Marketplace Strategy hosted a webinar "New Amazon Research Trends and What They Mean for Your Brand's Strategy" in partnership with Edgewater Research. The webinar covers some of Edgewater's most recent industry insights, as well as what your brand can do to remain ahead of the curve. Topics to be covered include: -The Growth of Amazon Marketing Services -The Rise in Amazon Private Label Brands -The Future of Amazon Business -Profitability (CRaP) Concerns -A Prime Day Recap

2. • Full-service Amazon agency, taking a proactive, strategic approach focused
foremost on sales acceleration
• Clients include Fortune 50 companies, mid-sized organizations, and startups
• Brands in categories including grocery, personal care, home improvement,
home & kitchen, gifts & novelties, electronics, apparel, accessories, furniture,
books, and more
• Team includes full-time strategists, designers, writers, and advertising
specialists focused exclusively on Amazon
• Manage more than $700 million in Amazon revenue
About Marketplace Strategy
marketplacestrategy.com

3. About Edgewater Research
EdgewaterRC.com
• Independent equity investment research provider and market intelligence
company
• Seven founding partners share a common passion for deep channel research
and cultivating lasting client relationships
• The company seeks inspiration from rising to the challenges of a dynamic and
competitive industry, continually striving to be an essential and trusted
provider to the clients it serves.
• Our focus is on the technology, internet (including both digital advertising and
online retail) and retail industries.

4. • Session recording & slides will be
sent out as a follow up
• Submit questions to MPS &
Edgewater using the question
window
• Any unanswered questions will be
answered via direct email
• Email me for any additional resources
or questions following the webinar:
dina@marketplacestrategy.com
Housekeeping
EdgewaterRC.com
marketplacestrategy.com

5. Today’s Speakers
Jeff Walcoff
VP Sales & Marketing,
Marketplace Strategy
jeff@marketplacestrategy.com
Chris Hodson
Senior Research Analyst,
Edgewater Research
chris@EdgewaterRC.com
edgewaterrc.commarketplacestrategy.com

6. 1. Growth of Amazon Advertising Revenue
2. Rise in Amazon Private Label Brands
3. Future of Amazon Business
4. Widespread Profitability (CRaP) Concerns
5. Prime Day Takeaways
marketplacestrategy.com
Can’t Realize a Profit
TODAY’S AGENDA

7. GROWING ADVERSTISING REVENUE

8. marketplacestrategy.com
1Q17A 2Q17A 3Q17A 4Q17A FY17A 1Q18A 2Q18E 3Q18E 4Q18E FY18E 1Q19E 2Q19E 3Q19E 4Q19E FY19E
Total AMZN Advertising Revenue (estimate) $1,080 $1,169 $1,272 $1,987 $5,507 $1,913 $2,059 $2,074 $3,259 $9,305 $3,103 $3,341 $3,365 $5,287 $15,096
% growth 59% 54% 62% 66% 61% 77% 76% 63% 64% 69% 62% 62% 62% 62% 62%
Advertising Op Income $648 $701 $763 $1,192 $3,304 $1,148 $1,236 $1,244 $1,955 $5,583 $1,862 $2,005 $2,019 $3,172 $9,058
Operating Margin 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60%
Growth in margin dollars y/y 59% 54% 62% 66% 61% 77% 76% 63% 64% 69% 62% 62% 62% 62% 62%
NA Advertising Revenue - North America $756 $818 $890 $1,391 $3,855 $1,387 $1,493 $1,503 $2,363 $6,746 $2,172 $2,339 $2,356 $3,701 $11,171
% growth 59% 54% 62% 66% 61% 84% 83% 69% 70% 75% 57% 57% 57% 57% 66%
Advertising Op Income - NA $453 $491 $534 $834 $2,313 $832 $896 $902 $1,418 $4,048 $1,350 $1,453 $1,464 $2,300 $6,567
Operating Margin 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 59%
$877 $1,735 $2,519
International Advertising Revenue - International $324 $351 $382 $596 $1,652 $526 $566 $570 $896 $2,559 $931 $1,002 $1,010 $1,586 $3,925
% growth 59% 54% 62% 66% 61% 62% 62% 49% 50% 55% 77% 77% 77% 77% 53%
Advertising Op Income - International $194 $210 $229 $358 $991 $316 $340 $342 $538 $1,535 $512 $551 $555 $872 $2,491
Operating Margin 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 63%
Trajectory of ad revenue likely makes it the largest contributor to
operating profit by 2019 (fiscal year)
AD REVENUE PROJECTIONS

