Drum roll please....

Tuesday (January 31, 2012), Amazon reported Q4 results and Wall St. puked all over them (second Q in a row, I might add) sending the shares down 10-12% flirting with a new 52week low.  

If you read some of the press, it sounds like gloom and doom -Amazon is making all these investments and they aren't paying off!  OMG the sky is falling!!! I think what's happening is the mainstream press isn't understanding the big shift in this Q - 3P surged and skewed the results (top line - down and bottom line - up) and for me that's actually a positive movement on many levels (both for Amazon and 3P sellers).

I think we'll look back on this Q as an important tipping point in the evolution of Amazon -the mix shift to 3P continues to change them from a retailer to a technology company and marketplace operator.  Given that weighty prediction, I wanted to spend a fair amount of time digging into the Q with our usual third-party (3P) focus, because it was a very important Q in that regard and gives us some clues to the mysterious missing $1b+ in Amazon revenue for the Q...

Note: for this post, unless explicitly called out - everything is what is know as ex-fx - it factors OUT any changes due to currency changes. 

Amazon's Q4 Results vs. Expectations

Here is a snapshot of Amazon's key metrics for the Q vs. both their earlier guidance and Wall St. expectations: (click to enlarge)

From this table you can clearly see that revenue missed wall St expectations by about $1b and the bottom line exceeded (hmm, you'd think that wall st. would want expanding margins -but I suppose they want revenue growth and expanding margins).

Other highlights were:

• Amazon announced they now have over 2m seller accounts
• They introduced an exciting new metric - Service Sales.  this seems to include 3P, AWS and advertising revenues - we're going to dig into this metric in the future, but Amazon announced it grew 74% which is good.  This metric seems to be Amazon giving a bit of a peek into how rapidly MP/AWS/etc. are growing.
• Prime instant video streams increased a whopping 300% - I think my family accounted for about half that growth ;-)
• Amazon added 17 FCs globally in 2011
• Kindle unit sales were up 177% y/y - that's almost a triple folks.
• The category mix shifted hard to EGM - 63% EGM and 34% media - I remember when this was 50/50 just about 18 mos ago!
• Number of employees was up 67% to a whopping 56,200 - it was 33,700 year ago - wow - that's a lot of new Amazonians. They did say on the call the majority of these were in call center and DC or 'retail ops' type roles which makes sense.
• Paid units grew 46% vs. same time period last year
• 3P grew 65%, was 32% last year Q4, now 36%

Digging into Amazon's segment/geography growth

One popular analysis we do every Q is to look at the dimensions of Amazons growth in what I call their segment/geo growth cube:

The cube helps conceptualize the Q, but it's also important to look at these trends over time which we do here: (click to enlarge)

A couple of things jump out at you when you look at the data this way:

• Remember e-commerce grew at 15% and eBay's GMV grew at 10% - those are the bars we measure Amazon growth against @ChannelAdvisor
• The US Media segment was under a lot of pressure -putting up it's slowest growth since being reported - 8%.  Amazon specifically called out weakness in the video game (console and software/games) as a challenge in the Q.  Once you had COD, you were pretty done I imagine.  Some analysts also speculate that all the kindle sales in q4 didn't flow through to ebooks yet and we'll be seeing them in Q1.
• Amazon's overall growth rate of 34% was the lowest since we've been tracking.
• Media intl took an interesting tick up.

What's going on?  Amazon built 17 FCs last year, they should have accelerated their business?  Does this mean that e-commerce was just a fad and Amazon is looking at a tough couple of years?  Are we seeing recessionary headwinds?

I believe that the answer to all of the above is a resounding NO and the answer lies in an analysis of Amazon's 3P business.

