Apple is quietly building another stool with Apple Advertising. This is the latest quietly building multi billion dollar business. Remember when Apple Pay was just another small launch? It now has >92% sharew.ryanmcraver.com/blog/apple-pay-walmart-time-to-give-up.
The Impact of ChatGPT 2 Years Later
Bloomberg posted a few noteworthy charts showcasing the catalyst that ChatGPT became 2 short years ago. Although AI was already in motion for many years, the race to spend clearly accelerated. Nvidia’s dominant rise with AMD growing and Intel continuing to lose share.
The could business across the three majors of Amazon AWS, Microsoft Intelligent Cloud and Google Cloud are well over $250 billion in annual revenues.
Consulting and professional services clearly has beneefited.
Data Center spend is projected to be above $350 billion in 2025.
And lastly, the server market growth.
Shein Lands Children's Place
The Children’s Place is now selling its apparel directly to users of the global on-demand fashion app Shein. The collaboration offers product assortments and limited-time promotions aimed at families with children.
Currently, The Children’s Place storefront is available to U.S. Shein customers and will soon be made available globally in a phased roll-out. The partnership is somewhat of a departure from normal business practices for Shein, which mostly offers Shein-branded, affordable apparel and accessories from a global network of vendors.
Children’s Place has always been an early adopter of marketplaces and was one of the first retailers to use Amazon Seller Central as a 3rd party seller. Excitement around Shein has been relatively tame but landing Children’s Place as a seller could be a major catalyst.
Amazon’s Latest Quarter: AWS Regains Supremacy + SearchGPT, Brick & Mortar Sales
Back again for another quarter from the toll booth of eCommerce: Amazon. This quarter saw some tepid growth yet was incredibly profitable as online sales accelerated slightly from last quarter and AWS returned to nearly 20% quarterly growth year over year.
Total revenue growth of 11% growth in revenue which was slightly faster than Q2. While growth accelerated a bit in online store sales, advertising and revenue from 3rd party sellers slowed. Amazon Web Services remains the bread winner in terms of revenue growth and profitability.
2. Historically, Third-party Seller Services have accounted for 28-35% of the sales growth in prior quarters. This quarter slowed and only accounted for 22% of the sales growth. This is an indication of Amazon realizing marketplace fee increases to merchants selling on their site are nearly peaking. The focus by Amazon to earn more of the supply chain via their AWD program and lowering fees to compete against Temu and Shein is evidence of this belief.
3. Advertising continues to slow on the larger base. Whilst cost per click was considerably higher year over year, Amazon will keep focusing efforts to gain advertisers budget at the top of the funnel for awareness advertising. The major growth for bottom of funnel will continue to grow but at a much slower rate.
Bottom Line: Whilst there was some growth in online and brick and mortar for Amazon (Jassy statements from April), AWS has clearly returned as the focus area for growth. There is no slowing this beast with double digit growth held up by a robust ecosystem in AI and a dominant logistics infrastructure earning service fees from merchants, shippers and advertisers.
Other Points To Note:
Change in search is gradually, then suddenly. Perplexity is launching advertising, Reddit explodes, SearchGPT is publicly released and ChatGPT integration with Siri is here. What does all of this mean? Traditional search (mainly Google) is estimated to decline 25% by 2026 and 50% by 2028.
Brick and Mortar is back. General merch, clothing stores and even department stores are posting some of their best numbers in years.
Apple Pay: Time to Give Up Walmart
Walmart is still the biggest Apple Pay holdout by a wide margin, and the company has shown no signs of changing its tune.
With Home Depot and Kroger on the bandwagon and Apple Pay now sitting with a 92% market share…I think Walmart might want to give up on forcing their digital wallet service.
McDonald's Mural
I know there’s a lot to do on the internet, but you really should stop what you’re doing and watch this 19-minute talk about a bespoke mural that once lived inside a McDonald’s.
Couldn’t agree more. Wouldn’t typically find this interesting but truly enjoyed.
News Publisher Traffic: Google Search/Discover Up, Facebook Down, Reddit Up
ChartSearch traffic, still dominated by Google search, has remained relatively steady during the period, Brad Streicher, sales director at Chartbeat, said in a panel at the Online News Association’s annual conference in Atlanta last week. Google Discover — the Google product offering personalized content recommendations via Google’s mobile apps — is increasingly becoming a top referrer, up 13% across Chartbeat clients since January 2023.
Google Discover remains a somewhat fuzzy product, panelists noted. It’s entirely mobile. Users find it primarily in the Google app or if they open a new tab in the Google Chrome app, but “Google seems to be experimenting with where to put it,” Streicher said.
Beyond Discover and Google Search, the other fascinating numbers come from Facebook being down considerably and Reddit up considerably. Granted that Reddit is small in comparison but Facebook becoming less and less relevant as traffic remains engaged on-site, in-app via offerings like Reels.
Amazon (Not Perplexity and TikTok) Loosens Google's Grip on Search
WSJ dropped a piece over the weekend that will surely gain steam over the next few weeks.
