Amazon In Pakistan

I saw this article making waves in all the e-commerce & startup groups of Pakistan. After I read it, I couldn’t really make much out of it. It didn’t excite me. So I shared it on slack to get the opinion of my colleagues to see if they feel anything different. But we all came to the same conclusion.

One of our colleagues said that this news is similar to PayPal coming to Pakistan for the 24th time.

Another one of my colleague reminded me of another story from 2017 when government spent over a billion Rs to get artisans of Pakistan to sell on the internet. More on this in tomorrow’s blog.

Somehow we all feel, this is headlines. Exactly what the government is good at. Making headlines. And only that.

As I understood it, the government has sent a list of 34 exporters from Pakistan to Amazon so they could be eligible to sell on Amazon. After the trial run, based on the performance of these exporters, government and Amazon will expand this list to other categories.

However I am curious how these exporters were selected? I’m assuming they were either selected by nepotism or by the size of their volume. For the sake of optimism, let’s assume there was no nepotism and they were selected solely based on the size of their volume. Or another powerful metric that made them seem worthy of this selection. However, these traditional metrics say nothing about the exporters’ ability to do well on Amazon. Because selling on a platform like Amazon is a science which isn’t determined solely by the quality of goods, but also largely dependent on the science of launching a product on Amazon.

The transition from offline to online isn’t for everyone. Businesses that have years of selling experience through the old means can not always, and often, transition successfully to new ways of selling.

I can think of countless examples in every industry where the old successful companies often fail to pivot if the industry sees a technological upgrade. Nokia is an example in the phones industry. Kodak is a similar example from the camera industry. When there’s a technological evolution, the old giants fail. The new giants emerge. The large exporters will fail on Amazon no matter how good they are with their products and with the old distribution channels. They need support from the e-commerce experts to run a successful e-commerce business.

For the trial to be successful, a partnership with an e-commerce consultant agency is a must. I’m not sure if there’s a partnership in place. This consultant would ensure that most product launches by most exporters would be successful. This could then help with the expansion of categories as the government plans.

The people who specialize in e-commerce are usually different from people who kick-ass with traditional export channels. For the program to be successful, young blood from the e-commerce space needed to sign up through this program and not the large exporters, or at the minimum in partnership.

Unless the Amazon seller central is available to every citizen of Pakistan, that allows the young blood to compete in a cut-throat marketplace and win, I see this news or any similar news as fake news.


Amazon As A Cashier

Many times I’ve seen sellers drive traffic to their Shopify and WooCommerce product pages with no buy or cart option. The only way to buy the product is a link to their Amazon listing.

Like you, I also wondered why the sellers aren’t driving traffic straight to Amazon but routing through their privately owned store when their only goal is to sell on Amazon. The short answer is that these sellers use Amazon as a cashier.

Since how well you rank on Amazon is determined by how high your conversion rate is, for external traffic it makes most sense to provide the product details and description outside of Amazon, and only take warm traffic to Amazon with high purchase intent.

This has a much better impact on your rankings in comparison to routing external traffic directly to your Amazon listing that may or may not convert.

Last Mover Advantage

The first mover advantage is talked about a lot. The first mover advantage is often quite great but not necessarily game-changer. First mover advantage is both for businesses and early users of the businesses. For example, Amazon has the first mover advantage in the e-commerce space. The early sellers of Amazon also enjoyed first-mover advantage on the platform by monopolizing competitive niches. All early users of social networks that eventually go big have a huge first-mover advantage in influencer marketing.

But the last mover advantage is not frequently talked about. The last mover advantage is that you look at everyone’s mistakes, let them take risks, and you only launch a product after learning at their expense. This isn’t talked about a lot probably because it’s not fancy to talk about it and that not everyone can enjoy the last mover advantage. Often but not always, you need to be at a place of influence to enjoy the last mover advantage.

On Amazon, as a seller, you often prefer going after products that others have tried and tested for months, you learn from their experience by studying the listings, and launch in the end so you have absolutely no risk of dead or wasted inventory etc.

In a similar manner, as a seller, Amazon enjoys the true last mover advantage. After all sellers are done testing, trying, risking, & iterating, Amazon comes right in the end with their own private label product often under the brand name of Amazon Basics. Because they enjoy a position of having everyone’s data, they truly love having the last mover advantage.

Facebook Driven Dropshipping Vs Amazon FBA

Facebook driven dropshipping & Amazon FBA are two completely different ways of conducting e-commerce.

So different, that even the choice of products are almost always exactly opposite of each other.