Analyzing Amazon's 3P business

First, remember a couple of datapoints from the release around 3P - foremost for me was that the infamous Bezos quote threw some major 3P love for the first time I can remember:

" Our millions of third-party sellers had a tremendous holiday season with 65% unit growth and now represent 36% of total units sold.” - Jeff Bezos, Amazon CEO

Here are the rest of the highlights/tidbits specific to 3P from the Q (release and conf call):

• There are over 2m 3P sellers
• 3P now represents 37% of units
• 3P is growing at 65% 
• Amazon cited challenges sourcing product (flooding in Taiwan) and also mentioned that 3P's really helped keep inventory ont he site.
• FBA is seeing a lot of adoption
• We think the primary reason for the 4Q revenue shortfall is due to a higher mix of 3P sales, which historically represent a much lower percentage of total sales during the holiday quarter. To illustrate, revenues came in $819mn below the Street while pro-forma operating income (CSOI) came in $174mn better than Street expectations. Assuming the $174mn operating profit beat primarily coming from third-party, we would get to $218mn in revenue assuming an 80% operating margin. At an average 13% commission, this would imply the shift of Amazon recognized retail sales to third party to have impacted Amazon’s top line revenue of $1.67bn.

Now to tie this all together.  Amazon was about $1-1.7B short on revenue for the Q depending on who you look at.  The key to unlocking the lost revenue is to understand the differences between how Amazon reports revenue and the profitability of 3P vs. 1P.  This table shows an example of $1B in GMV and the two treatments side-by-side so you can see they truly are apples and oranges:

So for the same $1B of goods sold to consumers, in one scenario it counts as $1B and another $120m - a 88% decrease.  That same $1B flows through to call it $50m in one scneario and $100m+ in another - revenue is 88% less and profits 100% more.  Seems weird, but that's how it works.

Now let's apply this logic to Amazon's Q4 (tip of the hat to Herman Leung for blazing this trail).  Here's the logic:

• Revenues were $819m below the street
• Operating income was $174m higher
• If you assume that 174m was largely 3P driven, apply the 12% take rate you get $1.67b in GMV in 1P equivalent.  Amazon would have BEAT revenue if all of this came 1P, but the profits would have been less. 

And there my friends is the missing revenue!  You can play games with this and look at - what if all of Amazon's revenue was 3P vs. 1P - revenues would be lobbed in more than half, but profit would shoot up.

To summarize, Amazon is switching from a retailer model (GMV=sales) to a marketplace model (revenue = TR * GMV) and that change makes it seem like revenue is growing slow (technically it is), BUT (and this is a big but) the overall Amazon GMV is actually under represented by revenue more and more as 3P grows.  The best proxy we have for that is paid items which were barn burning at 65%.  It would be great if Amazon could report GMV for the 3P piece - I think that would help everyone understand what is going on better. 

Why doesn't Amazon report that? Personally I think they are sandbagging a bit.  If you feel like you have some secret sauce here, game theory tells you to hide the success - what we call sandbagging in the biz.

The bottom line is:

• Amazon really grew 46% GMV-wise
• There was a hidden $1.5-$2b in GMV from 3P that made revenue look light, but flowed through to the bottom line.

This is healthy as it's more profitable and is not a smaller footprint in e-commerce or anything like that - all of that unreported GMV is out there in customers hands.

What does 2012 hold for Amazon? 

Amazon's guidance was light (top and bottom) and that is also weighing on the stock.  The body language on the call was full steam ahead on all fronts.  In fact, Amazon has already announced 10 m sq-ft in new warehouses for 2012 opening as detailed here:

What's your take?

What was your take on Amazon's results - are they playing a 'hide the gmv' game or are they slowing down and starting to feel competitive/scale pressures? Sound off in comments.

SeekingAlpha Disclosure - I am long Google and Amazon. eBay is an investor in ChannelAdvisor where I am CEO.

Reminder on the ChannelAdvisor SSS Data

Our customers (largely US EGM), enjoyed these growth rates on Amazon in Q4:

• Oct: 80.1%
• Nov: 60.6%
• Dec: 51.3%
• Q: 53%

What Amazon usually says that we'll be watching...

Amazon reports on ~12 metrics that we follow very closely as they are the best indicators for how Amazon did as a first-party, third-party (seller business) and are the strongest signal for all of e-commerce health.

