ImaginativePRO Blog

2021 Guide to Amazon Ad Types

As an Amazon seller — especially if enrolled in Brand Registry — there are a few different ways to internally advertise your products to millions of potential Amazon customers. 

While listing optimization and SEO are vital to your organic search results, you shouldn’t rely on just that when it comes to driving traffic to your listings. To increase your impressions and conversions, you need to be taking advantage of all the advertising opportunities Amazon has to offer. 

Through Amazon Pay-Per-Click advertising, sellers and brands can target specific keywords, categories, and even competitors with their ads. 

There are a few different types of PPC advertising on Amazon, so it’s important to understand what they are, how they work, and how to manage them. In this article, we’re going to go over:

• Amazon PPC ad types and examples of each
• The benefits of each ad type
• How to set up Amazon PPC ad campaigns

Amazon PPC ad types  

Third-party Amazon sellers have three ad types to choose from within their Seller Central account. Each ad type has a specific purpose and function depending on what your goals are. 

Those three ad formats are:

1. Sponsored Products
2. Sponsored Brands
3. Sponsored Display 

No matter the type you choose to run, they’re all a PPC format, meaning you will pay a small fee each time a customer clicks on your ad. Because of this, PPC ads are not a “set it and forget it” type of ad. You will need to frequently optimize and manage your campaigns to ensure you’re not overspending on keywords that do not convert into sales. 

Out of the three PPC ad types listed above, Sponsored Products are the most popular amongst Amazon sellers —  66% of third-party sellers utilize Sponsored Product ads. This is due in part to the fact that you do not need to be enrolled in Brand Registry to use them, as you do with Sponsored Brands and Sponsored Display. 

If you’re not enrolled in Brand Registry, do not worry, because Sponsored Product Ads are still one of the most effective ways to advertise your products on Amazon. 

According to our data, Sponsored Brands will result in the greatest RoAS (return on ad spend) over a period of 30 days — with Sponsored Products coming in a close second. Of course, this will not be the case for every seller, so it is important to test out various campaigns to see what works best for your business. 

Now, let’s get into each PPC ad format in detail.

1. Sponsored Products

Sponsored Product ads are the type that all Amazon sellers start out with and continue to use as their business grows. As we mentioned above, they’re the most popular amongst third-party sellers and one of the most profitable. 

With this ad type, you’ll have a lot of flexibility when it comes to targeting — in other words, defining the keyword search results and product detail pages in which you want your ad to appear. You can target keywords you think your audience is searching for, relevant categories, and even your main competitors’ listings. 

With PPC, you’re bidding against your competitors for the top ad placements on Amazon. You decide what you want to target, how much you want to spend per click on each particular target, and the overall daily budget for your campaign. 

If your ads convert into sales, this will in turn increase your organic search rankings for the specific keywords you’re targeting. 

Where do Sponsored Product ads appear on Amazon?

This ad type integrates so well within the organic search results on Amazon that customers may not even realize they’re looking at an ad. And depending on your bids, they’re effective right out of the gate, too — on day one of launching your product, your ad can appear at the top of the first page for each of their main keywords. 

Let’s consider an example: say I’m shopping on Amazon for boat accessories. I type “towable tube” into the Amazon search bar and press enter. Here’s what I see when the search results page loads: 

If you look closely under the images on the first row of products pictured above, you will see tiny “Sponsored” tags. These four tagged products are examples of Sponsored Product ads, while the bottom four are the first organic search results for “towable tube.” 

While using Sponsored Product Ads are a great way to get your products to the top of page one of search results, you have to be willing to spend — if your keyword bids aren’t high enough compared to your competitors’, your ads could appear within or at the bottom of the search results, where fewer customers may notice them. 

As we mentioned above, your Sponsored Product Ads may also appear on your competitors’ listings. That way, customers can do some comparison shopping before they buy. 

What are the benefits of Sponsored Product ads?

This ad type is very beginner friendly and easy to set up — even if you have no advertising experience. 

Here are some other benefits of using Sponsored Product ads:

• It’s easier for customers to discover products with low organic rank 
• It helps drive sales and increase your best seller rank for newly launched products.
• It provides an instant visibility boost to newly-launched products 
• You can choose keywords or product attributes to target manually, or you can let Amazon automatically target keywords it thinks are relevant to your products. 
• There’s no need to write ad copy or provide additional images. Amazon will use your listing content for the ad. 
• You only pay Amazon for the ad service when customers click on your ads — and you decide how much you want to spend per click. 

How to set up a Sponsored Product ad

From within your Seller Central account, go to the Advertising tab and click on “Campaign Manager.”

Click “Create campaign,” then click on “Sponsored Products.”

From here, you can set your campaign name, date range, daily budget, targeting options, bidding strategy, and targets. 

For a much more in-depth step-by-step guide on how to set up and optimize your Sponsored Product Ad campaigns, please check out our Amazon Sponsored Product Ads Guide.

2. Sponsored Brands

Sponsored Brand ads are banner ads that appear at the top of the Amazon search results that feature your brand’s logo, a custom tagline, and multiple products from your brand. 

Sponsored Brand ads are different from Sponsored Product Ads in that they help drive brand awareness by funneling traffic to your Amazon Storefront or to a custom landing page displaying your product line. With Sponsored Brands, you’re also able to run video ads, which catch customers’ attention as they scan Amazon search results. As with other PPC ad formats on Amazon, you can target specific keywords, categories, or products when setting up your ad.

When searching for products on Amazon, customers are met with tons of product options and other distractions — with Sponsored Brand Ads, you’re able to create a custom shopping experience that helps cancel out all the noise.

On your landing page or Amazon Store, customers view only your brand — none of your competitors’ ads or products will be displayed. This is a huge advantage, and could account for the comparatively higher RoAS sellers experience with Sponsored Brand Ads versus other PPC ad types. 

Keep in mind that this ad type is only available for third-party sellers enrolled in Brand Registry and Vendors. 

Where do Sponsored Brand ads appear on Amazon?

If you’ve shopped on Amazon before, you have encountered a Sponsored Brand ad. They appear at the very top of Amazon search results pages — above Sponsored Product Ads — and typically feature three products from one brand. 

Unlike a Sponsored Product ad, with Sponsored Brands, you can add your own custom logo and tagline that will help your ad stand out. 

If a customer clicks on “Shop JOYIN” in the above example, they will be redirected to the brand’s custom Amazon Storefront, where they can view all the products sold by JOYIN, without interruptions from competitors’ ads. 

What are the benefits of Sponsored Brand ads?

Sponsored Brands allows you to get more creative with your ads and drive more brand awareness and recognition. Instead of promoting just one product, you have the opportunity to display three products at a time to show customers more of what  you have to offer. 

Here are a few more benefits of using Sponsored Brand ads:

• They encourage customers to add more items to their cart, as they will be presented with multiple products from your brand. Use this as an opportunity to promote complementary items. 
• Among the ad campaign types we measured, Sponsored Brand Ads result in the greatest RoAS over a period of 30 days.
• You can defend your branded keywords by ensuring your ads show up when a customer searches for your brand name. 
• You can redirect customers to a custom landing page or Amazon Store that is free of competitor ads and products. 
• You are able to add custom ad copy that shows off your brand’s messaging. 

How to set up a Sponsored Brand ad

Getting your Sponsored Brand ads live on Amazon is simple. In your Seller Central account, go to the Advertising tab and click on “Campaign Manager,” then “Sponsored Brands.”

In the next section, enter details such as your campaign name, date range, daily budget, and the brand you will be promoting. 

Next, choose your ad format: Product collection, Store spotlight, or Video.

Next, fill in the creative assets of your ad, such as your logo, brand name, and tagline. After that, choose what you want to target with your ad — keywords or products. You can let Amazon automatically optimize your bids, or you can set your bids manually. 

For an in-depth overview of Sponsored Brand ad formats, as well as how to set them up, please check out our step-by-step How to Use Amazon Sponsored Brands Ads guide. 

3. Sponsored Display ads

While Sponsored Display ads may be least popular ad type of the three with just 25% of sellers using them,  there’s been a noticeable shift in ad spend away from Sponsored Product ads to this newer and recently updated ad format. 

As defined by Amazon, ”Sponsored Display is a self-service display advertising solution that helps you grow your business and brand on Amazon by engaging shoppers across the purchase journey, on and off Amazon.”

Sponsored Display brings advertising on Amazon to a whole new level, giving you the ability to retarget customers on and off Amazon. So not only will your ads be displayed across Amazon as they would with other ad types, they’ll also be visible to customers on third-party websites and apps. 

Unlike Sponsored Products and Sponsored Brands, you cannot target keywords with Sponsored Display ads. Instead, you’ll target specific audience interests and shopping behaviors, as well as customers who have previously viewed your product’s detail page. 

Basically, Amazon knows which products customers have viewed in the past. It will display those products to the same customers again on other Amazon pages or third-party websites, in hopes of converting that view into a purchase. 

If you’re enrolled in Brand Registry, this is yet another powerful tool in your arsenal to overtake your competitors. 

This ad type may yield the lowest RoAS compared to other ad types, but it’s still effective and worth testing out for your brand. 

With Sponsored Display ads, there are three targeting options to choose from: product targeting, views remarketing, and interests. 

Where do Sponsored Display ads appear?

Now that you know where Sponsored Product and Sponsored Brand ads appear on Amazon, let’s go over where Sponsored Display ads will appear. 

Depending on the targeting option you choose, your ads may appear on:

• Amazon product detail pages or search results on desktop, mobile, and app 
• Third-party websites and apps (in the U.S. only) 

Let’s see an example of a Sponsored Display ad using product targeting or audience retargeting. 

In this example, the ads are being displayed below the bullet points and the Buy Box on a competitor’s listing. 

What are the benefits of Sponsored Display ads?

Display ads are a fantastic way to reengage with potential customers who may still be interested in purchasing your products. 

• You have the ability to retarget customers who have viewed your listing within the past 30 days
• You can target similar products or categories, as you can with Sponsored Products and Brands
• Your ads will be displayed throughout Amazon’s pages and will stand out more than a standard sponsored ad
• You can target customers off of Amazon to redirect them back to your listings
• You can target customers based on their interests and previous shopping behaviors (vendors only)

How to set up a Sponsored Display ad

Following the same process as the previous ad types, go to the Advertising tab in Seller Central and click on “Campaign Manager,” “Create campaign,” then “Sponsored Display.”

Enter your campaign details, such as your campaign name, date range, budget, targeting, bidding, products to advertise, and products to target.

For a much more in-depth description of the various targeting options within Sponsored Display as well as how to set them up, please check out our step-by-step guide: How to Use Amazon Sponsored Display Ads. 

Courtesy of an article dated June 10, 2021 appearing in JungleScout

STUDY FINDS HAPPY CUSTOMERS WILL SPEND $100 OF DISPOSABLE INCOME EVERY MONTH WITH BRANDS THEY LOVE

Harris Poll Study Commissioned by Lithium Finds Great Customer Experience Means More to Consumers than Great Products

What makes customers happy? And what’s a happy customer worth? Eighty-three percent of U.S. consumers say having a positive customer experience with a brand is more important than the product itself, a new study by Harris Poll of 2,000 respondents reveals. Consumers are willing to spend one-third of their disposable income – $100 per month on average – with brands they love based on a great customer experience. That’s around $31 billion up for grabs every month to brands who make their customers happy.

Experience Over Product

Brands work relentlessly on product design and features, but today’s consumer increasingly values how a brand treats them as more important than the product they sell. The Lithium-commissioned study found 43 percent of consumers would actually buy an inferior product from a brand that they had a great experience with, and 73 percent will spend more on a product if it is from a brand they love. But this works both ways, with 71 percent of consumers unlikely to ever use a brand again after only one bad experience. Worse, 44 percent would share their negative experience with friends and family, potentially leading to even more customers fleeing.

Value of A Happy Customer

The following Lithium infographic summarizes the major findings and insights from the Harris Poll:

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And checkout what people on the street had to say about what a great experience with a brand meant to them:

What does a great experience with a brand mean to you? from Lithium on Vimeo.

Rob Tarkoff, President and CEO of Lithium Technologies says.

“Customers’ increasingly high expectations of brands have reached a critical point. When two-thirds of consumers say they are unwilling to stick with a brand that has treated them badly even if they love the brand’s products, it’s time to sit up and take notice.  Brands need to dig deeper to understand how they can create awesome experiences for their customers across platforms.”

What’s A Brand To Do?

Brands can no longer dictate terms. They must connect with the customer in the channel of their choice, which is increasingly digital. The study reveals 29 percent of consumers prefer to engage with a brand via its website/blog/social channels, compared to 17 percent who prefer in-store engagement, and 16 percent who prefer to connect over email.

Tarkoff said.

“This study shows that as consumers reach out on digital channels, they are highly sensitive to how and when brands respond to them.  It’s a wakeup call for brands to realize that providing great experiences on digital is the surest path to attracting and retaining happy customers.”

Path To Happy Customers

Harris Poll, on behalf of Lithium, conducted the “Value of a Happy Customer” survey of over 3,000 adults in the United States and the United Kingdom to help us understand what it really takes to make customers happy today.

Here are a few of the highlights:

• 86% of adults in the U.S. and 74% of adults in the U.K. say they are willing to spend more on products and services from a brand they love.
• 71% of adults in the U.S. and 64% of adults in the U.K. would share a positive experience with other consumers
• After one bad experience, 71% of adults say they would likely never use that brand again.
• 55% of adults admit they place more value on a positive experience with a brand than on the product purchased.

Key findings from this survey include:

• An Emotional Connection Matters - People tend to have love/hate relationships with brands. Savvy brands today understand that creating an emotional connection with customers is the best way to keep them in the “love” zone. The majority of adults surveyed said that they would be likely to spend more on products and services from a brand that makes them happy (80%), a brand they love (80%), and a brand to which they are loyal (80%). The message is clear: when a brand is able to create an emotional connection with consumers, a stronger sense of loyalty results.
• A Digital First Mindset - When consumers need to search for something specific, they flock to digital – especially via their mobiles phones – to do it. The same can be said about how consumers engage with brands. A brand’s website, blog, or social channels are typically the first stop when searching for information about products and services. About one-third of adults say they are likely to spend more on products and services from a brand that communicates with them (32%) and shares entertaining and engaging content with them (31%) via social media.
• No Such Thing as Second Chances - As consumer expectations become increasingly intense, brands have got only one shot to make a good first impression. Otherwise, customers will gladly move on. They no longer have to tolerate a bad brand experience. Over 8 in 10 adults (83%) say they would stop using a brand after one bad experience while nearly 9 out of 10 adults (87%) agree that they would look elsewhere if a brand made them unhappy in any way.

COMMENTARY:   In-store shopping beats the e-commerce experience across numerous customer service and relationship measures, while online shopping wins for research and pricing, according to the results of a survey of consumers who have used their mobile devices to shop. The survey, conducted by Dimensional Research and sponsored by Wanderful Media, identified several shopping-related activities and asked respondents whether they thought those experiences were better in-store or online.

Respondents more often chose the in-store option for measures such as a great customer service (40% vs. 16%), having their questions answered (50% vs. 13%), and establishing a relationship with the merchant (51% vs. 12%).

The biggest gap in favorability, though, was for the ease of making a return (64% in-store vs. 12% online). Frustrations with the return experience certainly appear to plague online shoppers, per results from a ShopRunner survey conducted by Harris Interactive. About 7 in 10 online shoppers surveyed feel that returning items purchased online is a complicated process, while an even greater proportion (81%) said they are not likely to make additional purchases from websites that charge shipping on returns.

Online Shopping Makes the Grade for Research, Savings

Further details from the Wanderful Media survey suggest that consumers who use mobile devices to shop may favor the customer experience in-store, but they prefer the research and savings possibilities offered online. The online shopping experience was overwhelming favored for the breadth of information available to research purchases (71% vs. 12%), the ease of finding a specific item (59% vs. 14%), and getting the best price (57% vs. 11%), among others.

Store Browsing Leads to Impulse Purchases

Notably, respondents were far more likely to favor the online path for discovering a previously unknown product (40% vs. 16%). Still, more respondents had made an impulse purchase in the last month in a store than had done so online (74% vs. 65%), suggesting that while they find new products online, they’re more likely to try something new while shopping in a store.

In fact, browsing in a store (60%) was the leading driver of impulse purchases among respondents, ahead of email promotions (42%) and window shopping (36%). Interestingly, newspaper circulars (23%) influenced more shoppers than social media channels such as Facebook (22%), Twitter (13%) and Pinterest (13%).

9 in 10 Have Visited a Store Due to An Online Experience

Of the shoppers surveyed, the vast majority (91%) said that something they have done online has spurred them to visit a store. Emails held the biggest sway: 60% said they had visited a store after receiving an email about a special price or promotion. Close behind, finding a coupon (59%), seeing an online ad for a sale (56%), searching for a product and finding a store location (55%), and browsing an online circular (52%) also did the trick for a majority.

Other Findings:

• Of various factors that may contribute to a positive experience when shopping in-store, respondents named the absence of shipping charges (64% citing as “very important”), the ease of making a return (60%), the ability to touch, smell, and see the item to be purchased (55%), and getting the item immediately (55%) as the most important.
• To get the most positive online shopping experience, respondents were most likely to say that the ability to compare prices from a broad range of sources (63% citing as “very important”), the depth of information to research purchases (59%), and the ability to stay home to shop (54%) were very important.
• Generally speaking, respondents preferred buying books, gifts, and consumer electronics online, and clothes, personal care products, shoes, and furniture in a store.

About the Data: The Wanderful Media data is based on an online survey conducted in December 2012 of 1027 consumers. All participants live in the United States and use a mobile device for shopping. 62% of respondents are female and a plurality (40%) are aged 36-50.

The ShopRunner survey was conducted online within the United States by Harris Interactive from December 7-11, 2012 among 3,036 adults ages 18 and older. This online survey is not based on a probability sample and, therefore, no estimate of theoretical sampling error can be calculated.

Courtesy of an article dated March 20, 2017 appearing in Lithium.com and an article dated March 30, 2017 appearing in MarketingProfs and an article dated December 17, 2012 appearing in Marketing Charts

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SQUARE'S IPO POPS BY 45%, BUT ITS A LOSER, 25.7 MIL SHARES SOLD AT $9.00, SHARES CLOSE AT $13.07, THE WINNERS AND LOSERS

The most anticipated technology initial public offering of 2015 is in the books and Square finished its first day of trading on the New York Stock Exchange up more than 45% from its $9 per share IPO price. In the aftermath, there will be plenty of talk of unicorns, ratchets and the disparity between public and private valuations. But who actually came out on top and who was hurt in the San Francisco-based company’s IPO? FORBES assesses the winners and losers from Square’s big day.

 

Winners

Jack Dorsey turned 39 on Thursday,  the day of the IPO, and now holds the unique position of being CEO at two multibillion-dollar public companies. While most wouldn’t envy his task,  Dorsey seems to relish the fishbowl-like scrutiny that comes with running both consumer-facing tech firms, Square and Twitter.  Yes, his net worth fell $730 million because Square went public below its last private valuation, but Dorsey has never been in it solely for the money.  He has returned shares to his companies in the past, most recently handing one-third of his Twitter stake back to the social media firm in October. In the Square IPO prospectus, Dorsey committed to give 40 million shares, or about 10% of the company, to a foundation. He’s also not struggling at the moment with a net worth of more than $1.4 billion. It remains to be seen if he can manage the dual-CEO roles, but Dorsey has established himself as one of the leading entrepreneurs of his generation and he’s not even 40.

Square CEO Jack Dorsey receives kiss from his mother, Marcia Dorsey, outside the NYSE (Click Image To Enlarge)

Square CEO Jack Dorsey poses for photo outside NYSE (Click Image To Enlarge)

Square CEO Jack Dorsey with co-founder Jim McKelvey (Click Image To Enlarge)

With Square pricing its offering well below its expected range at $9 per share, Square merchants, some of whom were able to buy in at the IPO price, benefited greatly. Through a special program, certain merchants who use Square products were able to purchase some of the 1.35 million shares that were donated by Dorsey.  Dorsey told FORBES on Thursday.  

“Sellers want to own Square and be investors in our success.”  

It was also a win for retail investors, who were in a frenzy as the stock shot up in its first hour of trading. More than 47 million shares exchanged hands on the first day of trading, according to FactSet data, and those who bought early and held on through Thursday were able to feel the full extent of the stock’s pop. Among those investors was Tod Wilson, a pie maker whose company was used as an example of a successful Square business in IPO filings and on the company’s roadshow video. Wilson “missed the program” that allowed him to buy shares at the IPO price, but bought in on Thursday and is still holding that stock.

As an investor in the company’s late-stage Series E round, Goldman Sachs and other participants in that financing were protected by a provision known as a “ratchet.” While those investors bought shares at a price of $15.46, the company guaranteed them at least a 20% return on that investment. In order to make that happen when it priced its shares at $9 each, Square was required to issue an estimated 10.3 million shares–valued at nearly $93 million at the IPO price–to those investors. Those shares were worth a collective $135 million when the market closed on Thursday.

Losers

Goldman Sachs saw gains on Thursday as an investor, but as underwriters along with Morgan Stanley MS -3.03% and JP Morgan overseeing the IPO process, it certainly left money on the table for its client, Square. This of course opens up a debate as to what constitutes a “good IPO” with companies weighing the benefits of a first-day stock pop to drive investor interest versus taking in as much cash as possible. Publicly bankers often say pricing an IPO is more an art than a science, with the general understanding that a 15%-20% first-day trading pop is optimal in terms of maximizing proceeds and allowing buyers to feel like they got a deal. Had the underwriters priced Square’s shares at $12–in the middle of its suggested $11 to $13 range–the company could have taken home an additional $77 million in cash. Some argued that because of Goldman’s role as a Series E investor and its ratchet preference, the bank may have had an incentive to price the IPO as low as possible.

While investors with ratchets benefited from the provision, Square’s employees did not. Because the company was obligated to issue more stock to those Series E investors, the entire share pool was diluted. At a Silicon Valley tech firm, where employees are often attracted to companies based on the type of equity packages they receive, that won’t sit well with a mid-level engineer or designer who may have given up a cushy job at Google GOOGL +2.32% for Square and its equity. Come the expiration of the lockup period, which prevents investors and those inside the company from selling, employees may find themselves in a tougher market if they want to offload their shares.

Perhaps one of the more curious things on Square’s IPO prospectus was the disclosure of two unnamed investors who bought $30 million worth of Series E shares last month. The company said those backers included one existing investor and one new investor, though a Square spokesperson declined to say who they were. Whoever they were, they bought a total of 1.9 million shares at a price of $15.46 each and waived their right to maintain a ratchet. With shares closing at $13.07 apiece today, that holding is still underwater to the tune of about $4.5 million.

COMMENTARY:   Square, known for its small, white readers that plug into smartphones and tablets, now has a market value of about $3 billion compared to the $5 billion value implied in its fundraising a year ago.

The steep markdown could foreshadow trouble ahead for venture capitalists and other investors who have been pouring billions of dollars into technology startups in recent years.

The IPO discount also leaves Square with less money to draw upon as it strives to turn a profit for the first time in its six-year history. Before paying its investment bankers and other fees, Square raised $231 million in the IPO, instead of the $282 million to $346 million that the San Francisco company had been seeking.

According to Square's S-1 filing, which I described in detail in a blog post dated October 16, 2015, a total of 185,361,631 class B shares are held by outside investors, insiders and directors.   The percentage of total class B shares held by major shareholders include Jack Dorsey (24.4%), Khosla Ventures (17.3%) and Director James McKelvey (9.4%).

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Square had to discount its IPO shares at the $9 per share late Wednesday, below a target of $11 to $13 that Square set the week before.  The price is 42 percent below the $15.46-per-share price that Square fetched a year ago when it raised $180 million while it was still a privately held company.  In my opinion, this was just a strategy by the IPO underwriters Goldman Sachs, JP Morgan and Morgan Stanley to line their pockets at the expense of Square.  Shame on Jack Dorsey for letting them get away with this.  Don't let Jack Dorsey ever give you advice on bluffing while playing poker. He left a lot of money on the table    

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The initial public offering of Square was supposed to be a sign of doom for unicorns (startups with pre-IPO market values of $1 billion or more), a proof that you can't make money investing in pre-IPO tech companies any more. On the other hand, here is how much money Square's investors have actually made, by funding round: 

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Those are paper profits, based on Square's $9 per share initial public offering price, and on a $13.50 per share trading price as of about 11 a.m. Here they are in table form:

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If you invested in Square at any point, from its Series A round in 2009 through its IPO last night, you've made at least a 20 percent return on your money as of this morning, or about a 7 percent compound annual growth rate. And if you got in early enough, or late enough, your returns were way better. In aggregate, Square's investors have tripled their money; its pre-IPO venture capital investors have almost quadrupled theirs. Everyone can breathe easy now! Unicorns are fine again.

Obviously there were some bumps along the way. Thursday's IPO priced below the Series D round, leaving the Series D investors with a paper loss. It priced even farther below the Series E round, but the Series E investors had negotiated for themselves a "ratchet," in which Square essentially guaranteed them a 20 percent return in the IPO. Their shares were worth only about $87 million at the IPO price, so Square had to give them another 10.3 million shares -- worth another $93 million -- to make up for it.  

WHAT TO MAKE OUT OF SQUARE'S IPO

The stock market guru Ravi Bala of Seeking Alpha really know how to sense out of the Square IPO. Ravi took the time to compare the financials for Square Inc and Twitter, and I agree with his conclusions. Seeking Alpha says.

"Square (NYSE:SQ), like most IPOs, runs on stories. How an unprofitable company got into the market is beyond me. There are parallels between Dorsey's new company and his older one, Twitter (NYSE:TWTR), that makes me believe that Square is on track to cause major headaches to investors who will focus on the future and not pay attention to current results.

Square was founded in 2009 and just went public. It is approximately six years in business and is unprofitable. Twitter was founded in 2006 and went public in 2013. Interestingly, both went public in November in their respective years. Both companies are very young. Just as Twitter has shown, I would say that Square needed to stay private for a bit longer until it showed signs of profitability before entering the public markets.

Take a look at the two financials below. The first table is Square and the second is Twitter. Notice the general similarities. Net income and cash flows are negative despite increasing revenues. What struck me as interesting is that both companies had increasing revenues and increasing negative free cash flow in their respective years as they finished their IPOs. Everyone in the investment world touts the philosophy of Warren Buffett, but no one seems to apply his sage wisdom. You just do not invest in companies that have not proven themselves out. Like Twitter, Square is still trying to prove its concept out. There is no moat established. For GARP investors, what did Peter Lynch say? He said that you need to see a tendency in growing earnings. Square shows the complete opposite.

Square Inc Financials

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Twitter Financials

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Here is where things get much more interesting. Below I extend the table and show you how worse off Twitter has been since it went public. Revenues have been increasing, but it has become very obvious that the net income and free cash flow numbers are accelerating in the wrong direction. I do not want to draw any conclusions but based on the youth of Square and the fact that it may be losing one of its biggest customers, Starbucks, I think Twitter's performance foreshadows Square's future.

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I took a look at both companies' S-1 filings to see if there were any similarities. Four of the banks who underwrote Twitter's IPO underwrote Square's. I'm very curious to know why these banks would want Square to go public given that its financials going into the IPO were much worse off than Twitter's. It may not mean much to some people, but I would not trust their judgment this time for their poor judgment last time."

SQUARE IS A LOSER IN SHEEPS CLOTHING

I don't think that Ravi Bala is not too far off in his assessment of the Square IPO.  I don't think we will have to wait more than a year or two to realize that the Square IPO never should've happened.  There is just too much shit going on right now that is likely to affect stock prices in the immediate future, not including rising interest rates, ISIS terrorism, Square's unproven and unprofitable business model, geo/political problems like a possible confrontations with China, North Korea and Iran.  When you add the weakness in the IPO market, the underwriters rushing (more like RUNNING) to get this IPO in the books before the end of the year before stocks lost their luster, it would not surprise me if there is a shareholders revolt somewhere along the way, when this thing collapses due to some or all of the above.  

I keep reading that Jack Dorsey was the only logical choice that Twitter had, so they kept him to serve as permament CEO.  It's quite a challenge to fix the problems of a bad and underperforming company, let alone two simultaneously.  If you ask me, I think Twitter's board of directors should've hired Snoop Dogg.  He offered to serve as CEO, and I think they should take him up on it.           

In my blog post (see above) about Square's IPO filing, I made the following comments about Square's IPO which you should note.

"I am always concerned when a startup that has never generated a profit since it began operations, that startup competes in a mature and highly competitive industry (credit card payments) and that industry is dominated by larger and more established players, and that startup is led by a CEO (Jack Dorsey) who splits time between two troubled companies (Twitter and Square), and then that CEO thinks its time for an intial public offering when stock market indicators say otherwise, then it makes me wonder about the wisdom of that CEO.  This is the case with Square, Inc. and CEO Jack Dorsey.

Jack Dorsey has his work cut out for him, not only with Square, but especially with Twitter, a social network which has never generated a profit, has lost numerous executives since the start of this year, whose monthly active users has stalled, and advertisers are questioning Twitter's viability as an advertising platform.  

Dorsey recently announced that Twitter would layoff about 10% of its workforce or about 336 employees, mostly from its engineering staff.  This will cost the company about $20 million in severance payments and other separation entitlements.  Even after you factor the savings from in wages, payroll taxes and employee benefits due to these layoffs, this will not make a substantial dent in their operating losses to date.  This makes you wonder if Square will require some staff pruning after the IPO.   

Even if you adjust Square's earnings for the money that it is losing from the Starbucks deal, the company is still losing a substantial amount of money.  Unfortunately, Square will continue to lose money off the Starbucks deal until October 2016."   

Courtesy of an article dated November 19, 2015 appearing in Forbes, an article dated November 20, 2015 appearing in Bloomberg, an article dated November 19, 2015 appearing in Forbes, an article dated November 19, 2015 appearing in Seattle Times, an article dated November 19, 2015 appearing in The Wall Street Journal, an article dated November 19, 2015 appearing in QZ.com, an article dated November 19, 2015 appearing in Newsweek, and an article dated November 19, 2015 appeariong in ABC News

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2015 DIGITAL STATSHOT FOR CHINA: THE STATE OF DIGITAL, SOCIAL MEDIA, MOBILE AND eCOMMERCE

The latest report in our series of studies into Digital, Social & Mobile use around the world shows that the pace of digital adoption in China shows few signs of slowing.

You can read the full report in the SlideShare embed above (or download it here), but numbers don’t mean much on their own, so we’ll use this post to dig into the significance of the data and their associated trends for marketers.

China Digital, Social and Mobile By The Numbers

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To get us started though, here are the key data headlines:

• Internet Users: 668 million, a 6% year-on-year increase
• Social Media Users: 659 million – more than the USA and Europe combined
• Unique Mobile Users: 675 million, responsible for 1.3 billion mobile subscriptions
• Mobile Internet Users: 594 million, accounting for 89% of all China’s internet users
• Mobile Social Media Users: 574 million, up 15 million since this time last year

The year-on-year growth rates tell interesting stories too (note that the mobile figures in this slide represent the growth in mobile subscriptions, not unique users):

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We’ll examine each of these in detail in the sections below.

Internet in China

Roughly 100,000 people in China started using the internet every day over the past year – that’s more than one every second.

Much of this growth is being driven by improved mobile access, with close to 90% of the country’s netizens using mobile devices to access the internet. It’s worth noting that this is often in addition to PC-based usage too, but an increasing number of the country’s internet users are mobile-only, especially in rural areas.

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When it comes to the total volume of web traffic, PC-based access still dominates, with 56% of the web pages served to China’s netizens in the past month going to laptop or desktop computers. However, this figure is down 29% year-on-year, while the number of web page requests from mobile devices has jumped 136% to 42%.

These trends suggest that mobile usage will account for more than half of all China’s web activity by early 2016.

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Despite mobile’s promise of ubiquitous internet access, however, internet usage still isn’t evenly distributed in China, and a marked difference remains between urban and rural usage rates. Nearly two-thirds of China’s urban population now uses the internet every month, but barely 3 in 10 of China’s rural citizens are online:

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The good news is that connection speeds are up considerably on last year, with the average fixed-connection access speed up 17% year-on-year according to Akamai. It’s worth noting that the average mobile connection speed is considerably higher than that of fixed connections though, with the average connection in China now considered ‘broadband’ (i.e. 4Mbps or above).

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Social Media in China

The overall number of social media users in China grew more slowly than we expected over the past year, but this is more likely due to a change in behaviour, rather than a waning of interest in social media. 

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It’s also worth noting that social media usage in China is already at a very high level, with the numbers suggesting that 99% of China’s internet community uses social media of some description.

The numbers for individual platforms tell the more interesting story though. QQ, Tencent’s ever-popular instant messaging service, still claims the country’s top position in terms of monthly active users (MAUs), and despite the vast majority of its users residing in China, it also claims the second-place spot in the worldwide rankings behind Facebook (click here to read more about the global picture).

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It’s worth noting that more people sign in to QQ via mobile devices each month than sign in to WeChat, but WeChat offers more varied services and functionality for both users and marketers.

User numbers suggest that QZone still dominates when it comes to traditional ‘social networking’, but WeChat (or Weixin, as it’s know in China) is quickly catching up, and is the platform that most users claim to use on a regular basis (note the difference between ‘use’ and ‘sign in’, the latter being the metric many of the platforms use to measure ‘active’ users).

For those who are still relatively unfamiliar with Chinese social media, Baidu Tieba may be a new discovery. Tieba, or “Post Bar” as the platform calls itself in its English literature, is a community that has grown up around specific areas of user interest related to the searches that people conduct on Baidu, China’s largest search engine.

Meanwhile, readers of our previous China reports (2013, 2014) will notice the absence of Tencent Weibo in this ranking. Tencent stopped publishing monthly active user figures for Tencent Weibo a number of months ago, and we have interpreted this to mean that the company has de-prioritised the platform in favour of its three larger ‘products’, QQ, Qzone and WeChat. Tencent Weibo appears to remain popular with many users though, with 38% of China’s internet users claiming to have used the platform in the past month (see below).

Research from GlobalWebIndex suggests that more than 6 in 10 internet users in China used WeChat in the past month. Sina Weibo comes in second, with 54% of survey respondents claiming to have used the service in the past 30 days.

It’s interesting to note that Facebook, Google+ and Twitter all appear in this list too; they may be officially ‘blocked’ by the Great Firewall, but GlobalWebIndex’s research suggest that a considerable number of China’s netizens are getting round these blocks to access non-Chinese social platforms.

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87% of China’s social media users now access via mobile devices at some point each month, with platforms like WeChat helping to drive overall numbers up 77 million over the past 12 months – a year-on-year increase of 15% that equates to more than 200,000 new users every day, or almost 2.5 new users every second.

At 1 hour and 43 minutes per day, social media accounts for just under half of all the time that people spend online in China. The country’s social media users spend 23% longer using social media than they do watching TV each day, although it’s worth noting that much of this time overlaps, with many TV viewers engaging in ‘second-screen’ social media use at the same time.

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It’s worth noting that use of tablets appears to be down slightly year-on-year though, with 22% fewer web page requests coming from tablet devices in the past month compared to this time one month ago.

Mobile in China

With 675 million unique subscribers in China, almost half the country’s population now owns a mobile phone, and we fully expect to see the country pass this milestone before the end of 2015.

The number of mobile subscriptions in China rose significantly in 2014 too, with three new subscribers every second contributing to annual growth of 94 million – an 8% year-on-year increase.

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The number of mobile subscriptions in China is now very close to the number of people living in the country, which suggest that the average user still maintains close to 2 active connections.

