Add to Cart: 1st June
What is this?
Like an Amazon product feed, there are millions of pieces of content released each week. My aim is to pick out the ones I have found valuable, and store them here for future use. I’ll focus on three areas: Category (retail related), Consumers (shopping behaviours) and Culture (trends worth keeping an eye on).
NOTE: Reading online isn’t like reading a book. For those who want to skim and get the main facts I’ll do a ‘TLDR’ and for those who want more you can read the ‘binge’ summary.
Why should you care?
- It gets me asking the right questions about the information I’m reading
- It helps you stay across articles and trends that you (may) have missed
- I don’t have kids yet so I’m going to guess I have ~slightly~ more time than others to scroll endlessly online
Let’s get started…
CATEGORY: Facebook opens up Shop
TLDR
- Facebook Shops allows businesses to easily set up online stores within Facebook and Instagram for free. This will largely benefit small to medium sized businesses rather than serve as a direct competitor to an aggregator like Amazon.
- The real kicker is when businesses start to use Facebook’s checkout function, meaning users won’t have to log into separate browsers for every merchant.
- If this happens, Facebook could increasingly lock Shopify out of sales made via Facebook Checkout, stealing the commission Shopify has been taking from their ‘Merchant Payment’ solution.
- Merchants can still use Shopify for the packaging and logistic benefits; but Facebook Shops controls the payment to create a new commission revenue stream.
- Shops is really another step towards Facebook functioning more like WeChat in China (i.e. with WeChat Pay, users bank accounts are linked allowing them to seamlessly pay businesses on and offline).
Binge
In the past month, Shopify announced the Shop app & Facebook launched Shops. It’s good for businesses because it allows them to use Facebook and Instagram to set up an online store, create customisable catalogues and message customers through messenger and Whatsapp. It’s good for customers as it makes it easier to browse, save and purchase products.
Many commentators have said Facebook Shops is a response to Shopify’s Shop App…but there are fundamental differences between what Facebook Shops vs Shopify offers. As analyst Ben Thompson points out, Shopify is not an aggregator like Facebook. It doesn’t have a huge pool of customers in a newsfeed — it is a platform that gives merchants the infrastructure to sell things online such as templates merchants can use to customise their website that also translates to custom packaging. Here is where the article is interesting — Shopify has increasingly being making money from “Merchant Solutions” which are a % of transactions from Shopify Payments. If Facebook starts to offer a way for merchants and consumers to more seamlessly pay for products (i.e. without having to log into separate browsers), it will lock Shopify out of sales made via Facebook Checkout.
What’s interesting about this?
Ben Thompson calls out something I hadn’t considered before. Facebook is attempting to find a solution to a problem it created. Try to open any link from Facebook or Instagram on an iPhone and you’ll see it opens a different type of browser. Facebook uses its own browser so they can capture more data than they could from using Apple’s Safari browser. Apple wants to keep user data away from 3P developers and so only makes Apple Pay available through Safari browsers. The end result? Consumers on Facebook and Instagram have to continuously update payment details every time they want to check out on a merchant site. What Facebook Shops is moving to is their Checkout offering which will allow consumers to conduct transactions on the site (so Facebook can take a % cut) and ultimately give them a much more seamless customer experience. The Facebook Shops announcement actually mentioned that it would work with merchants who use Shopify which demonstrates the difference between platform vs aggregator. As Thompson points out:
[Facebook Shops] is going to succeed because it is good for Shopify’s merchants, but the reason it is good for Shopify’s merchants is because Facebook and Apple effectively teamed up to make it impossible for Shopify to fix the payment problem on their own.
What does this mean for retail?
As has been noted by experts, Facebook Shops still operates within the ‘discovery’ part of the funnel, rather than the way an aggregator like Amazon or Google dominates search-driven distribution. They’ll still rely on ads for main source of revenue, just as businesses will need ads to get consumers to discover their stores. More fascinating is when we start to think about a search-driven retailer (like Amazon) start to do what Facebook has done. China’s e-commerce platforms take it a step further than Facebook and Instagram. Last week, JD.com (often called the ‘Amazon equivalent’ of China and major competitor to Alibaba’s Tmall) announced a partnership with short video app Kuaishou that will allow users to purchase JD’s products in-app. Given how popular live-streaming is in China, e-commerce giants are responding by following the customer into the live-streaming platforms— becoming part of both the ‘discovery’ and the ‘search’ funnel.
CONSUMERS: COVID breaks AI
TLDR
- Many machine-learning systems — from condiment makers to social copy generators — are struggling with unrecognisable buying patterns.
- COVID related behaviours (e.g. high volumes of gardening tools and sourdough starter kits) has sent automation “into a tailspin.”’
- To ease demand on warehouses, the Amazon algorithm has reportedly been modified to promote sellers that handle their own deliveries.
- Outside product machinery, AI trained social copy generators have had to be retained to ensure they stop including phrases like “going viral” and “party wear.”
Why is this interesting?
In the enduring battle of human vs machine, this shows that we’re not at the point where AI can simply be left to figure it out. Much like a new puppy, AI is a living, learning creature that needs to be corrected. Secondly, rather than simply concede the pandemic was a freak ‘Black Swan’ event that we can never prepare for again, we need to train systems to be able to cope with “mounting, random events.” As noted by risk analyst Nassim Taleb, there is always a danger in assuming tomorrow will be the same as yesterday (e.g. the way AI is historically trained by historical data to predict the future).