• Revenue and Revenue Growth - Amazon's revenue growth is really the bar against all other companies in the space are measured.  Amazon's guidance was wide implying growth in the 27-44% range - will they exceed that?
• EPS - Wall St. is watching this very closely as there is a ton of concern over Amazon's relentless investments in FCs, DCS, Kindles, Prime, etc.  Wall St. worries will the co ever generate profits from these investments? How long will the cycle last?
• US/Intl growth - Amazon reports sales across two geographies - US and non-domestic (intl) - we look at these rates to get a feel for where Amazon's investing and seeing growth globally.
• Media/EGM growth - Unlike eBay that reports copious category detail (see here for their Q4 results and category details).  That being said they do give us two which is better than 'nothin - Media (books, music, video, video games and I think kindle ebooks) and EGM - stands for Electronics and General Merchandise.  This is essentially everything but media - CE, sporting goods, H+G, etc.
• Marketplace health - Finally we look at items that really relate to the marketplace. Specifically what is the % of 3P sales? (was 38% last Q - a high water mark) What is the active user base doing (has been growing robustly - was 152m in Q3) and finally paid unit growth.

I realize that's a lot to process so we've put it all in a handy-dandy table with three columns:

• Wall St - this is where the Wall st analysts believe the co will be
• Amazon guidance - this is what Amazon has told Wall st - usually a range and Wall St. usually focuses on the midpoint of that range.
• Notes - Here we put some data in there to help give you a feel for how the results stack up to previous performance (e.g. Q3 or year ago0.

On the evening of the release, we'll drop the actuals into a new column so you can more easily see how Amazon did against their own guidance and Wall St. expectations.

What Amazon won't say (but we wish they would)

Amazon is very tight-lipped on a bunch of topics that we wish they would talk more about.  On top of our list is:

• More category data!  We are seeing their auto parts biz, SG, CSA, really do well, but it's hard to compare when we can't see the details like we can see for eBay.
• Kindle Fire details -We'd love to know how many Fires were sold in Q4, but don't expect anything.  Most estimates are in the 5-6m unit range
• Prime - We estimate 10-12m Prime members, almost doubling in 2012.  Prime members spend 4X non-prime, so we estimate they represent 40% of the buyer wallet.
• More marketplace metrics - It was exciting to see some of the tidbits they released in Q4 (Dec 29 press release titled 2011 is Best Holiday Ever for Kindle) - maybe (but probably not) they will shed some more light on the 3P.

2012 Guidance

Since Wall St. is very much a 'what have you done for me lately' kind of a game, 2011 results will actually not be the focus as all eyes will be on Amazon's top and bottom line guidance for Q1 2012 (they only do a Q at a time, not annual like eBay and others).  Right now Wall St. is projecting $12.6-$13.6bn - anything below the mid-point there would be a disappointment and anything above would be a 'raise'.  Knowing Amazon, they are pretty conservative on these things, so I wouldn't expect a raise here unless they are feeling inordinately bullish.  

Finally, as mentioned in the Q4 EPS discussion, there is a ton of concern around Amazon's investment level.  If the Q1 EPS is low, or (horror of horrors) goes negative for a bit as Amazon continues to invest, you'll see a big separation of bulls and bears and the stock will probably take a beating for a while, until Amazon pr0ves that the investments made total sense and they continue to grow at 3-4X of e-commerce and take share much to everyone's surprise (we've seen this movie before ;-).

How do you think Amazon will do?

We'd love to hear your thoughts on Amazon and what you'll be watching.  Do you think they are immune from the softness we saw in eBay and Google or will they face EU and macro headwinds? Sound off in comments.

SeekingAlpha Disclosure - I am long Google and Amazon. eBay is an investor in ChannelAdvisor where I am CEO.

eBay and Google's results have created a veritable cacophony of speculative noise around Amazon's results:

• eBay was light on GMV growth both domestically and international - also the BMV+CES categories were in serious decline - was Amazon a beneficiary of this (or a cause), or will they show the same trends?
• Google - you can surmise from their Google Prime initiative that they are reacting to what must be a big chunk of consumers (Amazon Prime subscribers) searching for products using google 'less'.   In his Q4 Google analysis, Henry Blodget pins the blame on Google's revenue miss squarely on Amazon's shoulders.  Here's the core of his argument: "as Amazon grows and offers a more comprehensive and informative product selection, more people may be starting their product searches at Amazon. This would cut Google out of the process entirely."   Further supporting this thesis, Google announced management changes in their e-commerce group that is adding fuel to the 'Amazon caused the miss' fire.