On Amazon, while selecting a product to sell you make your best effort to avoid selling a fad, craze or a trend. You look for years and years of history, up-to 5 years, and only then make a decision if the product is worthy of the launch. You’re looking to keep the review ratings up, returns low, and ideally you want to sell the same products for several years. You spend one time to rank your products, and then rely on getting a return on your investment with organic sales over a long period of time. Due to this, you can often also sell your listing or store for up-to 3 years of net profit.

With dropshipping, most sellers plan to do the exact opposite; selling a fad or a craze. You’re ideally looking for something that has a lot of wow factor. Ideally it shouldn’t be a trend before and is some new kind of gimmickry. You plan to sell $1 million worth of it in the first month, or first the quarter, and once that’s done, no one ever talks about the product again. Fidget spinners could qualify as one of the best-selling dropshipping products and of course they were a fad. Because you make all the money right there, you store often flips for nothing. There’s often no or little lifetime value of the customer outside of the first sale.

Dropshipping needs no inventory and you can make a ton of mistakes. Wrong product selection costs you $100 in Facebook ads. You can test 30 products, lose $3000, and make it all back on your 31st product on your first day. With Amazon FBA, you can’t make any mistakes. You are pre purchasing inventory with hundreds of units to avoid going out of stock and to satisfy minimum order quantity requirements. You’re often risking tens of thousands of dollars with each product launch.

Dropshipping will often better suit those who are cash-strapped and have smaller appetite for risk. Amazon on the other hand is for big boys.

Chasing The Perfection Hype

When investing in any kind of asset (blog, e-commerce store, real-estate, stock etc), do not chase the perfect asset. When you chase the perfection hype, you pay top dollar for acquiring the asset. In the days to come, you realize nothing is perfect and so isn’t the asset that you just purchased.

Then you incur costs for repairs, maintenance, improvements etc for the asset to live up to its perfection hype. This makes your purchase very expensive as not only you paid a higher multiple for purchasing perfection, but also spent more money later on once it didn’t live up to it’s hype.

Instead, you could simply go for assets with visible imperfections. Any asset you buy with visible imperfections will have those priced in too which would get you the asset for a more affordable multiple.

As an example, if there is a niche Amazon FBA store with all relevant products it will sell for a higher multiple than a general Amazon FBA store. I understand why niche stores are better positioned in some cases, but in reality both niche and general stores have imperfections.

Niche stores are less diversified and hence positioned badly to weather a storm like COVID-19 when some categories get hit more than the others. General stores in comparison have visible imperfections such as that many products in the store belong to different categories. Although it may seem as an imperfection to some, it’s also a feature; the store is better diversified to weather a storm.

When buying an asset like a general store, the visible imperfection of having products spread across various categories is priced in. It is why it sells for a cheaper multiple. One could take advantage of this when buying assets and get this general store with visible imperfections. Not only the niche store has imperfections as well, it’s also a lot more expensive. Only in rare cases, it would prove to be a more fruitful purchase such as you sell it later as strategic acquisition.

Assets with visible imperfections can also be improved such that they no longer have any visible imperfections. By doing so, you can quickly increase the value of the asset.

My Friend Built $650,000 Ecommerce Empire With $7 Product

I’m going to keep his identity confidential as my friend isn’t quite comfortable talking about his story right now.

Here are the facts of his story.

  • He built his empire over Amazon
  • His monthly revenue is approximately $100,000 USD.
  • The gross profit is roughly 27%
  • The net profit is around 22%
  • His fulfillment is done by Amazon which means he pays $2.5 to Amazon to fulfill each order and another $1.05 to Amazon for getting him a buyer.
  • His landing cost to Amazon’s warehouse including the cost of goods and the shipping cost is $1.5
  • This leaves him with $2 per sale.

If I had to start this business, I would stay a thousand miles away from it just by looking at the sale price of $7. Because to me $7 doesn’t sound like a lot, and it probably doesn’t to you either. Especially after you look into costs of good, Amazon’s fee, ranking and PPC costs, you’re left with under $2 per sale. I would have never worked for $1-2 per order. If I think this way despite being in business, I can say with confidence that most other people would think the same.

The fact however is that he not only created $22,000 per month in income for himself, he has also created $650,000 in asset if he flips his store at any point.

All by selling $7 product and by taking a loan of $10K to pay for inventory and ranking costs. After I had a look at his financials, not only was I surprised, but I was also very proud of him. Had he done the same on a higher price product, I would still be proud of him but not as much as I’m right now. The reason for that is because he proved you can start small and go big. That you can bootstrap or start on a small funding. That you don’t need access to capital as much as you need access to skills and hard-work.

