{"id":1345,"date":"2019-03-21T14:00:04","date_gmt":"2019-03-21T12:00:04","guid":{"rendered":"https:\/\/www.dazzlepop.net\/site\/?p=1345"},"modified":"2019-03-17T14:22:13","modified_gmt":"2019-03-17T12:22:13","slug":"google-facebook-and-amazon-are-the-only-winners-in-ecommerce","status":"publish","type":"post","link":"https:\/\/www.dazzlepop.net\/site\/google-facebook-and-amazon-are-the-only-winners-in-ecommerce\/","title":{"rendered":"Google, Facebook and Amazon Are the Only Winners in Ecommerce"},"content":{"rendered":"
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Rising advertising costs means falling profits for the ecommerce advertisers.<\/div>\n
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I have been a long-time fan of the ecommerce industry.\u00a0As offline retailers were struggling to compete with online retailers, many large chains went out of business, and an increasing amount of consumer buying moved online.\u00a0For a long time, ecommerce startups were printing money\u00a0in what felt like a \u201ccan\u2019t lose\u201d industry.\u00a0But, like with any gold rush, empowered by ecommerce platforms like Shopify — that made it quick and inexpensive to get your online store up and running —\u00a0ecommerce attracted a bunch of competitors trying to get their products discovered.<\/div>\n
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But, what happens when millions of ecommerce stores are fighting to get discovered on only three primary websites — Google, Facebook and\u00a0Amazon —\u00a0where consumers are looking for potential shopping solutions?\u00a0All hell breaks loose, wreaking havoc on your cost of customer acquisition and your bottom line profits.\u00a0This means the only long term winners in ecommerce are, you guessed it,\u00a0Google, Facebook and Amazon. These three\u00a0keep raking in all the highly-profitable advertising dollars\u00a0while the ecommerce businesses themselves are starting to struggle to make a profit.\u00a0Allow me to explain.<\/p>\n

The growing ecommerce industry.<\/h2>\n

The ecommerce industry in the U.S. was worth approximately $500 billion\u00a0in 2018\u00a0and has been one of the fastest growing areas of the economy.\u00a0This big market has been attracting tons of large retail corporations and startup entrepreneurs that have been trying to capture their piece of the pie.\u00a0What started off as a handful of ecommerce sites in the infancy of the internet has grown to more than one million ecommerce businesses in the U.S. alone — and growing daily —\u00a0each competing for consumer attention.<\/p>\n

The rising costs of getting discovered.<\/h2>\n

How to do you get consumer attention? In today\u2019s market, that largely means being present on the big three\u00a0websites.\u00a0But, there is a limited supply of positions on the first page of those\u00a0website search results, which means with limited supply and growing demand, the price of getting discovered keeps going up and up. That, in turn, means the cost of acquiring a new ecommerce customer is quickly increasing, eating into the profitability margins of ecommerce businesses.<\/p>\n

To me, it is quickly becoming a race to the bottom for the ecommerce businesses, many of which can no longer drive a profit on their first sale.\u00a0They now must cross their fingers that they have a quick and frequent repeat sale cycle\u00a0to make their profits from the second and third transactions down the road. This may work well for a consumable vitamin business, but doesn\u2019t work so well for a non-consumable mattress business, for example.<\/p>\n

Google, Facebook and Amazon capturing all the profits.<\/h2>\n

As costs keep going up and up for the ecommerce businesses, that means advertising revenues keep going up and up for Google, Facebook and Amazon, making them the real money-makers. Said another way, if advertisers are willing to invest up to one third of their revenues into consumer marketing efforts, that is more than $150 billion of largely free and clear profits for the three big websites\u00a0to share between themselves.\u00a0At the same time,\u00a0ecommerce businesses will struggle to break even as their marketing costs continue to soar to higher and higher levels.\u00a0Pretty picture for Google, Facebook and Amazon. Ugly picture for the ecommerce businesses.<\/p>\n

