New Year: A Look Ahead To 2025
It will come as no surprise that we predict Amazon will continue to dominate and shape the digital landscape in 2025 - albeit with a few twists and turns along the way.
Here are our predictions below on their performance and the key headwinds and tailwinds ensuring a rocky ride:
US: Amazon's stronghold in the US is expected to remain strong. With a massive customer base and a well-established infrastructure, Amazon is likely to see continued growth, albeit at a slightly slower pace than previous years. Increased competition from Walmart, Temu and other retailers could put some pressure on margins. We think they will grow by another 10% but will lose approx 0.5% share to 40.5% due to increased competition.
Europe: The European market presents both opportunities and challenges. While Amazon's presence is substantial, navigating complex regulations and adapting to diverse consumer preferences will be key. We think they will expand their retail offering into new markets: Ireland, Romania and the Baltic states. Growth is anticipated, but it may be more moderate compared to the US at approx 7%.
Rest of the World: We think Amazon's expansion into emerging markets will be a major focus. While these regions offer immense potential, challenges like infrastructure development and cultural nuances need to be addressed. There are also local regulatory challenges and in some instances you now need a local business entity to trade (e.g. Dubai). That said, growth is expected to be significant, driven by increasing internet penetration and a growing middle class. We think this territory will surge by 15% to $100 billion. The rapid growth will be fuelled by new markets in South Africa, Nigeria and parts of South Asia.
The Headwinds
Competitors chip away: We might say it every year but the e-commerce landscape is becoming increasingly competitive. Traditional retailers are bolstering their online presence (e.g. Tesco), while newer players like TikTok (with TikTok shop) are emerging as potential rivals. Walmart's e-commerce sales have been growing at a faster rate than Amazon's in recent years, driven by its strong brick-and-mortar presence and investments in online grocery. TikTok's growing popularity, especially among younger demographics, presents a new challenge as it integrates e-commerce features into its platform.
Unpredictable and uncertain economics: New leaders and new promises are a cause for optimism, but the results don’t lie. Growth is hard to come by in most developed markets, inflation is a risk and potential recessions could all impact Amazon's sales.
Regulatory Scrutiny: This often flies under the radar of news, but it is a big threat for Amazon. Antitrust concerns and regulations related to data privacy and competition could pose challenges. The European Union has been actively investigating Amazon's business practices, including its use of seller data and its treatment of third-party sellers. These investigations could result in fines and other penalties, which could impact Amazon's profitability.
Supply Chain Disruptions: Ongoing supply chain issues and potential geopolitical events could disrupt Amazon's operations and impact its ability to meet customer demands.The ongoing war in Ukraine and other geopolitical events could disrupt global supply chains, leading to increased costs and delays in product delivery. This could negatively impact Amazon's ability to fulfill orders and maintain customer satisfaction.
The Tailwinds
Amazon Advertising Boom: Amazon's advertising business is poised for significant growth. With a massive customer base and valuable First-Party consumer data, Amazon will capitalize on the growing digital advertising market. They are uniquely positioned, as the advertising industry moves away from cookies towards a more robust & data privacy-led solution. Consequently, Amazon Marketing Cloud (AMC) - their data room solution- will become a minimum expectation for any brand using Amazon advertising in 2025. Furthermore, we expect continued innovation in ad formats, targeting capabilities, and measurement tools. We think that Amazon's advertising revenue will grow by 20% in 2025, reaching $100 billion, achieving an impressive 10-12% of the advertising market. This growth will be driven by the increasing popularity of Amazon's advertising platform - in particular Amazon’s DSP - among brands and the development of new ad formats, such as interactive ads and video ads.
Subscription Services up and up: Amazon Prime continues to be a major driver of growth. Expanding its subscription offerings beyond Prime, such as grocery delivery and healthcare services, could unlock new revenue streams. Amazon is expanding its grocery delivery service, Amazon Fresh, and exploring new healthcare initiatives, such as telehealth and pharmacy services. These new subscription offerings could attract new customers and increase customer loyalty.
More sellers please! Let’s not forget, marketplaces need sellers and Amazon provides a better experience than anyone else by far.The platform will continue to attract more sellers while enhancing the efficiency of its selling processes. This includes streamlining order fulfillment and inventory management, and expanding its suite of selling tools, making it easier for sellers to manage and promote their businesses effectively. Having come under attack from the CMA in 2024, Amazon will continue to address concerns about fair and equitable practices with more transparency and dialogue with sellers. We expect that they will further leverage AI and machine learning to optimise product placement, improve search results, and provide personalised recommendations for both buyers and sellers. This will have a major impact on how brands need to prepare product content on the platform
Buying cars on Amazon? Whatever next!: Amazon recently entered the automotive market with "Amazon Autos," allowing customers to purchase new Hyundai vehicles online in select US cities. This move demonstrates Amazon's ambition to expand into new high-value categories and leverage its platform to streamline complex purchasing processes. This successful foray into automotive sales could pave the way for Amazon to explore other high-value categories, such as luxury goods, real estate, or even travel.
