Amazon Stock Responds to Social Media E-commerce

Amazon Stock

Amazon (NASDAQ:AMZN) has done an excellent job securing its position at the top of the e-commerce industry. This has allowed the company to offer very effective advertising solutions, taking advertising market share from social media giants like Google’s (NASDAQ:GOOGL) YouTube and Meta Platforms (NASDAQ:META). Social media sites have been trying to become shopping destinations to get more people who want to buy things online and to get more online stores to list products on their sites. Amazon hasn’t taken these challenges lightly and has been fighting back with its social commerce efforts, the most recent of which is the launch of “Inspire.” Amazon stock is down nearly 48% year-to-date.

Social media sites start as fun things to do before they can be used to make money by selling ad space. The fact that a wide range of people use these platforms has also led to the rise of social media stars with large followings. As a result, a new way of marketing has come up that lets these new-age celebrities use their influence over their fans to promote brands’ products and earn big commissions. Influencer marketing is becoming more popular, which makes it easier for social media companies to get people who are ready to buy to visit their platforms.

Influencer marketing is an industry that is growing quickly and has become a meaningful way to market in the digital economy. In 2021, its global market was worth $13.8 billion; by 2022, it is expected to be worth $16.4 billion.

Amazon is constantly working to improve its social commerce features to take advantage of the fast-growing Influencer marketing industry. In 2017, it started the “Amazon Influencer Program,” which was only for famous people on social media sites like YouTube, TikTok, and Instagram. Influencers can promote Amazon’s products on their social media channels, including links to their curated storefronts on the Amazon website, in exchange for a cut of the sales of those products. Also, the program lets Amazon sellers reach new audiences in creative ways. For example, they can work directly with influencers to make their products stand out and build relationships with them. These social commerce projects are essential to keep people interested in selling on Amazon and to lower the risk of losing sellers to new competitors. Amazon’s latest move into social commerce is the launch of “Inspire.”

Amazon’s Most Recent Social Commerce Project Is Called “Inspire”

Because of how popular TikTok is worldwide, big names in social media have tried to copy its success by adding their short-form video features, like YouTube Shorts and Facebook/Instagram Reels. Even though Google and Meta have yet to be able to make enough money from advertising on their TikTok-like apps, their new features have the potential to make ads more effective. “Ads between short-form videos that appear in the same format as the organic [content] feel less intrusive because they blend in with other videos” gives advertisers a better way to get impressions.

Amazon released “Inspire” earlier this month because it saw this potential and wanted to keep up with rising trends in social commerce. “Inspire” is a feed similar to the feeds on TikTok and Instagram. It has short videos and photos shared by brands and influencers to get people to find and buy products from the Amazon marketplace. Also, the “Inspire” feed gives Amazon sellers a more exciting way to show off and be found than the boring way products are laid out in Amazon’s search results, which makes it harder for brands to stand out.

One of the best things about marketing products on social media platforms is that merchants can find out how people respond to their ads. Advertisers can discover how people feel about their products by watching what people like and say about shopping content. So, Amazon’s “Inspire” feature is a vital counter-strategy to keep digital merchants from listing and selling their products on social media platforms instead of the Amazon marketplace. By interacting with “Inspire” content, Amazon sellers should be able to learn more about their customers’ tastes and shopping habits. This should help them offer products more in line with what their customers want. So, “Inspire” aims to keep buyers and sellers interested in the Amazon platform, leading to more money coming in from third-party seller services (its second-largest revenue segment).

Amazon has been used as a shopping search engine for a long time. Most of the time, customers go to the website to look for specific products. This helps Amazon learn how customers look at and compare products, and it also feeds into its ad retargeting strategies, which allow advertisers to improve their conversion rates. But once a customer buys an item, Amazon can only guess what they want to buy next or find out more about shopping trends once they use the Amazon search engine again. Through the discoverability part of “Inspire,” Amazon can learn more about how its customers shop. Also, the content on the “Inspire” feed will be based on the interests that users choose from a list of over 20 when they first use the feature on the Amazon App. Later, the content will be based on how users interact with the shoppable content (likes and comments). So, “Inspire” helps Amazon learn more about shoppers’ interests outside their search activity. This lets the company better predict future shopping trends, provide more effective ad solutions, and boost e-commerce activity through the platform, which would increase revenue from both advertising and third-party seller services.