Google’s share of the U.S. search ad market is expected to drop below 50% next year for the first time in over a decade, according to the research firm eMarketer.
The article focuses on AI based searches via Perplexity and keyword searches via TikTok being the main culprit for Google’s loss of share. However, we know the main reason is Amazon’s growing share within retail media. Amazon is closest to end customer purchases and therefore the most justifiable and tangible payback for search dollars. Any major loss of share is due to Amazon at this point.
TikTok Wants Search Ad Dollars
As of today (Sept. 24), the short-form video giant has rolled out its Search Ads Campaign tool, giving advertisers the ability to target ads based on what users are actively searching for. The goal is to turn those searches into ad dollars by matching ads with user intent, and cashing in on exactly what users want.
Long overdue. Can’t fathom why this wouldn’t have come sooner unless there was worry about impacting the search experience. Doubtful.
Perplexity Ad Model
Perplexity has been under fire for scraping sites for content. And now some details have been leaked on how Perplexity will monetize traffic and search queries. Financial Times is reporting that Perplexity will allow brands to bid for “sponsored” questions that allow the brand to provide the AI-generated answer.
If the questions are sponsored and the answers are written by the brand, I struggle to understand where AI comes in. Regardless, there will be an audience and there will likely be a buyer as Nike and Marriott are rumored to be in talks with Perplexity.
Whilst Perplexity is growing quickly ($5mm in revenue in January to $35mm in August based on reports), the “search engine” is still only running 250 million queries per month. That compares to Google at 100 billion per month.
Google & Traffic Acquisition Cost (TAC)
Google Evil has become the focus of media outlets yet I find that very few rational viewpoints on the position we are in with Google and how Google came to be in this position. Benedict Evans summarized it well:
However, there's another virtuous circle: everyone uses Google because it's the default, it's the default because it’s the best and because Google pays other tech companies billions of dollars a year in revenue shares as ‘traffic acquisition costs’ (TAC) to make it the default, and it’s the best and Google has those billions to pay because everyone uses it. In 2022, Google paid Apple about $20bn (about 17.5% of Apple’s operating income, and a 36% revenue share) and other companies $10bn to make it the default, which was close to 20% of Google’s search advertising revenue. And this was the center of the US competition case that was decided this week.
We all knew this in theory (after all, the TAC is right there in the accounts), but this week’s judgement made it a lot more tangible. 50% of search in the USA happens on channels where Google has a contract to make it the default: 28% on Apple devices, 19.4% on Android (the OEMs and telcos decide the default on Android, not Google) and 2.3% on other browsers (i.e. Mozilla) - and then another 20% happens in user-downloaded Chrome on PCs. (Amusingly, the contract means that Google pays Apple even for searches done in Chrome on Apple devices.)
While anecdotal, who do you know that changes the default search engine? It seems very few. Take a look at at the share of Edge and IE which are the few browsers that start without Google.
So what happens from here? I would guess the DoJ makes a similar move to the EU in providing users “choice windows” in which they can select other search engines at time of installation or check-in periods. I would also believe they minimize or shutdown TAC to some degree.
With all that said, is there a formidable competitor to Google that exists today to take everyone’s share? OpenAI is just getting started, Bing has been publicly dissed by Apple. That leaves options like Duckduck and Brave.
Even if given the choice, will users select an engine other than Google? Some yes. The majority? No.
Google Search Queries & AI Summaries
Google continues to tweak their use of AI summaries:
“Now, according to research consultancy Authoritas which has analysed 6,599 keywords across a broad spectrum of categories, AI Overviews are being offered for 17% of queries in the UK and US.”
Publishers are still grappling with the overall impact but there clearly is an impact:
““It’s impossible to say for sure how this will impact publishers – if you are the first ranking site in the new AIO list on desktop then you’ll probably do quite well. One thing for sure though is your current top organic listings are going to get demoted down the page which is going to have a negative impact unless you have a prominent position in the AIO.””
“Press Gazette conducted research on Google AI Overviews durings its previous US rollout in May and found AI-written summaries were being offered for around 24% of the most important search quieries shared by a group of leading publishers. In cases where an AI overview was offered, the organic results (dominated by publisher articles for these queries) were pushed down by an average of 980 pixels (or one full page scroll).”
Amazon Product Reviews Going the Way of Netflix Reviews?
“Amazon (AMZN) is experimenting with removing customer ratings from its product search results page, a test that the retailer says could make it easier for shoppers to scan its vast selection of products.
The “limited test” affects only a small set of products, the company told Fortune on Thursday, and only affects the search results page, with star ratings and review count totals still available on individual product pages.”
Amazon completely killing reviews in search results? No way.
We often tell our clients that only thing that matters on an Amazon listing is the price, reviews and pictures in the carousel. Whilst that isn’t entirely true, Amazon has the most rabid customer eCommerce has ever seen. Conversion rates can be 2-10x better than other competing product detail pages on other eCommerce sites.