An iExplore\u00a0case study — costs up 10X.<\/h2>\n

Let me provide an example here.\u00a0When I was running iExplore in 2000, I could buy a Google \u201cadventure travel\u201d search click for $0.25, competing against a handful of competitors.\u00a0Those clicks would net me around a $200 cost of acquisition per new customer, or around 20 percent\u00a0of my $1,000 gross profit margin. This is\u00a0a very healthy bottom line profit margin.\u00a0Fast forward to today, that same click may cost $2.50 (10x more), as hundreds of competitors are now fighting for the top positions on those keywords. This means my cost of customer acquisition has grown to $2,000 today.\u00a0And, instead of driving an $800 profit on the first sale, I am now losing $1,000 on the first sale.\u00a0A pretty grim reality, to say the least.<\/p>\n

Making a deal with the devil — AKA Amazon.<\/h2>\n

Google and Facebook clearly present their marketing challenges, but Amazon is even worse. More than half of all shopping searches start on Amazon, but there is a price to pay for that distribution.\u00a0Amazon charges about a 15 percent\u00a0revenue share to get promoted on their website, assuming you do your own fulfillment. The\u00a0fee rises to around 25 percent\u00a0if you need Amazon to do the fulfillment. And keep in mind, this is before Amazon fully exploited their ambition of building a Google-like advertising marketplace to ensure your products get discovered on their platform.<\/p>\n

When you layer marketing costs on top of the distribution and fulfillment fees, there is going to be no profit\u00a0left for anyone except Amazon.\u00a0And, if you were hoping for repeat sales to drive your long term profits, good luck, as Amazon does not allow you to share in any of the customer records created.\u00a0They are Amazon\u2019s customers, not yours, and you are not allowed to repeat market to them anywhere except on Amazon.\u00a0All-in-all, a great win for Amazon, and strong kick in the gut for the ecommerce businesses.<\/p>\n

Concluding thoughts.<\/h2>\n

If you are one of the lucky ecommerce businesses\u00a0driving a healthy profit today, enjoy it while it lasts.\u00a0It is only a matter of time before new competitors learn of your success and try to enter your market.\u00a0We\u2019ll see what your profits look like in a couple years, after the flock of competitors start fighting for position around your keywords.\u00a0And, this will be the case in nearly every category of ecommerce, so it doesn\u2019t really matter what products you sell.<\/p>\n

So, for all you ecommerce lovers out there (myself included), I have these cautionary words of wisdom for you — think twice before getting into the ecommerce business.\u00a0If you want to win long term in ecommerce, stop thinking about what products you are trying to sell, and think more about how you can profitability grow your business without relying on Google, Facebook and Amazon — word of mouth, direct mail, smaller websites —\u00a0\u00a0with proprietary or patented products only found on your website.\u00a0Or, better yet, think about how you are going to build a new fourth competitor to the big three sites. This is where the real profits are long term, without having to deal with all the merchandising, warehousing, markdowns and other headaches that come with running an ecommerce business.<\/p>\n<\/div>\n<\/div>\n

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Source:\u00a0https:\/\/www.entrepreneur.com\/article\/328478<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Rising advertising costs means falling profits for the ecommerce advertisers. I have been a long-time fan of the ecommerce industry.\u00a0As offline retailers were struggling to compete with online retailers, many large chains went out of business, and an increasing amount of consumer buying moved online.\u00a0For a long time, ecommerce startups were printing money\u00a0in what felt […]<\/p>\n","protected":false},"author":3,"featured_media":-1,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_vp_format_video_url":"","_vp_image_focal_point":[],"footnotes":""},"categories":[2],"tags":[94,7,5,41],"class_list":["post-1345","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-e-marketing","tag-amazon","tag-e-marketing","tag-facebook","tag-google"],"yoast_head":"\nDazzlepop | Google, Facebook and Amazon Are the Only Winners in Ecommerce<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.dazzlepop.net\/site\/google-facebook-and-amazon-are-the-only-winners-in-ecommerce\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Dazzlepop | Google, Facebook and Amazon Are the Only Winners in Ecommerce\" \/>\n<meta property=\"og:description\" content=\"Rising advertising costs means falling profits for the ecommerce advertisers. 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