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However, we expect that this ratio will reduce over the coming months as more and more people upgrade from feature phones to smartphones; the main reason why individuals operate more than one mobile contract is to benefit from intra-network deals, but data-powered communications such as chat apps and VOIP are more efficient and effective ways of achieving the same benefits.

Smartphones are clearly the must-have devices in China today, accounting for 90% of new handset sales. They already account for just less than two-thirds of all handsets in active use, and we expect their overall share to increase steadily over the coming months as more people renew their devices.

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When it comes to internet-powered activities on mobile devices, Chinese netizens appear to be particularly interested in checking the weather. 

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China’s mobile users also appear to have embraced m-commerce, with reports suggesting that 20% of the country’s population have made a recent online purchase via their mobile device.

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E-Commerce in China

E-commerce more generally appears to be thriving in China, with almost one in three internet users buying online each month. 

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The country’s consumer e-commerce market was worth more than a quarter of a trillion US dollars in the six months to June 2015, with the year’s biggest shopping event – Singles Day – still to come. Sales on Alibaba’s various sites exceeded US$9 billion in just one day last November, and there’s every chance that number will pass $10 billion on 11th November this year.

Conclusions

So what does all this mean for brands? Here are our three key tips, designed specifically for non-Chinese marketers looking to make sense of the world’s largest consumer market:

China’s Different: it’s obvious that the platforms that dominate in China are markedly different to those that marketers are familiar with elsewhere – even those in their Asian neighbours. However, it’s not just the platforms that are different; the ways that Chinese netizens use social channels is also markedly different, and marketers need to carefully adapt their approaches for China’s cultural and societal idiosyncrasies as much as for its technological differences. One size does not fit all when it comes to China, and marketers would do well to engage the expertise of a partner who understands the ‘how’ as well as the ‘what’.

1-to-1 Social: The numbers in this year’s report highlight the growing popularity of chat apps – a trend that we’ve seen elsewhere in the world too. The growing popularity of chat apps presents a new set of opportunities for marketers, as many of the conversations that take place on these platforms are more private in nature, taking place between individuals and small groups (versus the public environments that Western marketers will know from Facebook and Twitter). In order to take advantage of the ‘intimate’ nature of these one-to-one conversations, however, marketers will need to explore new approaches to social media and content marketing, ensuring that the tactics they employ make it easy for audiences to find and consume content on one platform (e.g. video-sharing services like Youku or Tudou), and then share that content proactively via chat apps. This will require greater emphasis on highly engaging content and organic sharing, rather than an approach that relies on paid media to push mediocre content to the masses.

Social Selling: China’s netizens are already very comfortable buying things online, whether that’s through their PCs or via their mobile devices. The next big opportunity for marketers is to understand how the dynamics of social referral work in China, and use that to move from social engagement to social conversion.

COMMENTARY:  If you have been looking for information on the state of China's growing digital, mobile, social media and e-commerce for 2015, this is a great source thanks to the nice guys at We Are Social. 

Courtesy of an article dated August 18, 2015 appearing in We Are Social

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FACEBOOK PARTNERS WITH ECOMMERCE LEADER SHOPIFY SO USERS CAN SELL PRODUCTS DIRECTLY THROUGH FACEBOOK

The world’s largest social network is barreling into e-commerce through an expanded relationship with e-commerce platform Shopify. It will allow Facebook users to buy products directly from Shopify merchants on their Facebook pages, the companies announced this week.

Stores with Shopify accounts can create a new Shop section on their Facebook pages, which can handle the transaction within Facebook or refer them to the store’s Web page outside Facebook, with the logistics handled by Shopify.

Click Image To Visit Shopify Page on Facebook

The mobile-compatible service is available to roughly 175,000 small businesses that have signed up with Shopify and presumably, the Facebook partnership will help recruit even more.

Facebook first revealed it was experimenting with Shops in Facebook pages, enabling brands to transact e-commerce directly from the Facebook platform, back in July.

The new Shop section builds on Facebook’s previous introduction of a “buy” button by giving products their own section on the vendor’s main page, adding product discovery for a more complete shopping experience.

 

Facebook is also testing a new mobile ad format that allows users to interact with several layers of advertiser content without leaving Facebook’s app; demo versions of the new ad showed users engaging with in-depth product profiles.

Of course, Facebook has plenty of competition in the e-commerce arena.

In July, Google began testing “buy” buttons in its mobile search results. After a limited test period beginning last September, Twitter is also rolling out its new “Buy” buttons more widely through a partnership with Shopify, as well as other e-commerce platforms. Finally, Pinterest has partnered with Shopify to create shoppable Pins.

While social-media companies have big ambitions in e-commerce, so far their share of the total business remains small, according to a study by Business Insider’s BI Intelligence. Citing data from Moovweb, BI Intelligence found that Facebook accounted for 1.32% of all referrals to mobile e-commerce sites, representing half of all traffic from social media sites and 64% of total revenue from social referrals.

By contrast, Pinterest generated just 0.16% of all referrals to mobile commerce sites, and Twitter contributed a paltry 0.04%. Pinterest accounted for an outsized share of revenue from social referrals, at 16%.

COMMENTARY:   Shopify Inc. has also partnered with AMAZON to replace the ecommerce giant's Amazon Webstore software.  

Shopify Inc shares soared after the Canadian software maker teamed up with online retailing giant Amazon.com Inc. to help merchants create their own online stores.

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The shares rose 23 percent to $35.55 at the close in New York on Thursday. The stock has about doubled since going public in May.

Amazon advised the users of its own Amazon Webstore software to move their online stores to Shopify, before it shuts down the Webstore service. Shopify merchants will be able to use Amazon’s payments system and warehouses, and the companies are working to let Shopify merchants list their products on Amazon.com, according to astatement. Terms of the deal weren’t disclosed.

For Shopify, the deal advances plans to let its more than 175,000 merchant customers sell goods on as many platforms as possible. The company already has similar arrangements with Pinterest Inc., Facebook Inc. and Twitter Inc.

Harley Finkelstein, chief platform officer for Ottawa-based Shopify, said in a phone interview.

“Shopify really wants to be the platform that allows merchants to sell wherever they have customers.” 

Amazon started Webstore in 2006 to enable small-business owners to set up their own Internet stores. Since then, however, startups like Shopify and Austin-based Bigcommerce Inc. have come to dominate the market.

It sure appears that Shopify shares are rebounding considerably with the announcement that they are partnering with both Facebook and Amazon.  

Courtesy of an article dated September 18, 2015 appearing in Social Media & Marketing Daily's The Social Graf and an article dated September 17, 2015 appearing in Bloomberg

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ALIBABA IS THE WORLD'S LARGEST eCOMMERCE COMPANY, BUT DOES IT POSE A REAL THREAT TO AMAZON AND eBAY?

Founder and Executive Chairman of Alibaba Group 

Alibaba to invest more abroad as globalization becomes a top priority

Group Holding Ltd will invest heavily in existing and new ventures abroad, making its push beyond the China market a top priority, the Chinese e-commerce leader's new CEO, Daniel Zhang, said.

Alibaba Group CEO Daniel Zhang (Click Image To Enlarge)

Zhang's comments come at a time when Alibaba aims to maintain its rapid growth even as the prospect of e-commerce saturation at home looms over the company.

Zhang said in his first speech since taking up his new post this week, according to a report on Thursday on Alibaba's news and commentary website, Alizila.

"We must absolutely globalize,"

The vast bulk of Alibaba's revenue comes from its dominant domestic online marketplaces, but the company has been investing in a range of sectors abroad. Just this week it announced it would set up a cloud computing base in Dubai, and boosted its stake in U.S. e-retailer Zulily Inc.

Alibaba Group Holding Limited - Revenues by Segment - 2010 Through 2014 - Includes China vs International Revenues  - In Millions of Yuans - Statista (Click Image To Enlarge)

Zhang was quoted as saying.

"We will organize a global team and adopt global thinking to manage the business, and achieve the goal of 'global buy and global sell'." 

Alibaba, which handles more transactions on its platforms than Amazon.com Inc and eBay Inc combined, would continue to invest heavily in new and existing overseas operations, Zhang was quoted as saying. Those included AliExpress, a platform for overseas consumers to buy Chinese goods, and Tmall Global, a marketplace for overseas goods to be sold online in China.

For the quarter ending in December 2014, Alibaba achieved $127 billion in China retail gross merchandise value (GMV).  For calendar year 2014, Alibaba achieved $370 billion in China retail GMV. A key reason for the strong GMV growth is the continued growth in active buyers across its platforms—Taobao Marketplace and Tmall.com. The company explained that an active buyer is someone who came to its retail marketplaces to make at least one purchase during the period of measurement.

Alibaba Gross Merchandise Volume (GMV) - Taobao and Tmall - By Quarter in Billions of  Chinese Yuans - Q4 2012 through Q4 2014 (Click Image To Enlarge)

The GMV growth was also driven by category expansion. On November 11, 2014, the company’s Singles Day promotion generated GMV of $9.2 billion. This was an increase of 58% compared to the Singles Day in 2013. These transactions were settled through Alipay on its retail marketplaces within a 24-hour period.

Alibaba's online shopping gross merchandise volume (GMV) in millions of Chinese Yuan's from Q2 2012 through Q1 2015 (Click Image To Enlarge)

Zhang said if Alibaba does not globalize it won't be able to last 100 years - a goal set out by Executive Chairman Jack Ma.

But growth of Alibaba's international commerce business is lagging the pace of growth in China, even as the new CEO faces the prospect of slowing domestic growth as saturation among online shoppers threatens to hobble expansion.

In the three months ended March, Alibaba's revenue from China commerce grew 39 percent to $2.2 billion. International commerce grew 27 percent to $264 million and only accounted for 9 percent of revenue, compared to 11 percent in the same period a year earlier.

Alibaba says some of its larger overseas markets include Brazil and Russia. The company and its affiliates are also making overtures in India, where it is in talks with phone maker Micromax Informatics to buy a $1.2 billion stake, according to several people with direct knowledge of the matter.

For the United States, Alibaba is planning a major move to win business this year, by offering American retailers new ways to sell to China's vast and growing middle class.

Mobile commerce is driving an increasing share of Alibaba's business

Alibaba’s growth has been further boosted by an exponential increase in mobile users. China’s 600 million-plus Internet users are migrating to smartphones, setting off a race to capture this new market. Alibaba’s mobile GMV now represents over 51% of a staggering 289 million mobile active users.

Alibaba said it had 289 million mobile active users (MAUs) out of 350 million buyers at the end of Q1 2015.   Mobile users represented $49 billion or 51% of  total gross merchandise volume (GMV) on its Chinese retail platforms during Q1 2015, up from 42% in Q4 2014.  Mobile users also represented a whopping 40% of total ecommerce revenues for Q1 2015, up from 30% in Q4 2015.

Alibaba Active Buyers and Mobile Active Users by Quarter in Millions - Q1 2014 Through Q1 2015 (Click Image To Enlarge) 

Alibaba Total Mobile Active Users (MAUs) in Millions, Mobile Gross Merchance Volume (US$) and Mobile Revenues as a % of China Retail Rvenues (US$) for Q1 2015 (Click Image To Enlarge)

Alibaba Mobile GMV, Mobile Revenues and Revenue Contribution by Quarter - Q1 2013 Through Q1 2015 (Click Image To Enlarge)

Does Alibaba represent a serious competititve threat to Amazon and eBay?

Wether Alibaba represents a serious to U.S. ecommerce leaders Amazon and eBay depends on who you ask.  Let's look at the opinions of a few ecommerce experts.

Mike van Dulken, head of research at Accendo Markets, says Yes

In terms of sheer size, accounting for 80 per cent of all Chinese online shopping, with volume growth easily outstripping rival internet retailers thanks to 1 billion items on offer to 350 million buyers, and with 30 million shipments made per day, fast-growing behemoth Alibaba represents a genuine threat to the likes of Ebay and Amazon.

Jack Ma’s stateside charm offensive has provided key insight into the firm’s goals, with some impressive numbers, such as sales of a landmark $1 trillion by 2019, generated by a whopping 2 billion customers.  The founder has made it clear that the aim is to reduce reliance on China, increasing rest-of-world sales by a factor of 20.

This implies taking market share, which the promise of 72-hour worldwide shipping and attracting US businesses to its already highly-successful platform may well help deliver. Outside China, Alibaba is looking increasingly like the retail elephant in the internet chatroom. The competition better watch out.

Steve Mader, a vice president at Kantar Retail, says No

In the short term, Alibaba is not focused on entering the US or European retail markets to compete on Amazon and Ebay’s home turf. Its attention is connecting Chinese businesses to Chinese consumers, Chinese businesses to the world, and the world to Chinese businesses.

Ma’s goal is to remove a significant amount of friction from Chinese retail trade and have Alibaba positioned as the conduit the traffic flows through, generating a massive number of monetisation opportunities through media and marketing services, or payment programmes such as Alipay.

With Alibaba focusing on China, it offers global retailers the ability to learn and adapt. We’re already seeing this with Amazon’s moves in the UK to become more flexible in its distribution network by partnering with other retailers such as Smiths News, and Ebay becoming increasingly brand focused. In the longer term, however, the tech giants would be foolish to dismiss the threat of Alibaba.

COMMENTARY:   Based on Alibaba Group CEO Daniel Zhang goal to expand internationally by a "factor of 20," both Amazon and eBay should take this as a threat, but not an eminent one.  Alibaba Group faces several hurdles in order to successfully penetrate the U.S. market.

1)  U.S. buyers do not use escrow accounts to make online purchases like Alibaba Group uses to make sales.  We prefer to use credit and debit cards to make our purchases, expect a liberal merchandise return policy, and delivery of our purchases within 1 to 5 days.  I don't think Alibaba Group's business model translates well in the US market except for very expensive items like jewelry, art and collectables.

2) U.S. buyers are very loyal to both Amazon and eBay.  The seller reviews on eBay weed out crooked sellers.  Likewise, product reviews on Amazon are very useful in assisting buyers to make their purchasing decisions.  

3) U.S. buyers have the advantage of buying products from sellers located and shipping within the U.S.  Alibaba Group does not carry merchandise, but depends on millions of small sellers, to produce and ship the product directly to the customer.  Alibaba would have to open large distribution centers in the U.S. in order to meet the demands of U.S. customers for quick turnaround of their orders. This would require a huge investment in facilities and merchandise inventory to meet the demand of customers in the U.S. and Europe. 

4) Both eBay and Amazon have fond ways to weedout sellers of cheap knockoffs.  On the other hand, Alibaba Group has been criticized by the government for the large number of sellers selling knockoff products through their ecommerce platforms.  Alibaba Group has spent over $1 billion over the last two years to control the knockoff problem.

5) U.S. and European online buyers are much more sophisticated than Chinese consumers.  They are very leary of these small Chinese producers, the quality of the products they sell, and how to deal with merchandise returns.  This is a big reason why I believe that Alibaba Group will have to adopt a business model that is similar to Amazon and eBay in order to compete with those companies.

6) Alibaba Group does not have a well known brand name in the U.S.  This lack of brand awareness by U.S. consumers is a huge weakness.  This lack of a strong brand identity will hurt Alibaba with U.S. consumers who are used to buying from well established companies like eBay and Amazon.        

In spite of these weaknesses and disadvantages, Alibaba Group still represents a threat, probably within 5 to 10 years. Alibaba cannot just compete on the basis of price, it must compete on the basis of the four P's (price, product, promotion and place).    

Courtesy of an article dated June 11, 2015 appearing in CityAM, an article dated May 14, 2015 appearing in Reuters, an article dated January 29, 2015 appearing in The Wall Street Journal, an article dated March 23, 2015 appearing in Market Realist, an article dated March 23, 2015 appearing in Yahoo Finance, First Quarter 2015 Earnings Presentation for Alibaba Group, Full Year 2014 Earnings Statistics by Statista

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AMAZON'S PLAN TO DELIVER ITS OWN PRIVATE-LABEL GROCERY PACKAGED GOODS AND FRESH PRODUCE

Following the playbook of countless retailers, Amazon.com Inc. is preparing to broadly expand its fledgling lineup of private-label brands to include an array of grocery items such as milk, cereal, and baby food as well as household cleaners, people familiar with the matter said.

Amazon’s planned expansion in the private-label business mirrors a more traditional retail model where name-brand products are sold beside store-owned goods. Private labels have become a vital business for mass-market retailers, generating stronger margins and building loyalty with consumers who no longer view generic products as lower quality.

In early May 2015, Amazon sought trademark protection for more than two dozen categories under its Element brand, including coffee, soup, pasta, water, vitamins, dog food and household items like razors and cleaning products. Diapers and baby wipes—the latter of which is still on the market—were Amazon’s first line of Elements, available to customers who pay $99 a year for a Prime unlimited shipping membership.

Amazon Element private-label brandname (Click Image To Enlarge)

Amazon has approached some private-label food manufacturers seeking a partner, according to people familiar with the matter. Those discussions included TreeHouse Foods Inc. of Oak Brook, Ill., one of the larger private-label producers, with $3 billion in sales last year, said one of the people.

Amazon declined to comment. A spokesman for TreeHouse declined to comment on any talks with Amazon but noted the company does “business with all of the nation’s top retailers and operates in 15 grocery categories.” 

Click Image To Enlarge

The business isn’t without challenges. Amazon must rely on outside manufacturers to design the products and then vouch for the quality, as it did when it launched its Elements brand of diapers last December.  The next month, Amazon pulled the diapers from its site, citing a flawed design—customers had complained about quality issues.

Many of Amazon’s coming private-label products will be ingested, making quality-control a critical issue.

The Seattle retailer has long dabbled in private labels. Besides diapers and wipes, it has offered all customers batteries, USB cables, backpacks and even ceramic plates under the Basics label, noted for its spartan black-and-white color scheme. And Amazon sells patio furniture and linens under its Strathwood and Pinzon brands.

Not all of Amazon’s private-label ventures have been winners. It discontinued a line of cookware endorsed by a Seattle chef in 2012 and a tool line, in addition to the diaper snafu.

