Large retailers find great profits imitating Amazon’s advertising affairs

Amazon’s phenomenal success was built on its reputation of having the lowest prices and the most friction customer experience in the retail industry. For 2024, the company should suppress sales of electronic commerce better than $ 450 billion, with profits of around 27 billion dollars. (The Amazon annual results report is due next week.)

An apparent beneficiary margin of 5% to 6% is nothing to boast in traditional retail sales, but not bad given the Amazon competition with prices. But the real retail – buying and selling goods – is not the way Amazon pays rent. (Amazon’s most profitable activity is Cloud Computing, which contributes to most of its income.)

Thirty years after the foundation of the company as a book -on -line retailer, Amazon’s electronic commerce activities have been transformed into an advertising company. In fact, according to some estimates, his retail company can be a loser of money.

In a recent blogThe digital trade analyst Russ Dieringer believes that the company’s retail media network – advertisements published by brands – generates an operating room of around 40%, the initiates claiming that this number could reach 80%. This means that advertising contributes to most profits from the company’s electronic commerce.

“In other words,” says Dieringer, “after three decades of refining his model and generate three -quarters of Billion in the world volume of raw goods … Amazon barely made a profit.”

The main brick and mortar retailers eat Amazon’s electronic commerce dust for years, but this has changed quietly. Walmart, Target, Instacart, Ebay, Etsy, Home Depot and Kroger are only some of the 200 retailers who build their own retail media networks on their electronic commerce platforms. The same as consumer purchases for lipstick on Amazon will receive advertisements from major brands that are linked to brand -specific web pages, Walmart buyers are served links to brands that can be found or not in retail locations of the company.

The retail media networks of Amazon competitors increase quickly and are just as profitable, Walmart leading the pack. During its third quarter (completed on September 30), advertising on its Walmart Connect network was almost third of the company’s overall operating income of $ 6.7 billion.

One of Amazon’s great advantages has been its main membership, which includes a massive streaming video content library. It is estimated that there are 200 million members of Amazon Prime and that on average, the members spend $ 1,400 for electronic commerce purchases. But this edge can also erode.

Last year, Walmart concluded an agreement to buy Vizio “smart” television, which is also a video content streaming service. Vizio sets are compatible WiFi, allowing customers to access a much wider range of content than Amazon and therefore a large advertising space.

Amazon faces another major dilemma against the physical competitors of retail. It must travel a fine line between the promotion of its very profitable private brand goods and disseminate advertisements for competing brands. Amazon can say that its research results are neutral of the brand, but it is clear to promote its own advertising business, which gives other brands a legitimate reason to avoid the platform of the electronic commerce giant.

All these developments raise an even greater question which deserves a deep dive in a future column: at one point, all this advertisement – including social media – extinguishes consumers. There are already signs of advertising fatigue appearing in Facebook surveys and other users of the platform. The more people see the same ad or similar, the less likely they are likely to do business with this advertiser.

In the end, electronic commerce is a wonderful retail channel, but consumers will always prefer to shop for the old -fashioned income, in a real store. At least it appears in this way for the moment. And if this is the case, this gives retailers a store a distinct competitive advantage to engage their customers uniquely.