A Veritable Flood of Amazon News!!

While all of this speculation happens while we wait, there's also been a raft of interesting Amazon news this week that I believe has ramifications for all retailers, that also isn't widely disseminated and I wanted to capture here for you.  I've tried to put the news into these buckets:

• Fulfillment centers
• Showrooming
• World dominance 
• Fire Update

Amazon FC (Fulfillment Center) News

We track ~40 Amazon FCs in the US alone and today Amazon announced another SC FC in beautiful Spartanburg County (full disclosure -I'm from SC and excited to see the state get some much needed jobs).  I've talked to a lot of retailers that are confused about why Amazon is embracing the fair tax act.  The simple answers is that Amazon clearly wants FCs (many many FCS) in every state - fair tax is a good way to compromise on tax complexity and yet get FCs everywhere.  Imagine offline retailer's surprise when Amazon builds 40 FCs in their backyard and implements one-day Prime (gulp).

What is even more interesting in FC gossip is this AM, Ben Schachter over at Macquarie reports that he has information that Amazon is building their first FC in India.   At ChannelAdvisor we have offices globally and I can tell you first hand that retailers in Australia, Brazil and India are all nervously awaiting the day that Amazon enters their space.  It's interesting that Amazon appears to have chosen India as the next geography to expand into.  Given their explosive growth in China, it makes sense. Here's a blurb from the report and you can read the entire report here:

A  number of current job listings on AMZN's India webpage (highlighted in a recent Reuters report) suggest that the company is staffing its first fulfillment center in India, to be located in Mumbai.  While the company is not commenting, we take this as signaling a likely expansion into India as AMZN's next dedicated geography (first since Spain in September 2011). 

Amazon vs. Target - A new phrase, Showrooming,  is born

Amazon Strategies friend Deb Weinswig (rockstar retail analyst) over at Citi broke the news this week that Target contacted suppliers and started talking about a strategy to stop Showrooming - consumers coming to Target to find items, to then buy them at Amazon.  I recommend everyone read the entire report here, but here's a summary of the three actions that Target is taking to stop Showrooming:

• Strategy #1: Differentiated, Guest-Focused Assortment – TGT's first proposed strategy would provide a differentiated assortment from online-only retailers that would also include best sellers (see pg. 2 for details). We believe this strategy would put greater emphasis on exclusives at TGT that would not be available at competitors.
• Strategy #2: Offer the Same Pricing as Online-Only Retailers – The second strategy would provide pricing that is the same as online-only retailers without lowering TGT's margins (see pg. 2). Given its size, we believe TGT is exercising leverage over its vendors to achieve the same pricing that smaller, online-only retailers receive. This strategy would help TGT compete with retailers like AMZN on like-for-like products.
• Strategy #3: Subscription-Based Pricing – The final strategy outlined in the letter includes developing membership- or subscription-based pricing online to compete with online pricing models in the market (see page 2). We believe that the online pricing models referred to are programs like AMZN's Subscribe and Save, which launched in 2007 and offers regular shipments of frequently-purchased items at a discount.

This has also increased the noise that Amazon will begin experimenting with Apple-store-esque stores where you can try items and get them delivered via Amazon.  Amazon has a patent on a store concept that looks like this:

Amazon World Dominance

I recently pointed readers to Jason Calacanis' piece about 'the Cult of Amazon Prime' and the power of the program. 

Jason has an interview out with O'Reilly (tech publisher) on Youtube that's worth a watch if you enjoyed the first piece.

The funniest part is when Jason speculates that Amazon will acquire UPS.  While you may not agree with everything he says and he's purposely over the top, it does get you thinking.  Here's an embed for your viewing enjoyment:

Amazon Fire

Digitimes reports that Amazon sold 6m units of Kindle Fire in Q4 (crushing our 5m prediction which was 'crazy high' at the time).   They are also anticipating that Q1 will be more like 3m.  There's speculation that Amazon worried that iPad3 will slow Fire sales.  That's somewhat silly to me as they are entirely different markets - the iPad3 buyer at $500 isn't the Fire $199 buyer.  It's probably just a mix of seasonality and supply chain management.