9. marketplacestrategy.com
$0
$2, 000
$4, 000
$6, 000
$8, 000
$10 ,00 0
$12 ,00 0
$14 ,00 0
$16 ,00 0
$18 ,00 0
FY16 A FY17 A FY18 E FY19 E FY20 E FY21 E
AWS vs Advertising Operating Income
AWS Op Incom e Adver t isi ngO pI ncom e
$0
$2, 000
$4, 000
$6, 000
$8, 000
$10 ,00 0
$12 ,00 0
$14 ,00 0
FY16 A FY17 A FY18 E FY19 E FY20 E FY21 E
Amazon NA Operating Income
NA Ad OP I ncome NA op Mar gin exadver t isi ng
Growth and profitability of Ad Revenue allows company to operate Retail
segment on marginal profitability
AD REVENUE FINANCIAL IMPACT

10. Sponsored product dynamic
● Estimate 3P sellers control 80% of sponsored ads; 1P adoption likely
causes ‘one-way traffic’ on price.
Co-Mingling of Seller/Buyer Tools
● Availability of advertising tools previously restricted to one portal will
increase addressable market (display previously available to 1P opening
up for 3P).
Ad agency outreach likely drives share gains
● Expect greater traction with agencies that typically spend heavier with
Facebook/Google. Transparency and ad tech both improving as well.
High ROAS = Share gains
● Growing at great rate than paid units with larger % of sales being
dedicated to Amazon advertising.
WHY 60% REVENUE GROWTH IS LIKELY/SUSTAINABLE
marketplacestrategy.com

11. WHAT DOES THE GROWTH OF AD REVENUE MEAN FOR YOUR BRAND?
‘Amateur Hour’ is Over
• The Old Way: Limited functionality, limited competition, easy to
win. Big RoAS. Everyone’s a champ!
• Tomorrow’s AMS: More functionality adds complexity; More
competition adds formidable opponents
Diminishing Returns: Greater competitive expertise, larger budgets
Change in Priorities for Brands
• Legitimate experience & expertise
• Ongoing management & monitoring
• Need for measurable campaigns and attribution
AMS Becoming More of an Entity at Amazon

12. THE EXPANSION OF AMAZON PRIVATE LABEL

13. Many categories likely to be 25-30% Amazon brands in next 2-3 years;
significantly lower barriers for growth than physical retail:
● Review ecosystem helps legitimacy
● Absence of physical space limitations
● Data-scraping by Amazon allows greater level of SKU-efficiency
● Understanding of the company’s own advertising network
● Voice ordering means eventual pole placement for own brands
marketplacestrategy.com
THE EXPANSION OF AMAZON PRIVATE LABEL

14. Seeing similar adoption elsewhere
● Wayfair (furniture): House brands have gone from 5% of units in 2015 to 67%
of units in 2017
● Stitch Fix (apparel): More than 20% of revenue from private label
marketplacestrategy.com
THE EXPANSION OF AMAZON PRIVATE LABEL

15. Recent Developments
● Amazon leaning on private label as a solution in categories with lower
profitability (categories with high CRaP-out activity and/or lower price points)
● Marketing around voice/Alexa heavily tied to own brands.
marketplacestrategy.com
THE EXPANSION OF AMAZON PRIVATE LABEL

16. Recent Developments
● Hearing increased instances of Amazon reaching out to brands to collaborate on
private label (most significant in apparel/footwear right now).
● Expect to see more collaboration similar to the Amazon/Carter’s partnership.
marketplacestrategy.com
THE EXPANSION OF AMAZON PRIVATE LABEL

17. WHAT DOES THE EXPANSION OF PRIVATE LABEL MEAN FOR YOUR BRAND?
You Won’t Win on Price: Against private label, path to
success is through branding, and differentiation
Focus on Differentiation, Brand
• Strong, specific, intelligently optimized content
• Well-designed and strategic product images, A+ Pages, and
Brand Stores
• Strong off-Amazon branding efforts
• TREAT AMAZON LIKE YOU WOULD YOUR WEBSITE
Get a Head Start
marketplacestrategy.com

18. THE FUTURE OF AMAZON BUSINESS

19. Customers
● 1M+ (July ’17)
● 400k (July ’16)
● 200k (January ’15)
3P Business Sellers
● 85k (July ’17)
● 30k (July ’16)
marketplacestrategy.com
200k
400k
1 Million
Ja nua ry -15 July-1 6 July-1 7
Amazon Business - Customers
Source: Company Reports
AMAZON’S B2B INITIATIVE

