CommerceIQ Bloomberg Interview – Amazon Profitability, Changes Coming for 1Ps, and Rising Marketing Costs

Guru Hariharan, CommerceIQ CEO, and Bloomberg Intelligence’s Jitendra Waral discuss Amazon’s first-quarter results with Bloomberg’s Brad Stone on “Bloomberg Technology.”

Watch the session on Bloomberg.

Amazon Goes for Profits or Growth

In the last eight quarters or so we have seen a significant shift as Amazon focuses more on profitability instead of sales growth. And it’s really coming off of three of Amazon’s stated goals:

1. Be “hands-off-the wheel” and eliminate people from certain processes in favor of automation.
2. Starting to launch more private label goods.
3. Democratizing the market place in a way that 1Ps and 3Ps are starting to play on a more level playing field.

For instance, what use to be available for only for 1Ps such as subscribe and save and marketing services are now available for 3Ps as well. So, at the end of the day the consumer is winning, but at the expense of 1Ps and 3Ps really trying to compete with each other, and all that profitability is taken away and passed on to the consumer.

Clear Focus Who is a 1P

Amazon is making big strides and being very intentful about who is a 1P and who is a 3P. If you are a brand manufacturer with a legitimate manufacturing business then you are a 1P. However, if you are a distributor or wholesaler, or someone is who is just aggregating demand and selling it, they are starting to move to a more 3P platform.

There are rumors of a program called One Vendor that is launching with Amazon where there is a a stated goal of having 3,000 to 5,000 vendors on the Amazon 1P platform and moving everyone else. The 1P business is not going away. It’s just going to become a lot more consolidated for those who are legitimately brand manufacturers.

With One Vendor, it’s expected brands won’t be able to maintain their hybrid 1P/3P selling models. So, Amazon won’t offer both Vendor Central and Seller Central. There will only be one portal. Amazon will determine whether a brand will sell as a 1P or 3P on a per ASIN basis. Your brand may be forced to be a 1P if Amazon determines that’s more advantageous.

Cost of Spend on Amazon Will Continue to Increase

We’ve seen a lot of the arbitrage opportunities that used to be there about a year ago are starting to go away. It used to be easier to get a good Advertising Cost of Spend (ACoS) to get a very lucrative return on advertising investment as a 1P or a 3P. Now that is starting to taper off because everyone jumped on the bandwagon as they realized this is the only closed-loop system where you can truly measure the ROI of your spend. And I think now the bar is pretty high and we’re going to see that the cost of spend on Amazon is just going to increase.