I'm on record for predicting 20m Fires sold in 2012, so at 3m/Q we are at 12m and need to drum up another 8m units.  Rumors are floating around that Amazon will either 2.0 the current Fire or come out with a larger 9/10 inch unit (or both) which should get us there.  Also Q4 2012 will be another at least 6m unit Q so 20m shouldn't be too hard to hit.

One area of controversy around Fire is the profitability.  Bears will point out that Amazon loses ~$20 per Fire sold and you can paint a doomsday scenario where for those 6m units, amazon is going to lose $120m in Q4.

Bulls (yes i'm in this camp on this issue) have long thought that Amazon will be profitable very quickly from the up-sells of ebooks, video, prime and physical goods.  RBC's analyst Ross Sandler has a great survey out from Kindle Fire buyers that has some interesting data from a survey of 200 buyers.  This is a great report and I've tried to boil it down to these three charts: (click to enlarge).

In this first one, they ask Fire owners if they are likely to stay with Prime.  The great news is that only 13.5% say they are not likely and 32% are moderately.  That suggests that half of Fire users are likely to sign up for prime.  If half of the 6m for Q4 are not Prime and half of them sign up, that's 3m new prime users - BOOYAH!

Next, here's how many books people have ALREADY purchased - remember this survey was done in early Jan and most of these Fires by definition had to be purchased in Q4.  The bulk of people have already purchased 3-5 books (already at break-even).

Finally Ross puts all of this data into a lifetime of the user model and comes up with this interesting analysis that in yr1, the user generates 10% margin and that surges to 21% by year3.

Up next...Earnings preview

Later this week, we'll have a preview of Amazon's Q4 report and what we're looking for in the announcement.  Sound off in comments until then - do you think they will crush or miss?

SeekingAlpha disclosure - I am long Amazon and Google. eBay is an investor in ChannelAdvisor where I am CEO.

Jason Calacanis (long time tech blogger, controversial figure, etc.) has a great blog post out that really captures the Prime mind-set in a fun, tongue in cheek kind of way.  His post is called: "The Cult of Amazon Prime" and it's definitely recommended reading.

We've been doing some long-range planning at ChannelAdvisor and when you think about e-commerce in 2-3-4-5 years, we also start to say things like this:

In the future you'll be eating Amazon-branded cereal after taking your Amazon-branded vitamins while getting a text message on your Amazon phone that you're receiving delivery of your Amazon-branded flat-panel TV from an Amazon delivery truck (not UPS) before watching HBO and AMC-quality shows that Amazon made and are only available to Prime members. 

Stay tuned for a lot more Amazon posts this year, until then, make sure you are a Prime member!

• Amazon Fire Update - Number 2 with a bullet.
• Ben Schachter's most excellent Amazon Prime analysis
• Scott Devitt's 28-days of Amazon nuggets highlights.

Amazon Fire Update

A firm called iSuppli, tracks unit shipments of different electronic devices.  They are out today with a new Tablet update and it firmly establishes the Kindle Fire as the number 2 selling Tablet behind iPad and shows Amazon's amazing ability to come out of nowhere in this market.  It also shows that while the Nook has gotten some press, the order volume is very low:

Amazon went from 0% share in Q3 to 13.8% share (unit share) in Q4 - pretty impressive.  Personally I believe we'll still get to 5m and if that's the case, there is upside to that share number.  Many press reports focus on the price point and hardware factors as the key success points.  I think they are missing the power of the Amazon software and ecosystem (ebooks, music, movies, shopping).  The ecosystem is the soul of the device and other vendors like HTC can match the form-factor and price most-likely, but they all lack an ecosystem.  Even google with Android has the heart of the device, but not the ecosystem.

iSuppli also puts out a tablet forecast that they nudged up due to Fire:

In 2015, they forecast 287.2m units - say hello to the Post-PC World!  Incidentally if Amazon keeps a 14% share of that you are looking at 40m Amazon tablets/yr.  I think what you'll see is Amazon will grow that 14% as they come out with more units and since the soul of the device is software, it is going to iterate much much faster than most people imagine - and even orders of magnitude faster than Apple has historically.