20. Why does it matters for suppliers?
● Success with longer-tail, more discretionary-type (off contract) purchases
● Value-proposition is best for smaller companies (act more like consumers)
● Providing small ‘business’ discounts to Amazon allows access to data
● Estimate ~$2.5B flows through the B2B portal on an annualized run-rate
● Just now rolling out AMS on the portal, allowing enterprise-level targeting
marketplacestrategy.com
AMAZON’S B2B INITIATIVE

21. Things to keep in mind
● Large discounts will be problematic with heavy reseller activity:
Regular Amazon Business Business Quantity
marketplacestrategy.com
AMAZON’S B2B INITIATIVE

22. HOW WILL THE GROWTH OF AMAZON BUSINESS AFFECT YOUR BRAND?
Prepare for the Millennial Takeover
Amazon Business-specific Marketing & AMS
• Adapt content & target keywords to the B2B audience
• Pursue Amazon Business AMS
Quantity Discounts a MUST: Structure for Upsell
Heightened Value of Subscribe & Save
Consider AMG/Display Programs
marketplacestrategy.com

23. PROFITABILITY (CRaP) CONCERNS

24. Emphasis on profitability being felt more
significantly on the unit level
Profit focus evident in category emphasis as
well
● Increased focus: Home, Pantry, Prime Now (over
Fresh), Private Label
● Decreased focus: Electronics, Furniture, slower-
turn SKU’s
Annual Vendor Negotiations (AVN)
● Large degree of variability by brand, but Amazon
appeared to take a harder line on less profitable
items.
marketplacestrategy.com
30.3%
33.9%
35.7%
37.9%
20 .0%
30 .0%
40 .0%
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
Amazon Rolling 4Q Gross Margin
Source: Company reports
CAN’T REALIZE A PROFIT (CRaP) PRODUCTS

25. Likely a potential reason behind 1P/3P
integration rumblings
● Amazon dictating platform/price likely helps
profitability and customer experience at potential
risk to selection
● We would not be surprised to see the company
deflect more volume to FBA (writing on the wall
with aggressive fulfillment build)
marketplacestrategy.com
52%
40 %
50 %
60 %
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
Amazon 3P Penetration
Source: Company reports
CAN’T REALIZE A PROFIT (CRaP) PRODUCTS

26. You’re Not Alone
Embrace E-commerce Friendly Solutions:
Singles and cases are no longer sufficient
Rock the Boat Before You’re Bailing Water!
Manufacturer
Capabilities
• ‘Each’es
• Cases
Consumer
Desires
• Don’t Want a
Case
• Love Variety
Packs
Amazon
Requirements
• ‘Each’es not
profitable
HOW ARE AND HOW WILL CRaP ISSUES AFFECT YOUR BRAND
marketplacestrategy.com

27. PRIME DAY TAKAWAYS

28. Stress Test – Not Passed
● Website outage appeared to be a result of a platform change from an external
provider (Oracle) to internal (Sable).
● Traffic appeared to be up materially and in line with lofty expectations but
outages weighed heavily on conversion.
● Despite the interruption the company still appeared to sell-through ~70% of
special Lightning Deals by the end of the first day and select categories
(consumables) still showed large increases y/y.
marketplacestrategy.com
PRIME DAY TAKEAWAYS

29. Amazon Reaction
● Amazon appeared to re-run deals that were materially suppressed by the outage and
likely absorbed some additional promotional contribution.
● We expect some margin drag from inefficiencies associated with downtime during an
expected high volume period
marketplacestrategy.com
PRIME DAY TAKEAWAYS

30. Not So Fast:
● Reduced impressions and clicks on typical
AMS ads on Prime Day
● Most consumers go directly to Today’s
Deals page
Three Options to Capitalize on Prime Day:
● Go for the Jackpot: Offer a significant deal
that will stand out
● Get Into the Game: Run minimal deal or
coupon to show up
● Avoid Prime Day: If AMS is the sole focus,
increase bids and budgets before and after
marketplacestrategy.com
PRIME DAY TAKEAWAYS

31. Thanks!
Questions?
Jeff Walcoff
jeff@marketplacestrategy.com
Chris Hodson
chris@EdgewaterRC.com
EdgewaterRC.com
marketplacestrategy.com