What could this mean for retail?
The article mentions how Amazon’s ‘top 10 products’ changed so quickly that you can actually track the pandemic’s spread by the date such products changed from iPhone cases/Lego to hand-sanitiser/masks.
This reminded me that algorithmic data doesn’t have to stay in the product feed. Think about how Spotify has used their ‘big data’ to create messaging that reflects human behaviour. I’m still debating why projecting personal music behaviours on billboards is less creepy than projecting a person’s online shopping orders. They’re certainly both interesting and indulge voyeuristic curiosities. It’s a timely reminder of the power of a search engine and what Big Data can expose about people’s collective secrets and behaviours.
CULTURE: Spinning around the Fortnite Flywheel
A week ago, Matthew Ball released his final essay on Fortnite and how it built the Epic Games flywheel (note: Ball is former Head of Strategy for Amazon Studios). It’s 16,000 words long but I hope I can pull out some key points for you.
TLDR
- Epic Games (the owner of Fortnite) is one of the most innovative tech companies in the world right now.
- It is valued at $15B (vs Facebook, Amazon, Google etc — all between $600B to $1.4T)…but it’s a matter of time before that changes.
- While we’ve all seen a million headlines about how popular Fortnite is, less explored is how Epic scaled the business into 3 key areas:
- 2018: Epic Games Store (EGS). By creating their own game store, Epic challenged the fee structure of the gaming industry and steal market share from Steam (the leading distributor for PC).
- 2019: Epic Online Services (EOS). Built by Epic to allow cross-platform gaming, a game changer for the industry. As Ball says, “it is a world-class, end-to-end shop… and the cheapest in the market.”
- 2020: Epic Games Publishing (EGP). With the best terms in the industry, it allows developers to control 100% IP unlike other publishers. As more developers use EGP they create feedback loops and improve Epic Games.
Binge: The centre of Epic’s flywheel isn’t actually Fortnite; it’s the Unreal Engine. Never heard of this? Neither had I don’t worry. Game developers use two engines to make their games; Unity and Unreal. An engine for a fame developer is like a camera for a Hollywood production company. It is the tool that allows the creative process to take place, but shared by many creators. Because of network effects, the more people use a game engine, the more powerful it becomes. While Unity engine is used by mobile developers, Unreal is used for PC/Console games. Unreal has many modes, one of which is called Fortnite Creator Mode which famously allows users to create whatever they want within the game.
Epic (via Fortnite) is functioning much like the flywheel of Disney or Amazon. I was “shook” to see the way Epic operates like a hundred companies in one:
- A social network: With 350MM+ users and 2.3B social connections, Epic now operates one of the Internet’s largest and fastest growing social networks. The social element of Fortnite (and also the fact that Epic acquired the social app Houseparty), was one I hadn’t considered as a crucial part of their success and putting them as a competitor to Facebook
- An entertainment platform: Ball notably tweeted the below in 2018:
This tweet has well and truly stayed with me, especially as we watch game graphics increase (and even surpass) the standard of Hollywood productions. Not convinced gaming will one day be the king of all video content? Here are 7 more reasons.
- A production house: Epic’s game engine (call Unreal) has been used to make Hollywood movies — such as Disney’s The Mandalorian. Also note that Amazon owns its own game engine which is yet to gain as much traction, showing the dominance of Epic’s Unreal.
- A live entertainment venue: Already we’ve seen Fortnite edge into the territory of live entertainment and music (which I wrote about last year),
Epic Games set up its own game store to grow the users (customers) in its network and increase the total Epic-related playtime, data and spend per customers. Epic’s priority in gaming development is always about rate of play — making it as seamless as possible for gamers — whilst promoting creativity for game publishers. I strongly encourage you to look at the Epic flywheel that Ball has illustrated to see that Fortnite is only one small piece of the puzzle.
The best tweet I saw in response to these articles was this meme format which compared Walt Disney’s 1957 corporate strategy chart to the Epic Flywheel.
GRAPH OF THE WEEK: FRENZY’S HALO EFFECT
I took a look at the Australian site traffic of five e-commerce sites (Click Frenzy, Amazon AU, eBay, Catch.com and Kogan) over the last 28 days (L28D). Why? Australia’s annual Click Frenzy event fell 19th May this year (vs 21st May in 2019) so comparing the periods YoY shows growth of the sales event. I chose these five e-commerce sites as I wanted to see if there was a strong halo effect from Click Frenzy as I’ve seen in the past for Black Friday i.e. one sales event triggers an increase of online shopping across a range of e-commerce sites. Combined, site traffic across these 5 sites grew +24% YoY.
YoY comparison shows significant growth across all sites, particularly for the Click Frenzy landing page:
However it would be unfair to compare YoY growth without also noting MoM growth, and doing so tells a very different story.
Amazon seems to have benefited the most from the Click Frenzy sale event, likely as it was offering deals across site at the same time, while other sites don’t show any significant uplift over same period. The YoY growth is therefore merely reflecting their overall growth.
Conclusion? Click Frenzy was a wild success for those participating but did not drive a significant halo effect across other e-commerce sites.
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I am very open to being challenged so any conflicting data or opinions shoot them my way. And any tips for next edition, let me know.
