Amazon ABL Newsletter Feb 16

A New Horizon for Amazon

"It's Still Day One"

Services

In the second major executive announcement from Amazon in the last 12 months (Jeff Wilke gave notice over the summer), Jeff Bezos announced he was “stepping down” as CEO. We use the quotes here since, by all accounts, the change in roles isn’t happening for another two quarters and Bezos will remain a major shareholder and closely involved as Executive Chairman, more focused on new projects/vision.

Many of us at Wunderman Thompson Commerce were lucky enough to work with these leaders while at Amazon and got to personally see how they formed the company to their vision. While everyone associates Amazon’s success with Bezos, Wilke was, in many ways, nearly as important, having been the inspiration behind so many of Amazon’s fulfillment center investments and wins. Together, the two leaders infused the company with a vision that carried throughout the ranks. And more importantly, Andy Jassy makes a great choice as successor, having closely worked with Jeff Bezos in the early days and later steering AWS to great success.

In a sign of how the market saw the news and choice of successor, Amazon stock was relatively unaffected (or slightly up) after the announcement. This matches how we have seen it as well: What makes Amazon strong originally was due in many ways to Bezos’ vision but much of that is ingrained now and both those individuals are still a phone away.

In a second development that would have been major news if the Bezos announcement hadn’t eclipsed it, Amazon released Q4 earnings. It’s always difficult to beat a prior Q4 (since that is the strongest quarter) but Amazon did it while simultaneously hiring 175K new people. It feels like COVID hit them hardest in Q2, meaning they had to innovate solutions to adapt and grow then, allowing them to reap the benefits of that infrastructure expansion in Q4, exploding into 44% growth (strongly exceeding expectations and 2019’s 38% marker).

What makes Amazon strong originally was due in many ways to Bezos’ vision but much of that is ingrained now and both those individuals are still a phone away.

In a second development that would have been major news if the Bezos announcement hadn’t eclipsed it, Amazon released Q4 earnings. It’s always difficult to beat a prior Q4 (since that is the strongest quarter) but Amazon did it while simultaneously hiring 175K new people. It feels like COVID hit them hardest in Q2, meaning they had to innovate solutions to adapt and grow then, allowing them to reap the benefits of that infrastructure expansion in Q4, exploding into 44% growth (strongly exceeding expectations and 2019’s 38% marker).

What came as no surprise for us was the sharp growth they also notched in media revenue (+66%). This is a reflection of the trends we saw throughout the year, as major clients for Wunderman Thompson moved more and more budget to Amazon. The company’s influence and performance grew along with, or in front of, eCommerce growth and we don’t expect the trend to change. This will be particularly true as more companies realize this is the natural place for all those in-person shopper dollars and Amazon’s DSP/programmatic capabilities continue to grow.

Given all of this, our advice to brands is:

  1. Stay the course: Amazon may appear to be approaching scale but, for now, the numbers show that brands and consumers are still bringing more dollars to bear. The smart move remains to take advantage of this and hold/gain share everywhere possible.

  2. Harden Operations and Supply Chain: Amazon is doubling down on hires, particularly in their fulfillment centers, because they clearly believe it is still a necessity. We see the same opportunity for growth across our brand clients. Meeting the massive demand surge starting in Q2 of last year required heretofore unseen skills and finesse and brands that did it well, reaped big rewards. In 2021, bring those skills in-house or partner with an agency strong in operations to maximize the opportunity.

  3. Evaluate Amazon channels not being maximized: Amazon’s (and other retailers’) paid media channels are growing strongly, and all signs point to that continuing. Many brands entered 2020 still holding set budgets for Amazon media and small budgets for experimentation on newer functionality areas like Livestream or Posts. In 2020, brands with fungible budgets were able to drive outsized growth by flexibly moving in-store, TV or experiential dollars to online in sync with growth on that channel. Reviewing and optimizing dollars regularly is critical to moving as quickly as your digital native competitors (and even some traditional brands doing well in this space.)

Finally, remember, as Bezos says: “It’s Still Day One”.

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