June was 1.16 billion, Similarweb's data showed. That was greater than Amazon's 1.10 billion average monthly unique visitors during the same period. The gap between the two is expected to widen this quarter, as Shopify-powered sites are anticipated to draw 1.22 billion monthly unique visitors versus Amazon's 1.13 billion. The spike in Shopify's aggregate traffic reflects the company's rapidly growing reach in online shopping. Each month since May 2020, Shopify sites had an average year-over-year traffic growth of 108.5 percent, according to Similarweb. Amazon had a 9.9 percent expansion rate during the same period.”

• “Shopify and Amazon may not be direct competitors because Shopify doesn't sell anything directly to consumers or operate a marketplace like Amazon does.”

• “But the two companies effectively compete over the same online merchants since Shopify offers various online services that help them sell online, such as the technology needed to run a website and accept online payments.”

• “In terms of sheer size, Amazon is still vastly bigger than Shopify. Amazon generated $386 billion in total revenue last year, compared with Shopify's $2.9 billion.”

• “‘Shopify provides a much more vendor-friendly environment to distribute their products,’ [Similarweb’s] Lavery said. ‘It's a growing concern for Amazon.’” READ MORE

RETAIL

Amazon is opening department stores that will feature its own apparel brands and high-tech dressing rooms: “The department stores, which the online shopping company could open next year, will primarily function as a place for to sell T-shirts, jeans and other items from its own labels, as well as a mix of outside brands that sell clothing on its website, the people said. Amazon wants to see if the potential department stores can improve the brand recognition of its apparel while addressing some of the irritants of both online and bricks-and-mortar clothes shopping, they said.”

• “One idea that has been tested is for customers to scan QR codes of items they want to try on by using a smartphone app and for associates in the store to gather the items and place them in fitting rooms ...”

• “Once there, customers could ask for more items using a touch screen, which might be capable of recommending additional clothing based on the pieces shoppers liked.”

• “The online shopping company has made an effort to keep its clothing concept secret, giving it a code name. The first department stores are slated to open near San Francisco and Columbus, Ohio.” READ MORE

HUMAN RESOURCES

Amazon has taken a big interest in cannabis: “Amazon announced in June it would no longer test employees for cannabis for most positions. Today, the company said it is  going a step farther and has begun to actively lobby the U.S. government to make weed legal nationwide. Amazon also said it’s reinstating the eligibility of terminated employees, as well as candidates dropped in the hiring process, who failed drug tests. In a blog post, Beth Galetti, Amazon’s head of human resources, gave three reasons for the moves.”

• “First, the jumble of conflicting city and state laws about marijuana use makes it difficult for large companies to have a sensible policy.”

• “Second, the company is aware that drug screening has disproportionately affected people of  color.”

• “But the last reason she offers might be the most revealing: ‘Amazon’s pace of growth means that we are always looking to hire great new team members, and we’ve found that eliminating pre-employment testing for cannabis allows us to expand our applicant pool.” READ MORE

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CUSTOMER SERVICE

Did telling customers they’re always right lead to the abuse of retail workers: “It's an ethos that has guided everything from the rise of early department stores to post-World War II suburban malls — and, in more recent times, e-commerce behemoths like Amazon. But now, 18 months into the pandemic, it's clear that not only is that mantra indelibly baked into the American shopping experience, it's also dangerous. It's created a sense of entitlement among shoppers that has led to aggression and even violence toward retail workers.”

• “‘We've gone past the point where the retailer was in charge to a point in society where the customer is in charge,’ Mark Cohen, an adjunct professor and director of retail studies at Columbia University, told Insider.”

• “Reports of workers being attacked or customers becoming chaotic or aggressive have become commonplace over the last 18 months — in fact, 80 percent of workers said in a poll earlier this year that they've experienced hostile behavior from customers who didn't want to follow safety protocols, and 39 percent said they were leaving their jobs because of it.” READ MORE

MANAGEMENT

The pandemic has exposed that we have too many managers: “The United States, more than anywhere else in the world, is addicted to the concept of management. As I’ve written before, management has become a title rather than a discipline. We have a glut of people in management who were never evaluated on their ability to manage before being promoted to their role. We have built corporate America around the idea that if you work hard enough, one day you might become a manager, someone who makes rather than takes orders.”

• “Across disparate industries, an overwhelming portion of management personnel is focused more on taking credit and placing blame rather than actually managing people, with dire consequences.”

• “With large swaths of people working from home some or all of the time, managers will be assessed not on their ability to intimidate other people into doing things, but on their ability to provide their workers with the tools they need to measurably succeed at their job.”

• “Right now, we basically have only one track (management), and it actively drains talent from an organization by siloing and repressing it in supervisory roles.” READ MORE

INTERNATIONAL

Afghan startup founders in the U.S. are still trying to run their businesses back home: “Mina Sahar Saffron, Heray Spice based in Chicago, and Ziba Foods, which operates out of New York and Dubai, are businesses founded or co-founded by Afghan immigrants and refugees. These startups source agricultural goods—bright red saffron threads, dried fruits and heirloom almonds among other products—from their former homeland. They employ multiple farmers, factory workers and office administrators, including women, in Kabul and Afghanistan’s Herat region. Despite the Taliban’s resurgence, horrific violence in the country, and the withdrawal of U.S. troops completed on Aug. 31, these startups are carrying on with their businesses.”

• “Often on the phone a dozen times a day with their teams on the ground, they are constantly monitoring the safety of their female workforce and farmers, addressing new supply chain challenges, and figuring out logistics and banking.”

• “‘I'm not giving up on the few people that are relying on me as a small business,’ said Palwasha Raqib the founder of Mina Sahar Saffron based in New York City. ‘The harvest has to happen.’”

• “The Taliban’s new policies, likely to roll out over the next few months, and whether other countries decide to impose economic sanctions, will dictate whether these startups can continue.” READ MORE

FROM OUR SPONSOR: THE MARKETING MINUTE

Steve Krull writes that you can generate more leads by thinking like a customer: “Now I talk to a lot of people about this, and one thing that constantly comes up is: “But if we’re giving customers the information to solve their own problems, why would they pay us to solve it for us? The answer to that is simple. Because there’s a huge difference between reading information on solving a problem and actually trying to do it yourself. You can read all the books you want on how to install plumbing in your home. But when you’re soaked, and the water is pouring through the walls three hours later, you’re going to call the experts.”

• “And it’s the same with your customers. They can read about how to solve a problem on their own. But they understand they need help—that they can’t do everything on their own.”

• “And because you’ve built that trust with them by focusing on their issues and answering their questions with your content, you’re going to be the one they come to for help when they’re ready to pay for it.” READ MORE

THE 21 HATS PODCAST

Can an Entrepreneur Raise an Entrepreneur? This week, in episode 77, Jay Goltz and Diana Lee discuss the dangers of mixing entrepreneurship and parenting. As it happens, Jay and Diana were both raised in family businesses, but they offer contrasting approaches to the challenges of raising a family and building a business. Plus: what the upheaval in the auto industry means for Diana, how to think about the president’s vaccine mandate, and whether Jay has resolved his crazy double-billing problem with AT&T.

• You can subscribe to The 21 Hats Podcast wherever you get podcasts.

If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren