TV, merchant media and the unbundling of advertising — Benedict Evans

This photo show the other extreme. Topshop was an icon of late 20th century mass-market fashion, but it failed completely to make the jump to online and went out of business in the pandemic.

About five years ago, a revenue line buried in the back of Amazon's accounts started to get quite big. ‘Other revenue’ was over $4bn by the end of 2017, and if you looked at the notes to the notes, you discovered that this was ‘primarily’ advertising. By 2019 this had grown to $14bn, and I wrote about it here, pointing out that ‘Amazon’ was no long... See more

US advertising has shrunk by a third as a share of GDP. This is some combination of internet advertising being vastly cheaper and vastly more efficient on one hand, and on the other a lot of recategorisation. If a car dealer used to buy a 20 page ad insert in their local paper, but now pays for one Google search ad (and how many people bid against ... See more

The difference in margin between e-commerce and advertising has become a much bigger story than Amazon: everyone from Uber to Walmart to Instacart is pushing into ‘merchant media’, and hiring at scale:

In 1995, if you had said “should we open stores in that state or just run TV ads there?” that would not have been a meaningful question, but now all of those budgets are merging into one TAM. Do you get a better ROI on Instagram ads or faster shipping? If you open a store in that city, do your returns go down? 

But even if they don't (eg Uber) they still have all sorts of first party data that comes with some form of privacy consent, which makes it valuable in itself, but much more valuable as we go through the ‘cookie apocalypse’ and remake how online targeting is going to work.

Stepping back, though we should probably ask where all these ad budgets are coming from, and, more importantly, where the growth for internet advertising will come from next. The obvious answer is television: print is mostly already gone, but ‘TV’ viewing is now finally unlocking, with US pay TV subscriptions now down by over a third 

Shein shows one way this can go - it’s built a smartphone-only fast fashion brand that appears to be bigger than H&M and Zara combined in the USA. Part of the Shein story is the pace of inventory and the use of data (it claims to add 8-10k new SKUs every single day) but the other is that it has built this business with cheap shipping and (like ... See more

Shopify’s big strategic question is how it can build network effects. It wants to sell higher-margin products to merchants for the money, but it might be more important in the long term that those products build a network, pull more merchants and users into the system, and make the core business more sticky. Shop Pay is one building block, but an a... See more

Amazon’s ad business is bigger than YouTube and more profitable than AWS. Shein is the biggest fast-fashion retailer in the US, with no stores. US pay TV subscribers have fallen by a third. Where do ad budgets go, where does rent go, and how many brands will there be?