Never before has Amazon ventured into perishable goods. By rolling out a broad portfolio of private-label products, Amazon could yield higher profit margins, while also gaining leverage with its largest suppliers to pare prices—though many of Amazon’s vendors also produce private-label goods.

Rivals ranging from Costco Wholesale Corp. to Target Corp. to Walgreens Boots Alliance  Inc.offer an array of store-brand products with names including Kirkland, Archer Farms and Nice, respectively. Private labels made up about a third of Target’s $73 billion in sales last year.

Eddie Yoon, a principal at brand consultancy The Cambridge Group, says.  

“It makes a lot of sense for any retailer to get into private label.  Private label has a lot of room to grow in terms of sales and can attract a new value-focused customer.”

Mr. Yoon said that despite their lower price tags, private label merchandise tends to have higher margins than name-brand goods for both retailers and manufacturers because of savings on marketing and brand development.

Market researcher Information Resources Inc. estimates private-label packaged goods was a $120 billion market in the U.S. in 2014, up 2.1% from a year earlier. Private-label merchandise represented about 18% of money spent on all packaged goods in the U.S. last year.   

For the year ending 2014, Amazon reported a $241 million loss on $89 billion in sales, has been pushing to expand sales of food online, including through its Fresh grocery delivery. And last year it rolled out Prime Pantry, which allows customers to order small items that the company generally only offered in bulk, such as a single shampoo bottle or bag of potato chips.

Private-label goods also could bolster Amazon’s reputation as a lower-cost retailer. IRI estimates that private-label products are, on average, 28% less expensive than their name-brand equivalents.

Amazon’s diapers were about 10% less per diaper than the priciest offerings from Procter & Gamble Co. or Kimberly-Clark Corp.—makers of Pampers and Huggies—but 25% more expensive than P&G’s Luvs and Target Corp.’s Up & Up brand, according to an analysis in December by Sanford C. Bernstein & Co.

It couldn’t be learned how Amazon may price its private-label food goods, when they may be released or whether they will be sold exclusively to Prime members, as the baby wipes are.

But it seems likely Amazon would sell them through its  Amazon Fresh grocery delivery service, available today in a handful of U.S. cities.

It also appears Amazon will be transparent about where its Elements products come from, as it has done with the diapers and wipes. The trademark filing mentions the slogan, “Every pack has a story.” Amazon’s page for its wipes details how they are produced by manufacturer Nice-Pak Products Inc., starting with the process of moistening them with purified water from the White Lick Creek Aquifier in Mooresville, Ind.

COMMENTARY:   A huge market opportunity awaits online retailer Amazon as it plans to launch its own private-label brands of perishable groceries including milk, cereal and baby food. However, the e-commerce giant must overcome challenges in quality, the distribution logistics of perishables and customer preferences that the firm hasn’t previously faced.

According to Amanda Nicholson, professor of retail practice at Syracuse University’s Whitman School of Management,  “There’s plenty of room for growth [in online grocery deliveries] … in a time-pressured society Twitter ,”   She noted that upscale supermarket chains like Wegmans have built that reputation over time, but her optimism came with a crucial rider:

"With food items, especially private-label brands, consumers need a sense of faith that this is going to be a good product, and that takes some time to build,” she said,“I don’t think Amazon has that automatic advantage at all.”

According to Wharton management professor Daniel Raff, Amazon will benefit from the refinement over the years in the business model for home deliveries of online grocery orders. He pointed to two critical factors for success — warehouse locations that can guarantee freshness of produce; and sophisticated routing and planning of transit schedules to ensure timely deliveries. He noted that Amazon has been building warehouses on the outskirts of major U.S. cities.

Nicholson and Raff discussed the opportunity Amazon faces in private-label food deliveries on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.) Amazon’s plans were first reported by The Wall Street Journal in late May.

Amazon already offers private-label brands in products including cables and batteries, but this is the company’s first attempt to extend that to perishables. As part of its plans for private-label food items, Amazon sought trademark protection in early May under its Element brand for products like coffee, soup and pasta, according to the Wall Street Journal report.  The U.S. market for private-label packaged goods was worth $120 billion in 2014, the story said, citing research firm Information Resources.

“There is plenty of room for growth [in online grocery deliveries]… in a time-pressured society.” – Amanda Nicholson

The Quality Threshold

Ensuring quality will be the biggest challenge Amazon will face in food deliveries, said Nicholson. She recalled Amazon’s abortive launch last December of a brand of diapers under its Elements brand. Amazon had to withdraw the product from its site a month later after customers complained of quality problems.

Unlike with delivering books or music, the quality bar is set much higher for food items, said Nicholson.   

“When we are talking about melons or fruit or private-label yogurt, most of us have very specific likes and perhaps dislikes.”

Also, in certain food categories like melons, avocados and other fruits that can easily become bruised, most customers may want to see what they are buying, said Raff.

He explained.  

“The secular change over the last dozen years or so in grocery merchandizing, and in the investments grocery store operators are making, has to do with the general shift in consumer preferences toward higher-quality fresh produce.  Vendors would be aware that customers who experiment with online grocery shopping would be very sensitive to the quality that is delivered. So it is probably worth it for the stores investing in the quality of such products in the beginning in order to generate consumer loyalty.”

Learning from Mistakes

Raff recalled the rise and fall of Webvan, an online grocery business based in Foster City, Calif. Launched in the thick of the dot-com boom in 1996, it went bankrupt five years later. Webvan became a part of Amazon in 2009 and focuses non-perishable groceries.

Webvan was “a great idea,” but it failed because of distribution problems, said Nicholson. Nevertheless, Raff said.  

"Its experience inspired entrepreneurial minded people.  It strongly suggested tha1t once people figured out how to do the infrastructure properly, something like [Amazon’s latest move] might be coming. We know now that this sort of service is commercially feasible.”

Nicholson pointed to FreshDirect, an online grocer based in Long Island City, New York, that was founded in 2002 and serves markets in New York, New Jersey and Pennsylvania and appears to have gotten its business model right. “FreshDirect keeps its edge by focusing on its food route,” she said. She noted that the firm’s founders have experience in the supermarket and grocery businesses, “which is helpful.”

“Vendors would be aware that customers who experiment with online grocery shopping would be very sensitive to the quality that is delivered.”–Daniel Raff

Follow the Money

Customer satisfaction is key to online grocery deliveries — but the business also has to make money. Nicholson said.  

“The crucial thing in home deliveries is [to ask]: Is it worth delivering?”

Clearly, each customer’s order has to cross a value threshold before it becomes worthwhile to the retailer, she added.

The arithmetic gets more complex with same-day delivery. Raff said that while “same-day delivery was cheap, prices [of products] were higher than they would otherwise be,” citing research by some stock analysts.

Raff also wondered how Amazon might use the customer data it collects. He recalled a controversy Amazon faced some years ago where it supposedly experimented with data on customer search behavior to adjust prices of goods “in a way that is [more] favorable to Amazon than … to the consumer.” He said that in the ensuing negative publicity, some found this to be “a somewhat more sinister side” of the company.

In any event, Amazon could be a winner with its grocery delivery business if it scores on two fronts, according to Raff. One is about persuading customers of the convenience, reliability and quality of its offerings, he said. The second aspect is about getting consumers “habituated with their orders arriving in hours rather than days later,” made possible with Amazon’s warehousing network and transportation infrastructure.

Raff said.  

“[Eventually], all categories of consumer goods will fit into this general mindset — not just music or clothing or food.  Amazon is really trying to be ‘the everything store.’”

Flat Growth 

According to private research firm IRI, private-label market penetration rates in dollars and units sold have not changed since 2011.    

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According to IRI, private-label market shares vary considerably by channel.   The grocery channel leads with a 22% market share, followed by Club chains (18.1%), Drug chains (16.3%) and Mass Supermarket chains (15.2%).

While pure-play private-label grocers like Trader Joe's and Aldi have made strong gains, and mass supermarket chains like Kroger's and Safeway are selling more private-label premium grocery products, not all grocers have faired well.  

According to IRI, more than half of package foods major categories have had flat private-label share growth since 2011.  This reflects the trend of overall flat consumer dollar and unit sales since 2011. 

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Amazon has to truly standout not only in price and quality, but in uniqueness as well.  It will be competing against some well established firms with loyal customers.  Amazon will have to provide a strong magnet to get these consumers to switch to its private-label consumer packaged goods and fresh foods.  Amazon will need to differentiate itself in other ways besides price, quality, freshness and delivery.  It needs to expand the market for private-label products, by offering products that are not presently sold under a private-label, otherwise it will have to rely on marketing wizardry to steal market share from existing venors of private-label products.  Some possiblities include gourmet frozen meals, fresh organic foods and organic packaged products.  The company needs to start promoting its Element private-label brand.  This means spending on advertising and promotions, and positioning its private-label products as "right-now" products that appeal to busy consumers who don't have time to shop or hate to shop.         

