Amazon Aggregators and Affiliate Part 1 of 2: The Big Consolidation Wave
Well-funded companies are acquiring, launching and serving thousands of “digital native” direct-to-consumer brands that got their start on the Amazon Marketplace and other leading marketplaces.
These companies recognize that e-commerce has upended the traditional sources of competitive advantage in retail. They hope to drive growth using an e-commerce-as-a-service model that combines proprietary technology and best-in-class expertise.
These same forces driving brand consolidation are propelling a string of acquisitions and tech investments in the agency and publishing arenas—all being driven by the e-commerce-as-a-service business model.
Over the last several years, you’ve probably been hearing more and more about Amazon Aggregator companies. These companies are interesting but just one expression of a more significant trend toward consolidation across e-commerce.
In post one of this short series, we will discuss the Amazon Aggregators and the underlying forces driving these companies to acquire more and more brands. We’ll discuss how creating an “e-commerce-as-a-service” model based on scalable, repeatable growth drives change in every business sector. We’ll look at why technology and data-driven marketing are the keys to growth for “digital native” brands. Finally, we will discuss how consolidation is reshaping the brand, publisher, and agency worlds.
In the second post, we’ll discuss specific implications for stakeholders across the industry and how to capitalize on this significant industry development for your company and career.
The Amazon Aggregator Model
Amazon Aggregators build, buy or partner businesses that sell their goods and services using the Amazon commerce platform and fulfill by Amazon (FBA). These investors identify businesses they see as having excellent growth potential based on their track record of sales and growth trends. These companies see enormous sales potential in these emerging businesses and believe that they can optimize them for maximum sales and profit by applying a proven growth model.
Digital has fundamentally altered the way brands are created and managed. Aggregators build e-commerce-as-a-service models and apply them to many high-appeal consumer businesses. Build once, then implement everywhere. They have begun by focusing on brands “born” on marketplaces like Amazon’s. These businesses can drive strong incremental sales with additional investment using these scalable and standardized platforms.
Amazon Aggregators are the most visible component of a much broader consolidation wave transforming commerce. With this new go-to-market approach, a scalable go-to-market e-commerce infrastructure is applied to multiple businesses, bringing digital best practices to various consumer categories. The principle is to provide a scalable, repeatable growth model, starting with the “low-hanging fruit”: merchandising on leading online marketplaces, especially Amazon.
When Aggregators acquire a company, they have many vital assets to bring to bear:
Money to invest in marketing and inventory
Supply chain expert
Amazon SEO experts
Amazon platform experts
Using these assets, they significantly accelerate sales and growth.
A Sea-Change for Retail
At the heart of this trend is the change in how strong consumer brands are built. Brands and merchants used to grow through broadcast media, proprietary distribution, and brick-and-mortar footprints. E-commerce negates these traditional sources of strength. Now, customer data, precision “niche” targeting, and platform efficiencies are king.
The Three-Stage Model
Brand aggregators are approaching e-commerce-as-a-service in three broad stages:
Amazon/Marketplace Aggregation: Buy small- to medium-sized, high-growth brands with proven value propositions. Then accelerate growth on these platforms through technology and marketplace experts.
Expand brand footprints beyond the marketplace(s): Continue growth using performance marketing channels and best practices.
Media Advantage: Partner, build or acquire new venues for promoting goods to expand awareness and sales and keep the growth train moving
Another way to think of it is to use money and best practices to scale the businesses using the marketplace model. Then expand using other proven performance marketing tactics. Then control and optimize media venues to make them more effective and ownable.
The Spearpoint of a Larger Trend
Amazon aggregators build scalable centers of excellence using a standard business growth model applied to each business. That model encompasses manufacturing sales, marketing, and distribution/fulfillment. These are the critical growth levers tailored to digital retailing. This massive brand consolidation trend parallels developments in publishing and the agency spaces.
Publishers Come Together and Evolve
Powerful publishing companies have emerged who build or acquire niche publishing businesses that, together, deliver industry-leading scale in the species in which they compete. This was a significant factor behind Dotdash’s Meredith acquisition because Meredith owned many leading digital brands in key customer verticals. Besides Dotdash, other publisher aggregator leaders include Vertical Scope, Red Ventures, Recurrent Ventures, Pocket Outdoor, Future, Saltwater, Lola Digital, Money.com, Ziff Media, Digital Trends, and IAC.
These companies seek to create a scalable, repeatable model for delivering performance-based traffic and sales to advertisers. Thus they hope to become preferred solutions for both the brand aggregators and traditional manufacturers/retailers looking for ways to maximize results via digital. By acquiring or building a range of niche properties, they create a powerful combination of content, context, and scale.
We see evidence of this trend in both the M&A news and the want ads from these companies. Most have built or are building large teams to create performance-based content marketing and marketplace-like deals and offers products.
Agency Consolidation Accelerates
The affiliate agency space was largely unaffected by decades of acquisition activity from the top media holding companies. Now, leading investors are showing interest in the agency space – the most recent evidence is Comvest-backed Gen-3’s acquisition of Oak Digital. This agency specializes in tech and services for “digital native” DTC brands. Vision7’s acquisition of All Inclusive Marketing (AIM) was another example of this trend.
Investor interest in agencies is new. Historically, agencies delivered notoriously low multiples for the simple reason that their businesses revolve around labor-intensive services. Today, the name of the game for agencies in our industry is building proprietary tech and processes to deliver unique, cost-effective scale. Many of the most successful independent agencies, including Acceleration Partners and PartnerCentric, are building out proprietary tech. Data team hiring and tech integration are accelerating as agencies work to differentiate.
In part two of this post, we will discuss what brands, publishers, agencies, and affiliate professionals can do to capitalize on this industry “megatrend.”
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