Personal note: My 5-yr old has fallen in love with the Fire, she's watching every Prime streaming holiday video and loves many of the educational apps.  

Ben Schachter's Amazon Prime analysis

Based on our proprietary data @ ChannelAdvisor we have long believed that the Average Prime subscriber increases their purchases 4X.  Ben Schachter, an internet analyst with MacQuarie has a great report out today where he went through every Amazon purchase he's made over time and looked at the personal impact that Prime had on his behavior.  

Here are his summary points and I urge you to read the full report if you are interested in this topic which I believe you can access here or here.

•  Increasing order activity – Annual # of orders up 7x, $ spend up 500%.
• Declining order size – While I order more, the dollar value per order is trending down, from $70 dollars in my first Prime year (2009) to $54 in 2011.
• Gross Profit $’s up, % Down – This is a key/controversial issue for the stock.
• ~33% of our Orders Lose Money – This supports our view that AMZN is willing to absorb losses on some orders, essentially subsidizing other (larger) ones.
• We Still Pay for Shipping - We still pay shipping costs on ~13% of orders.
• Shipping Changes – For Prime, AMZN shifts to UPS/FedEx, away from USPS.

So what Ben saw is a 7x increase in volume (I'll have to do my own sometime, I bet it's higher!), yet Amazon is making more profit on Ben than before from an absolute dollars basis (but smaller on a % basis) - but think of the share of Ben's online wallet that Amazon now 'captures' and think of how many fewer google searches for products Ben probably performs (Google Prime!).

Seriously you should read the entire report it is chock-full of great graphs and deeper analysis than I can do justice.

Devitt Nuggets

Another great Wall St. Analyst that I read religiously is Scott Devitt @ Morgan Stanley.  Scott has been writing a series called the 28 days of Amazon where he is updating on Amazon through the Holiday.   Each day he is publishing a little nugget about Amazon and two really caught my imagination as they were very thought provoking.

The first relates to an area near and dear to our hearts: Amazon's 3P program:

~33% of Amazon.com unit sales are sold by third-party merchants (3P). We assume a significantly lower ASP on 3P units due to category mix (used books, agency eBooks, etc.) arriving at ~$10B-$12B of gross merchandise value (GMV) or ~20% of Amazon.com's $58B 2011E GMV. We assume Amazon.com generates ~$1.3B in 3P net revenue at an 80% gross margin, which means 3P accounts for ~12% of Amazon.com's gross margin dollars.

Here you have in one dense paragraph a lot of key metrics around 3P from Devitt's estimates:

• 33% of units are 3P (we all knew that)
• 3P is $10-12b in GMV (new!)
• That represents 20% of Amazon's overall GMV (new!)
• In fact Amazon's "REAL" GMV is $58-1.3+12 = ~$70b (Amazon understates GMV really because they only count their revenue of 3P, not the GMV).
• 12% of Amazon's profit is driven by 3P

Here's the second one relating to Amazon's fulfillment capabilities:

We expect Amazon.com to exit 2011 with a ~40 million square foot one-to-one, multi-node fulfillment infrastructure. No other company in the world has such an infrastructure, including offline retailers with much larger revenue bases. We see very little opportunity for Google to be relevant in fulfillment, as described in yesterday's WSJ article. However, we do believe Amazon.com's close relationship with its customer could have long-term negative ramifications for the 40% of retail-focused Google search queries.

Scott then goes on to compare Amazon's key retail metrics (rev/ft and turns) to other retailers.  Amazon generates $1300/sq-ft, Costco $1,113 and Walmart does $440 (Amazon is 3X 'efficient' as Walmart!)

There's also this chart which is worth 1m words and I'll leave you with to ponder going into the weekend: (LTM stands for Last Twelve Months - essentially looks back a year)

SeekingAlpha disclosure - I am long google and amazon.  eBay is an investor in ChannelAdvisor where I am CEO.