While I write this, and while you read this, he’ll walk away with $650,000 generated in under 3 years. A wildfire that started off a matchstick.

Market Inefficiencies & The Fuel Of The Internet

While you have to pay for most products or services in real life, most products and services that exist on the internet have continued to stay free. Since all internet companies have to make revenue, alternative options are looked into of which a large portion has been advertising.

As advertising became the main fuel of the internet, mega players jumped into the advertising industry to have power and control over the internet’s oil. To power effective advertising, data became even more valuable asset. But the internet advertising had and continue to have many many inefficiencies and over time, all markets try to remove inefficiencies to move towards higher profitability.

A major chunk of the advertising dollar has been going into the pockets of agencies, networks, exchanges, and other layers over layers of middle-men. I look at that as market inefficiency.

With influencer marketing, we saw the markets tried to get more efficient and remove the middle-men altogether. Everyone who explored this area, including us, saw over a 1000% higher ROAS compared to traditional advertising.

A large part of internet continues to stay free because one way or another commerce happens. Advertising is only the means. Facebook and Youtube videos continue to stay free because these companies make money with advertising and data.

However, advertising and data work because commerce happens. Everything else, including the advertising and data are also middle men. They are the inefficiencies that we need today, but hopefully the market will continue to find more efficient ways for higher profitability or cut-throat competition.

All websites and blogs that relied on advertising for years have been increasingly moving towards affiliate commissions to keep their businesses alive. As Amazon cuts affiliate rates, and others might follow, these content websites will need to find smarter ways to make their businesses work. What you could do before by just selling ads can only be done today by selling a product. Today, you can make it work by making a sale happen for someone else and getting an affiliate commission. Tomorrow, that may be seen as a market inefficiency and you may have to generate a sale for yourself either by selling products, or charging for your own product or service.

Youtubers today make up-to 80% of their income not by Youtube ads but by influencer marketing and brand deals. Youtubers and brands are cutting the very platform as the middleman that they host their content on.

We started Socialoholic with content and blogs. We relied on selling advertising in order monetize our network of websites. We drove traffic from the influencers to our content so we can sell ads and pocket the difference. We became content-arbitragers. So many middle-men while the true value was only created because someone somewhere bought something.

Years later, we found ourselves driving the same influencer traffic but instead of driving that to content we drove it to products. We removed the inefficiencies.

Over time, we have pivoted from content to focus on e-commerce as our core area of business because that is the real fuel of the internet. Everything else is only relevant because it assists e-commerce and when something more efficient pops up, it is replaced.

Do We Choose Grey Hat, Or The Grey Hat Chooses Us

I met this guy in 2009. That’s 11 years ago. He always wore a hat. He loves them.

He taught me how the systems are gamed. I loved it. We were on the Digg’s front-page everyday. We worked for the top guys. I will probably not name them today. May be they don’t want to acknowledge they gamed the system too.

The system was nothing but a recommendation engine. One of the first I had seen. When Twitter and Facebook ranked posts chronologically, Kevin Rose had the recommendation engine figured out. We just knew how to make the best use of it. Reverse engineering it, I would say.

One of our clients in the sports niche got acquired for $150 million dollars. Almost all of our clients are a multi million dollar properties today.

We even made some of our own tiny sites that we drove from Digg.

Over time, struggling between gaming the system for growth, solving an actual problem or doing both at a time, 2020 came.

Today, I’m wondering, how do you build a global business from Pakistan that could one day grow large enough?

How do you hire white people or black people or asian people or anyone to cast them in your ads? Can you? Are there any in this country? If yes, are they actors? They probably aren’t and you probably can’t.

You could outsource though. For tens of thousands of dollars perhaps? Or millions of Pakistani Rupees that you can most likely save in 5 years working in a day job.

If you’re bootstrapped, which you most likely will be because there aren’t any VCs here, what would you do? Would you get that ad made? Or would you pick a hundred ads from the internet, break them apart, and stitch them enough times that they qualify for “fair use” and become DMCA-free. This would probably cost you $50.

Forget about the ads. Not all businesses advertise and advertising could be just one of the many things about building a business. You will most likely require certain kind of digital infrastructure for sure. PayPal? Ability to accept cards i-e payment gateways? But there are none that support this region. What do you do?

You could fly to US or another supported region, setup a company, and use that to setup the rest of the digital infrastructure. But most likely you’ll never get a visa and you probably also can’t afford this travel easily. If you think I’m exaggerating, I know at least 5 tech entrepreneurs from Pakistan who have built multi million dollar businesses but were declined US visit visa.