Courtesy of an article dated May 28, 2015 appearing in The Wall Street Journal, an article dated June 9, 2015 appearing in Knowledge@Wharton, and an article dated June 11, 2015 appearing in Market Realist

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WSJ: GOOGLE WILL ADD BUY BUTTONS TO SEARCH RESULTS ON MOBILE

Google's getting ready to face Amazon and eBay, according to The Wall Street Journal, and will be adding buy buttons directly to its search results. You'll see those buttons accompanying sponsored results under a "Shop on Google" heading -- they won't be used for non-sponsored links returned by the algorithm -- when you search for products on mobile devices. Upon clicking one, a separate product page will load where you can pick sizes, colors and ultimately complete your purchase. Any product you buy will still come straight from retailers, the WSJ says, so it doesn't sound like Google's stocking up warehouses with goods like Amazon does.

However, some major retailers are apparently worried that they'll get stuck with back-end order fulfillment with no real customer interaction. Since Google wants to remain in good terms with them (they are some of its largest advertisers, after all), it will give shoppers the choice subscribe to their marketing programs. That typically means mailing lists and the like, so the company's giving them access to customers' info, most likely names and addresses.

In addition, Google promised them that the product landing pages will be heavily branded with their names and will link to more of their products. The company also won't take a cut from their sales and will only get paid for every person that clicks their links. Mountain View will reportedly offer several payment options, "including digital payment methods from other providers," but it (thankfully) won't be giving retailers access to payment details. If you input credit card info to make a purchase, the website will save it for future transactions, but it will remain with the company.

As for why the feature will only be available on mobile, well, Google has a plethora of reasons. The biggest one is most likely the fact that more people now perform searches on their phones than on computers. According to the WSJ, you might spot a buy button or two as soon as the coming weeks. We don't have a list of official partners yet, since Google hasn't officially announced anything, but Macy's might be one of the first retailers available.

COMMENTARY:

Even though more people are shopping on their phones, the majority aren’t making actual purchases on mobile. Google’s solution: sponsored, mobile-only “buy” buttons that keep people on Google rather than sending them back to the retailer’s check-out page. The idea: People will buy more with a seamless checkout than they would if forced to wait for a retailer’s page to load and then go through a less user-friendly checkout process.

With the addition of a buy button, Google Shopping would go from being a simple search engine to being more of a middle-man. However, unlike companies such as Amazon, Google would not get a share of the profit, but more a pay per click profit.

Mobile Commerce Increasing

According to an eMarketer retail sales report, retail mcommerce is rising rapidly, steadily gaining a larger share of overall ecommerce.  

• In 2013, retail mcommerce—which includes products and services ordered on mobile devices, including tablets—increased 70.0% to reach $42.13 billion.
• In 2014 eMarketer estimates that figure will increase another 37.2% to total $57.79 billion, or about one-fifth of all retail ecommerce sales and 1.2% of total retail sales. In 2014, tablet sales will account for nearly two-thirds of mcommerce sales, eMarketer predicts, increasing to nearly 75% by the end of our forecast period.
• By the end of 2015, eMarketer estimates that total US retail mcommerce sales will reach $76.41 billion or 22% of total US ecommerce sales.   

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As more consumers use their mobile devices to conduct online searches for product reviews and price comparisons using search engines and recommendations from friends on social networks, it makes sense to incorporate call-to-action motivators like buy buttons.        

What does this mean for smaller ecommerce stores?

Of course, with the release of these rumors, many smaller ecommerce store owners are worried that this means they will see a dip in sales, as Google will provide linkage with large retailers instead of smaller companies. Rumors state that Macy’s is already in talks to join the new program,

Furthermore, many retailers are afraid that they will lose out on a very important customer relationship if everything is handled by Google.

What will Google do to calm the storm?

According to The Wall Street Journal, ecommerce store owners will be able to continue with the same marketing programs that they have running on their own sites, in other words this will allow retailers to get access to customer’s contact information, for future marketing purposes. Furthermore, Google will brand  the product pages with links to the ecommerce store, finally sources state that recommendations for future purchases will only be shown from the retailer providing the product.

What is the upside?

One of the most difficult areas for ecommerce owners to succeed in is mobile sales, many ecommerce owners see much of their traffic coming from desktops, with the mobile purchase process still in its infancy.

According to research, many shoppers search for products on their smartphones, but then switch to their desktop computers to make the final purchase. One of the reasons for this is, that it is still relatively difficult to fill out a whole purchase form from a smartphone. However, if Google was to make the whole process more seamless, then perhaps retailers participating in Google’s buy now program would gain a major advantage as they would see mobile sales grow exponentially.

What is the downside?

Jason Goldberg, V.P. of Strategy at Razorfish says.  

“While it’s a good feature, it definitely isn’t a no-brainer that all retailers should invest in because a whole set of issues can come with transactions on a third-party platform."  

Other issues include Google’s sponsored ads might not be able to keep up with stock quantities or backorders and shoppers will be subjected to Google’s less specialized customer service.

Keeping Up With The Competition

In December 11, 2014, Facebook announced the addition of new "Call-To-Action" features to Facebook pages.  This includes a "Shop Now" feature that will allow brands to convert fans into buyers from ads running in the newsfeed.    On September 8, 2014, Twitter announced that it was testing "buy buttons" in tweets.     

Twitter says artists, brands and non-profits taking part in the test include Burberry, DonorsChoose, Pharrel among other, and their followers will get offers and merchandise not available elsewhere. They can complete the transaction in a couple taps.

Courtesy of an article dated May 16, 2015 appearing in Engadget, an article dated May 24, 2015 appearing in EcommercePlatforms, an article dated April 10, 2014 appearing in eMarketer, and an article dated May 19, 2015 appearing in Digiday

NIELSEN: AGE MATTERS WITH DIGITAL SHOPPERS--MILLENNIALS (AGE 21-34) ARE LEADING THE WAY

E-commerce is growing around the world. In fact, global online purchase intention rates doubled—in some cases tripled—between 2011 and 2014 across more than half of 22 categories measured by Nielsen. But not all age groups are shopping online to the same degree. And the age group that has grown up in the digital era—Millennials (age 21-34)—is leading the way.

Millennials comprise at least half of all respondents who plan to make an online purchase across every product category measured in Nielsen’s Global Survey of E-commerce. Baby supplies, personal care items, toys/dolls and alcoholic drinks garner the most significant share of Millennial online purchase intenders.

MILLENNIALS COMPRISE MORE THAN HALF OF ALL RESPONDENTS WHO PLAN TO MAKE AN ONLINE PURCHASE IN THE NEXT SIX MONTHS

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OLDER GENERATIONS SHOP, TOO

But don’t count older generations out. They represent a sizeable 40% share of online purchase intenders. But reaching the older age set is much more fragmented territory than with their younger counterparts. As can be expected, the older the age, the greater the decline in online shopping intent. Globally, Generation X (age 35-49) respondents comprise about 28% of those willing to make a purchase online, and Baby Boomers (age 50-64) make up about 10%. The Silent Generation (age 65+) contributes roughly 2%. The youngest age group, Generation Z (under age 20), represents about 7% of those who intend to purchase online.

John Burbank, president of strategic initiatives, Nielsen says.

“While the generational mix of online shoppers currently skew younger, attention to the needs of all segments should be considered when developing outreach plans.  Tomorrow’s highest purchase-power consumers are ones who skew much higher for digital shopping. As the population ages, greater percentages of consumers will be connected and online prominence will continue to grow. Building trust at the onset is the foundation for sustaining lifetime loyalty among shoppers.”

DEVICE DIFFERENTIAL

Beyond the generational breakdown of who’s shopping online, brands should also consider the devices consumers use to shop. With a plethora of Internet-connected devices to choose from, there’s no shortage of ways for consumers to browse and buy online. And the device of choice is decidedly different around the world.

Computers are the largely favored device for online browsing and buying among respondents in all regions, but mobile phones are a close second pick for respondents in the Middle East/Africa region and growing in prominence in Asia-Pacific and Latin America. In developing markets, mobile is often the first-access device to the Internet. Tablets—which have become more popular since the 2010 introduction of Apple’s iPad—are used by nearly one-third (31%) of global respondents for online shopping. While tablets are currently less popular than other devices for shopping online, their portability and large-screen features are conducive to E-commerce. As penetration of these devices continues to grow, so too will online shopping usage.

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Courtesy of an article dated September 14, 2014 appearing in Nielsen Newswire

PINTEREST FOR E-COMMERCE [INFOGRAPHIC]

Want to create more engagement with your audience? Consider using Pinterest. The online pinning board is becoming a major sales tool for marketers.

According to the following infographic by Ripen Ecommerce, "38% of users made a purchase because they saw it on Pinterest. That was 21% in 2010."

To grab Pinterest users' attention, businesses should keep in mind the traits of the most popular and repinned pins.

For example, "a call-to-action pin description leads to an 80% increase in engagement," states Ripen Ecommerce. Also, tall images are shared 67% more than short images. And lighter images are repinned 20 times more than darker images.

Moreover, marketers should include prices in their pins. Pins with a price have a 46% higher chance of being liked.

For more information about using Pinterest for e-commerce, check out the infographic:

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Courtesy of an article dated August 16, 2014 appearing in MarketingProfs