The rumored service would allow shoppers to "go to Google, shop for goods and receive them within a day for a low fee."

Google Prime?

This sure sounds like Google trying to build a counter to Amazon Prime.  This raises two questions: why and how.

Google Prime - Why?

Before we dig in, it's important to remember that 40% of google's revenue is from the 'Retail' vertical.  For a long time, Google didn't really seem to do much with e-commerce, they had fits and starts with Google Product Search, Froogle and Google Checkout (now rebranded Gwallet).  Then in June 2011, they hired Stephanie Tilinius from Ebay and since then there has been a concerted new refocus on the category.  For example, GPS went from stagnant to a complete facelift and new catalog (product pages), GC became GW, and the company acquired Like.com, launched boutiques.com, etc.

With that background, you could make two arguments of why would Google want to have their own Prime:

1. The consumer experience - Let's face it shopping on Google is a mixed bag.  Sometimes you look for the hot item and you find it.  Other times you wander into a very dark alley of the internet, hitting the back button as quickly as possible.  That's just the 'finding' part of the experience, buying is even more mixed.  Google could make the argument that they want to make shopping online easier, Google Prime is a step towards that end.
2. FOA - Many retailers and pretty much everyone in the e-commerce ecosystem is experiencing what I call Fear of Amazon.  Amazon continues to grow unabated, through the recession, into categories you would never have expected 3yrs ago and it has everyone concerned.  If I'm google, I worry that once a consumer joins Amazon Prime, their searches for products at Google have to decrease precipitously.  In fact, as a Primer user, I only look for products on Google and other channels if I can't find it on Amazon.  In other words, Amazon has created a lock-in AND they have the world's best product search engine.  That's 40% of the internet that Google really can't afford to lose serious share on.

How do you counter Amazon Prime?  Come out with your own solution (leveraging overall FOA to get partners involved) and maybe you make it 'better'.  Economically, Google can probably afford to make the subscripiton lower because it would be essentially funded by AdWords revenue.

Google Prime -How?

The Why is easy - the How is hard. The article isn't clear on how this will be implemented.  I can see four options:

1. Shoprunner system - Google builds a technology stack that each retailer has to adopt.  Doubtful as this wouldn't really solve the problem.
2. Amazon-like system - Amazon has > 50 FCs and projects like FBA that allow Amazon to economically be both closer the consumer with goods and consolidate shipment+handling costs to get the best economics they pass on to consumers.
3. Local stores - The article hints that there maybe a local store angle here.  e.g. I see my local macys has this in stock and they ship it to me.  That seems far fetched as local stores typically have a) terrible inventory systems and b) little to no outbound shipping capabilities.
4. Leverage 3PLs - This is most likely.  Someone like a Fedex/UPS is known for their shipping capabilities, but they all also run what are called 3PL (Third Party Logistics) - that's a fancy name for a network of FCs.

Once you figure out the shipping piece, the real interesting debate is what the buyer-facing component looks like.

Google Marketplace?

There are twoways the buyer part could work:

1. Shoprunner approach - each merchant has to add the GPrime service to their site - very slow to get adoption and still not a great consumer experience.
2. Marketplace approach - Products in the network are surfaced at a site outside of the retailers, the consumer checks out there.  This allows the consumer to also have a multi-merchant cart and buy Gprime items from X merchants, etc.  Other benefits that you get from a marketplace like eBay or Amazon apply such as:

• Integrated search/buy experience
• Integrated product reviews
• Integrated merchant reviews
• Integrated return policies and after the purchase mechanisms (very important if you want to really counter Prime).

My guess is that we are seeing the first clear signal that Google is going to become a true competitive marketplace to eBay and Amazon. 

We've actually been forecasting this for years.  Google has the hardest components of a marketplace already, they just haven't put them together:

• Buyers (check)
• Sellers (check)
• Catalog (Google Product Search)
• Payment system (check)

Really all they have to do is put a buy box on the product pages inside of Google Product search.  Here's a mock-up of what that could look like:

You could even have a signal at the SERP (search engine results page) level or in organic that the merchant is part of Google Prime and their goods are available on the Google Marketplace.