May be you could fly to one of 31 visa free countries? But they are just as good as your own country as far as the digital infrastructure and access to business tools is concerned.

You could reach out to friends or relatives in US and form a company in partnership with them. You could use that company to setup PayPal, payment gateway and other business tools that you need to begin your business.

But there’s more. You will most likely be banned at some point once you access these business tools physically from within Pakistan.

What do you do then? You could rent a server physically in US. Remote Desktop Protocol. You could access that server remotely and run your business on that. Sounds sketchy, doesn’t it?

But you could get banned for that too. Because it’s not that big of a deal for these multi billion and trillion dollar companies to understand the difference between a data-center’s IP and that of a home in US.

So may be you could buy a Raspberry Pi that you could physically place in someone’s house in US. I’m confident none of my friends or relatives would agree to this. It would seem strange to them that why would someone want to do it? They would think that there could be something malicious going on that could land them in trouble.

You could also buy a laptop and physically place that in their houses and run your businesses with remote access. I know my cousins aren’t going to like that idea. May be yours do.

By the time you would come this far, you would have exhausted 83% of your energies in setting up the the foundation to start your business.

Thousands of entrepreneurs from Pakistan actually have to go through all of this (and more) to actually start their businesses. May be you see a scammer, but I see a victim that turned around his fate and became a hero.

So what happened there? Did we choose that grey hat, or did that grey hat choose us?

Platform Strikes Again As Amazon Cuts Commissions

I wrote this blog titled “the incentive to be on a platform” a few weeks ago. Today when Amazon announced rate cuts for their affiliates, I was reminded of my thoughts regarding the platforms.

The rate cuts were announced despite the fact that Amazon is one of the few businesses right now surging through unprecedented growth. They had to hire over 100,000 employees in last few weeks to fulfil the demand of essential shopping and I can’t help but wonder how could Amazon be driven by COVID-19 to take this action. Honestly, I can’t seem to understand it. If this is a COVID-19 related event, please help me understand how.

A rate cut of as much as 70% is devastating for many content websites which generated a substantial amount of revenue from affiliate links as the ad revenues declined due to a large user base behind ad blockers.

It also means a loss of up to 70% valuation for what are known as “affiliate blogs” which are blogs designed to generate 100% of the revenue through Amazon affiliate program.

The sellers were also halted from selling anything but essential items for a few weeks. Sellers were also forced to move out any items from their warehouses that could “melt” such as edibles and make up. While the decision to remove these items was taken by Amazon in order to prioritize essentials, Amazon still charged per unit warehouse removal fee.

When you build businesses on a platform, this is the kind of counter-party risk that is involved. As I wrote in my other blog post, these platforms are the power houses and fuel growth, but no business should ever be built solely with a platform in mind.

How Crypto-Assets Will Play Out In The Long Term

Idea of the internet and the TCP/IP protocol was formally adopted in the 80s. In the 90s we started to see some of the companies reflecting some of the things that can be done on the internet. Amazon was founded in 1994 and Google was founded in 1998. But the internet bubble called the “dot com bubble” burst in 2000. It is when we saw the stock market crash, and most internet companies from the era simply failed and disappeared.

The bubble was real. A lot of companies with bad business models raised wild amount of money and created no value. A few companies survived. At the peak of bubble, Amazon’s stock was worth nearly a $100. At the bottom of the crash, it was nearly $5. Today, it stands at a whooping $1870. So in hindsight, Amazon and companies like Amazon weren’t the problem. Internet wasn’t the problem either. The internet created real value as we all can see today. The problem was excessive speculation and get-rich quick sentiments and since it wasn’t sustainable the market crashed.

I feel crypto-assets are a lot like that. The idea of decentralized crypto assets was first properly proposed in the 90s by Nick Szabo. By 2009, Bitcoin, the first crypto asset of it’s kind was released. By 2013, we had many more crypto-assets including Namecoin, Litecoin & Ethereum. But I’d say the crypto bubble burst in 2017.

I think the crypto-winter might last as late as 2027. During the crypto-winter, most crypto-assets that exist today will have disappeared forever. But there will be Amazons and eBays of crypto-assets, the ones that will survive. By 2037, they will value collectively in trillions of dollars.

2037 will be a great time for crypto-assets, just like 2019 is a great time for tech industry in general.

All of this is speculation, of course. I don’t have the crystal ball. But it is what I believe in. What I also believe in is that the history never repeats itself, but it often rhymes.

Disclaimer: The information provided is for informational purposes only. It should not be considered legal or financial advice. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.