“Inspire” is not Amazon’s first attempt to do business through social networks. The e-commerce giant has been trying to do a service like Pinterest (NYSE:PINS) with what became “Interesting Finds.” It also has Amazon Live, a live-stream shopping service that lets influencers and brands host shopping events like QVC.

In 2017, when Amazon Spark came out, the company tried something similar to “Inspire.” The feature tried to be like Instagram by showing a feed of photos and stories posted by Spark users that could be bought. It was finally shut down in 2019 because no one was using it. Amazon Prime members were the only ones who could post on Spark. Non-Prime members could only look around but not post or comment. “Inspire” has learned from past mistakes and is now much more open and interesting. Brands, customers, and influencers can all post on the feed. Also, the company has a more established Influencer Program now than it did a few years ago. Unlike Spark, “Inspire” gives Amazon Influencers a new way to earn sales commissions. This makes the feature more likely to encourage more people to share shoppable content, which could lead to more engagement and sales.

Factors That Don’t Help

People use social media platforms to connect with others, interact with creators, and find entertainment. Ads are shown along with a wide range of other content. Users watch short-form videos for entertainment, and merchants who use short-form video formats for advertising between TikTok videos do so by making their ads blend in with other organic content. This way, users don’t feel like they’re being interrupted by an ad but instead get a more natural impression of a product. On the other hand, Amazon’s “Inspire” isn’t meant to entertain people. Instead, it’s all about making people aware of products and getting them to buy them. Because this kind of advertising is still new, we need to find out how big the audience is and how willing they are to watch back-to-back product ads. This means that investors should keep their expectations in check until Amazon can show that this feature increases sales for Amazon sellers.

Also, Amazon has had a problem with trust for a long time. Anti-trust lawsuits have been filed against the e-commerce giant for its unethical business practice of using sales data from third-party sellers to improve its product line, which put these sellers out of business. Small businesses put a lot of time, energy, and money into ensuring their products do well. Using this information against them makes it harder for them to make money and stay in business. This is disappointing for SRI investors who don’t want to make money from unethical business practices. Also, while more people using “Inspire” may give Amazon sellers more useful information about what shoppers want, they still have to deal with the threat that Amazon will use advanced data analytics (which sellers don’t have access to) to improve its private label products and compete more aggressively with smaller retailers. So, even though Amazon has made progress in social commerce, trust issues make it less of a threat to social media giants. Some digital merchants may continue to list and market their products on social media platforms to avoid the risk of their business data being used against them.

Grand View Research says that social commerce will grow at a CAGR of 30.8% from 2022 to 2030 and reach USD 6.2 trillion by 2030. Amazon’s success as an e-commerce platform and the steady flow of people who want to buy things online puts it in a good position to take advantage of the long-term growth trend we’re seeing in the social commerce industry. However, trust issues and the fact that this is a new way to market products should make investors more cautious.

Bottom Line

TikTok, Instagram, and YouTube have tried to become places where people can shop online. Amazon has started its social commerce projects as a response. ‘Inspire’ is more open and interactive than previous attempts. It also has a more well-established Influencer Program, which gives social media stars a new way to make money by making and sharing creative and promotional content. Even though Amazon’s trust issues and the fact that this is a new way to market products give investors reason to be cautious, the new feature is an essential step toward fending off rising competition from social media platforms.

All of its business divisions and product lines should be considered when deciding whether to buy or sell Amazon stock. Since this article is about its social commerce segment, in particular, the stock will get a neutral “hold” rating.

Featured Image – Pexels © James Anthony

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About the author: Stephanie Bedard-Chateauneuf has over six years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, health stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.