On the back end, most merchants aren't setup to take orders from Google so there would be some work needed there, but the gap is relatively small.

Implications

Obviously this has some serious implications for everyone in E-commerce:

• Marketplaces - Amazon, eBay and Buy - Amazon could have a new viable competitor.  eBay is odd-man out without a Prime system and could face the worst fall-out.  Buy.com would have to decide which camp they are in, or come up with their own system.
• Large retailers - Would need to figure out is partnering with Google less or more evil than going it alone or partnering with Amazon - or should you partner with both?
• Small retailers - The big winners as they could level the playing field somewhat by having  a Prime-like offering put together for them and funded by Google essentially.
• Shoprunner - are they toast or a viable alternative?

Stay tuned for more news as we hear it....

Would love to hear your thoughts in comments.

SeekingAlpha disclosure - I am long Amazon and Google, eBay is an investor in ChannelAdvisor where I am CEO.

We’ve just pulled the figures from our Amazon same-store sales and it seems there was a spending frenzy on both sides of the Atlantic as UK customer’s embraced Thanksgiving. We have found that on Thanksgiving, our UK customer’s Amazon sales were up 15.9% and these spiked to 16.3% on Black Friday. However, with Amazon.co.uk predicting Mega Monday (December 5^th) to be its busiest shopping day, it seems the best is yet to come for UK retailers.

We’ll keep you updated on how sales are performing on Monday, but in the meantime, read our 13 E-Commerce Tips to get you prepared for Mega Monday. One thing is for certain, Christmas really is coming early this year!

Blog post by Laura Lane, Communications Coordinator, EMEA

Here are some highlights from the entire holiday weekend (Thanksgiving Day through Sunday) that show growth on all channels as the weekend progressed:

• E-Commerce same-store sales started with 17 percent growth on Thanksgiving Day followed by 20% growth on Black Friday, 21% growth on Saturday and 27%  growth on Sunday
• Amazon same-store sales increased from 30% on Thanksgiving Day to 50% on Black Friday followed by 49% on Saturday and 59% on Sunday
• eBay same-store sales remained steady all weekend with approximately 15% growth
• Paid Search same-store sales increased by 19% on Thanksgiving Day, 22% on Black Friday, 27% on Saturday and 34% on Sunday
• Comparison Shopping Engines gained extreme momentum as well starting on Thanksgiving Day with a 4% increase and finishing out the weekend on Sunday with a 14% increase over last year
• Tablet and smartphone sales peaked on Thanksgiving Day (couch commerce at its best) at 10% and came in at 9% for the rest of the holiday weekend

For more details on our holiday weekend sales, visit http://bit.ly/ueUcn0 and additional media coverage can be found here: http://bit.ly/ux72Jb.

On marketplaces, the majority of customers aren’t browsers. In fact, approximately 80-90% use the search bar to enter long-tail searches that will take them immediately to the item of interest, and the holiday season always tips the scale toward even more product-specific searches.

Including keywords in your Marketplaces listings will help you capture the holiday traffic. But don’t think you have to reinvent the wheel—shoppers will be using the same phrasing in searches on Google and Bing as they will on eBay, Amazon and Buy.com, so take a look at your Google Analytics to see what keywords customers are searching for and reuse these in marketplaces listings. 

Bonus: Searches on Google, Bing, eBay and Amazon now show auto-fill for customer convenience. Test a few of your hottest selling products to see what keywords appear, and make sure you’re attaching those keywords to your product listings.

Check out our other tips to  make this Cyber Monday your best ever!

Tip #1: Add Gift-Themed Categories

Tip #2: Offer and Highlight Free and Expedited Shipping

Tip #3: Bid Up Early and Often

Tip #4: Comply with Google Product Search Changes

Tip #5: Add Videos to Product Details

Tip#6: Touch Up Your Listings on Marketplaces

Tip #7: Disable Google Ad Scheduling for the Holidays

Tip #8: Promote your Promotions with Social Media