I do believe Amazon will continue to test but I can’t see Amazon rolling this out across all searches UNLESS the entire category has a low overall product rating. Remember when Neflix killed rating and shifted to thumbs up/thumbs down? This was clearly a move to “hide” lower reviews as their content splurge started to hit the site. Amazon is no Zalando who in 2023 killed all reviews but don’t be surprised to see some of your searches hiding a few where it will be to their advantage.
Walmart+ Membership
WSJ gave some interesting comments on subscriptions about Walmart+ as they announce the Burger King partnership.
“Walmart+ membership plateaued early last year at around eight million people, including about a million Walmart workers who were offered a free membership as part of their employment, according to a person familiar with the matter.
Membership stagnated at Walmart because some people didn’t pay to continue past their free trial period, but it has since grown steadily in recent quarters, according to people familiar with the matter. Over the past year, Walmart has worked to refocus its benefits and marketing to keep people from dropping out. Walmart+ membership income has grown by 10% or more in the last three quarters, executives have said on recent conference calls with analysts. ”
Delivery Drones Struggle
“DroneUp tells Axios it is closing 18 Walmart delivery hubs in Phoenix, Salt Lake City and Tampa.
It costs the company about $30 to deliver a package by drone, he says. The goal is to get that cost below $7, which is close to ground-based delivery, but much faster.”
Unfortunately we are quite far from drone delivery becoming commonplace in eCommerce. Gradually, then suddenly.
Temu Suppliers Saying Low-Cost Site Squeezes Them $PDD
The Temu growth is incredible. Over 230 million users in more than 70 countries. We often debate how much longer parent Pinduoduo can fund the growth but just take a look at the chart below.
As Temu continues to explode, it seems the China based suppliers and factories are feeling the burden of “returnless eCommerce.” When a customer isn’t required to return an item, the retailer funds sales at no profit AND the parent company is splurging on advertising, the economics aren’t pretty.
“Earlier this year, suppliers such as Xiang said they started to notice frequent penalties amounting to as much as five times the shipment price of their products. The penalty notices usually cited subpar quality or sizes or colors failing to meet shoppers’ expectations, but Temu didn’t provide documentation or offer a way for sellers to appeal, according to suppliers.
“We have no visibility into return information and no contact with shoppers,” said Ke Ling, a Temu supplier based in Dongguan near Guangzhou. “I will willingly accept fines if you show me evidence. How can you not provide any documentation at all?””
Additionally Temu continues to push the marketplace for sellers based in China with US domestic warehousing. Many of these sellers currently sell on Amazon using the Fulfillment by Amazon program.
Without the incentives or overtaxing of current suppliers, can Temu ever dial down the spending and incentives yet keep the customers addicted to the platform?
Amazon's Latest Quarter: AWS Surge, Death by Services & Advertising/Product Slows
Back again for another quarter from the toll booth of eCommerce. Amazon. A couple of takeaways:
AWS surges. Whilst the 19% growth increase year over year might seem small. It is an acceleration from prior quarters and is the first $4b quarterly growth figure since 2022.
2. Amazon Services = Margin. Results for margin beat estimates as services grew 15% and product sales slowed to a 4% growth rate. Services contributed to 81% of the total quarterly year over year growth.
3. Despite the positive AWS and margin numbers, one issue is the slowing in Advertising. Prior quarter growth was 24-26% and this quarter was <19%. With product sales only climbing slightly, this isn’t a surprise but definitely one to watch. Is Amazon increasing the Third-party seller services to the detriment of Advertising?
Was there anything to cause worry? No. If you are focused on profits, this was a phenomenal quarter. If you are focused on sales, the core Product business is slowing as Amazon pulls growth lever via Services.
Retail Media: Amazon Dominance $AMZN
It’s no secret that Amazon has positioned itself to be the “toll booth of eCommerce.” Of that toll booth, the fastest growing segment is Advertising which grew 24% in the most recent quarter. With the outsized growth, Advertising now accounts >8% of the total sales with most of that falling to the bottom line.
eMarketer recently provided an outlook thru 2026 indicating that all of retail media will attract more incremental advertising than Alphabet and Meta combined. Of that total $29 billion, Amazon will account for more than 76.3% of that total. Next largest is Walmart with $2 billion or roughly 6.8% of the total retail media advertising. The toll booth keeps collecting change and reports this coming Thursday.
Streaming Ad Revenues: Netflix, Hulu, Disney+, Max, Peacock, Paramount+
With ad based subscribers contributing the overwhelming majority of new subscribers for Netflix, Apple is the only major holdout for ad based subscriptions. With that said, not all are created equal, take a peek at anticipated ad revenue per user in chart below by eMarketer.
International Exposure of S&P 500
Recently I was reevaluating our international positions and came across a FactSet stat: 41% of the revenue in S&P 500 comes from international markets. So if you are invested in just the S&P 500, give yourself a bit of credit for international exposure. Also found the evolution of equity markets over time quite fascinating:
