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The Commerce Collective Podcast
This Month Above the Fold - who pays for faster fulfillment, California's case against Amazon, and Amazon's brand-agnostic Sponsored Prompts
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- [00:00]
A
Foreign. Hello and welcome back to this Month above the Fold, a monthly series on the Commerce Collective podcast where Danny Hoffman, Senior director of Global Retail Strategy and I cover the most important happenings in commerce each and every month. I'm your host Emma Irwin and this month we're talking all about fulfillment. It'll be spicy, don't worry, just you wait. Amazon's current legal pricing struggles and some moves that Amazon is making with sponsored prompts which continues our ongoing conversation on the death of paid search. As a reminder, if you're listening to this show on Apple or Spotify, check out our YouTube or take a closer look at the Spotify page because we have video now. You absolutely want to see our facial expressions or more importantly, my dogs. Okay with that, let's get into it. Danny, how are you? This day, this week, this month, this life, how's it going?
- [00:59]
B
Oh, this day, week, month life is great. I go to Bologna on Thursday night in Friday and Bologna famously is the food capital of Europe, the world. I'm going to eat so much and it's going to be so good. I'm thrilled. I'm really excited.
- [01:17]
A
I love that for you. Okay, today we are talking all about fulfillment and then we'll get into some of Amazon's pricing struggles. Then we will talk about Amazon Sponsored prompts. But for story number one, this is kind of your analysis of what's going on across fulfillment. We've got robots and drones and autonomous last mile delivery. Amazon is expanding one in three hour delivery across cities and USPS is financially on the struggle bus a little bit. So like basically the delivery race is getting more expensive while legacy infrastructure feels more strained. And I think everyone's kind of arguing with each other over who's who's going to absorb that cost. So my first question for you out of that is what does it say about the state of US logistics that USPS is suspending all the way to pension contributions just to preserve cash while Amazon is expanding 1 hour and 3 hour delivery.
- [02:09]
B
USPS had just announced that they or not just announced, but over the last six months they're going to cut 30,000 jobs. And at the same time Amazon to your point is getting into one hour, three hour delivery. Basically just a heavy point of comparison to on demand commerce, which I'll get into in a bit. Walmart is also having one hour and sub one hour delivery. Speed of fulfillment paired with USPS making significant cuts is fascinating. So USPS cut jobs, they also suspended pension contributions. They're also raising the price of the First Class Mail Forever stamp by 4 cents, from 78 cents to 82 cents. So they're kind of in trouble. Their chief financial officer called it ongoing severe financial crisis. So I've kind of bucketed this in my mind into two points, which is why can't USPS make money? And then why does Slash, how does Amazon make money? Because I think both of those two things feel like they are happening at the exact same time doing something that otherwise could be categorized as fulfillment. So why can't USPS make money? USPS or the Postal Service in the US relies mostly on the sale of postage and the sale of products and services to finance. But the other challenge is it's actually a volume challenge. So the Postal Service doesn't ship as much stuff. The annual volume of amount of shipments that the Postal Service has handled in 2026 was about. It was 220 billion pieces of parcel and it's now 110 billion pieces. And I think part of, part of that is just consumer behavior. People are paying bills and communicating and shipping stuff online that enter Amazon. It's sort of a one for one. People aren't really using the Postal Service as much and they're using online Pure Play and Omnichannel retailers more. And the USPS, I think their net losses for 2025 were around 9 billion. So they lost 9 billion, even though they actually had an operating revenue increase of almost a billion. So they just, the challenge for them is that it's just more costly than it was.
- [04:26]
A
Is that like a challenge of kind of capturing, capturing the volume of regular people having to just send regular things to each other? Or is it more on like the B2B side and let's say like UPS having deals and whatnot with Amazon and USPS just really kind of being slow to the game of getting in in terms of like retail fulfillment?
- [04:46]
B
Yeah, exactly. Amazon basically planned and both parties mutually planned, so they say mutually planned to dissolve their partnership in its formal glory at the beginning of this year. This was part of the calculation. But I think this actually also comes down to fulfillment speed too. So USPS big offering is called Ground Advantage Shipping Service, which is basically just saying, I can get you product in two to five business days on average. So that depends on if it's local or if it's coast to coast, which, I mean, compare that to Amazon or to Walmart and it's not even remotely comparable. So it does, it does come down to speed and whether people even want it or not. And if it's consumer to consumer that feels probably like the most likely use case where you would end up using not Amazon, but if it's B2C, the use cases become pretty limited. So that's the, that's the. How does USPS make money? The how does Amazon make money Partners is I think also particularly fascinating. We've talked about this for years, but Amazon's margin arguably comes mostly from AWS and from ads. But one of the things that Amazon's always done incredibly well is that they've taken their biggest expense and turned it into revenue. And one of their biggest expenses historically in the business was investing heavily in fulfillment centers and a fulfillment network. And now with Buy, with Prime and fba, they can sell fulfillment. And not the only one. Walmart also sells fulfillment to third party sellers too.
- [06:15]
A
Does that mean that someday Amazon just becomes the United States like mailing system for all things?
- [06:22]
B
It's not impossible, right? So I think that there are a lot of people who are allergic to Amazon and you see that sometimes in the branding that Amazon uses where Amazon marketing cloud is sometimes called or is a subset of Amazon or AWS clean room, it's a lot easier and there's a backend hookup where people be like, oh, I already engage with aws, that's my cloud computing provider. They don't really process the connection, which I think we'll get into in the next story in terms of the sentiment around Amazon. But I think the other piece of this is that if Amazon sells fulfillment, they then get to control pricing for fulfillment. Which you see the tie together between two stories that we'll get into. But the biggest news from actually this was, I think it was meant to be implemented 11 days ago Amazon, it was implementing a 3.5% fuel and logistics surcharge for FBA in the States due to rising energy costs and the same but a 1.5% surcharge in Europe. So increasing costs for logistics to people who are using its fulfillment network on
- [07:36]
A
the Amazon and like the fuel and logistics surcharges. So at the end of the day, like who's really paying for that next phase of speed? Will it have to be Amazon or is it merchants or consumers? And if it is merchants and consumers, how long will people take that? I'm kind of curious your thoughts there.
- [07:53]
B
This is a significant part of a pure play retailer is the way that brands navigate terms historically has always included fulfillment in some way, shape or form. So when you look back at Amazon terms and in your avn, you'll have to navigate do I want prepaid or collect, which is basically just debate of who pays and when do they take ownership of the truck. But then you also have FBA and sorry, FBM and 3P agreements, agreements for shipping fees, damage allowances, but also just general terms. Historically, the cost has always gone to the merchant or the manufacturer. But I think it is a really interesting question because when you see macroeconomic challenges happening. So yesterday's tanker gets stuck in the Sewells canal is today's straight of Hormuz. But either way it's the same thing, which is do brands start to pass price increases for the cost of goods to them to the end consumer, or do they eat the cost of increased raw material and shipping fees in favor of keeping the consumer because consumers are price sensitive. And so that's like the always, never ending battle between profit margin, consumer demand and consumer experience.
- [09:12]
A
So this is just one part of it, the consumer. It's gotten kind of more complicated to figure out, like when things that you want to buy from Amazon are going to show up. And like I'm in a city that has, I believe, Amazon now. So like every item that I scroll through, it says like prime. You can get it, let's say tomorrow or maybe like later in the day, but for 3.99, you can get it in 21 minutes. And like every single, almost every single thing that I'm looking at has all of these options. And I'm like, I, I don't know. And it's like, do I need it in 21 minutes? Do I even need it today? And then thinking of the like, oh, do brands over time push the increased price on the consumer? I'm like, I can't even comprehend that because I have so many options of how the thing gets delivered to me, it's confusing.
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B
But I would punctuate that point by saying this is actually a game about subscription.
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A
Yeah.
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B
So I'm not going to pay for 7, 8, 9 subscriptions, but I will pay for probably the 2 or 3 that I use if those subscriptions become verticalized and are inclusive of some sort of entertainment program that makes that subscription worth it. If, if it comes with free drone delivery, extra worth it. But I think that this is a little bit of just like package it all up into one thing. That's the fight here. Faster delivery is just a path toward broader subscription measurement, dare I say ad revenue. So it all feels like it's converging in one thing for sure.
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A
Okay, for the sake of time, I'm going to move us on to story number two. And we're going to talk a little bit about Amaz. I've just combined Amazon in my own name. That's was a sin. Okay. Amazon's legal pricing struggles. And so lots of headlines recently, especially around California going after Amazon for price fixing. Price fixing with an antitrust case. And that's from a few years ago. But very simply, California has been accusing Amazon of allegedly punishing or pressuring sellers and suppliers if products were sold more cheaply off Amazon, which allegedly discourages other retailers from offering lower prices and keeping prices higher than they would in a competitive market. Before we even get into it, some of the more recent evidence that they have fueled into this case, that being California, like I'm curious, what are your thoughts overall? Do you think there is a case here or this will just be a million years long legal battle that goes on and on and on and other states pick up on it? I don't know.
- [11:35]
B
The quantity of times that you said allegedly makes me feel like you had formal legal training. Okay, so forever. If you. I think some of the folks that I've emailed with at Amazon actually have this in their, in their personal like subject line or whatever or next to their name. But it'll say pricing is at the sole discretion of the retailer. It is at this point tattooed on the neck of most Amazonians. Pricing is at the sole discretion of the retailer. That is tried and true. The other context of this is I feel like I wouldn't be doing the story justice without talking about Lina Khan. Lina Khan. So Lina Khan was the former FTC chair. She was basically given the role because she wrote in 2020she wrote a paper titled Amazon's Antitrust Paradox. And so the gist of the paper was that it argued that again this is Lina Khan's perspective, not my perspective, but her paper argued that U.S. antitrust law fails to capture Amazon's anti competitive behavior because it focuses almost too narrowly on consumer welfare. So basically just price rather than on long term market structure. So what they said in English, what Lina Khan was basically saying is that Amazon has a strategy of underpricing which is allowing for them to dominate markets and then be overly competitive and essentially fix market pricing by having a lower price, which is a paradox because antitrust regulation is usually about fixing to correct against higher price. And so Lina Khan basically made a career out of this, which ended up making most of her time as FTC chair, which now it seems like this is carrying through to the year 2026. But in 2023, Lina Khan filed A lawsuit against Amazon, which now we're sort of carrying through today. But that's the. It's a little bit of a history that I thought was interesting here, but specifically because it feels like this. What felt like it was dead is no longer dead. It's just the reemergence of a couple of emails that are now being unredacted and now opened up to public.
- [13:41]
A
And in those emails, though, that's like an interesting comparison. Like in those emails, the ones, at least what I was reading was citing that, like, essentially the vendor managers, like, essentially these emails were found where, you know, they're communicating with brands and finding items for sale on other retailers at a higher price. And then they're trying to, like, the vendor managers at Amazon are trying to push the brands to get the price higher, essentially, which is then kind of the opposite of what you just kind of described. And so now it's making everything very confusing with antitrust and all of that. And at the end of the day, though, I am curious, that specific behavior, like I remember back in my day that I would write, I had to write a lot of emails when Amazon would price match my client's product. Really, really low. We didn't want that. We wanted it to come up. And of course, they come back with pricings at the sole discretion of the retailer. But that behavior of vendor managers asking for price increases, like, are you see, Are you hearing more about that? Is that new behavior? Am I just so out of the loop that I'm so far behind? And that's just the economy, like, what. What are your thoughts on that?
- [14:47]
B
Think about it from this perspective, which is if I'm a brand, because I think this is right now, this is a debate, at least what the filing is. This is a debate between the retailer, the government, and what is best for consumers based on antitrust law. If I'm a brand, one of the things that I also want to protect is margin. And ideally with margin, what ends up happening is I would like to be able to sell the product at the maximum margin that I can. That also matches consumer demand. So there's the kind of that sweet spot in economics where supply meets demand and that defines your price. What ends up happening, though, is that in order to increase demand, price comes down. And that will usually end up being triggered by some sort of either promotion or price cut or a product being sold by somebody who can sell it at a lower price because they got it off the back of a truck somewhere. But what that means is that this story is Actually a really good example of when brands and consumers almost feel like they need opposite things. So consumers want the best value. The relationship between quality and price is how consumers define value. And consumers also want selection. And brands want the best reach and consumer base and they want to sell through, but they also want margin and retailers kind of want everything. So there's really no winners here. But what Amazon is doing is Amazon sort of exists as this intermediary where they have a pricing algorithm that matches other prices and so they kind of hide behind that. And what brands really want is they want consistent pricing. If they have built a system of consistent pricing, the challenge that ends up arriving here is that most brands don't actually have, or they should have consistent pricing across all retailers of the same sort of skew. And so that actually is what makes all of this go away, is I have identical products at identical price across all retailers. There is nothing anti competitive. You just, you offer the price to the market at whatever the price is, but that isn't always the way that it works. And so that's where you end up with something like this where your price on Amazon is 10, your price on Walmart is, or I guess your price on Amazon is 10, your price on Walmart is 12. So then Amazon should ideally come up to Walmart, but you can't exactly tell each of the retailers what to do because that is technically price fixing. So everyone's sort of caught between a rock and a hard place. And the Forbes article was actually talking a lot about how most of this seems to be happening over phone call to avoid a paper trail. But everyone involved seems to know that there's something that you can't exactly put in writing here.
- [17:26]
A
After making sponsored prompts broadly available in late March, Amazon has now introduced more generic sponsored prompts. Things like learn more or prompts tied to ingredients use cases and product outcomes rather than just branded language. And so this time I'm going to make you do this again. But hold on, I'm gonna get my little.
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B
Oh no, she's sleeping. Let her. Leave her alone, Emma.
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A
She's always sleeping, Dani. She's a million years old. But can you, can you explain sponsor prompts to Margot Margo?
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B
Sponsor prompts. So one of the ways in which you can reach consumers. So if again, I think we used last time that you were in market for dog treats and I think the example that we were giving was that you don't know which dog treats you want, you're looking for grain free. There's a little bit of A continuity, Margot, the same thing that we were talking about last time. Imagine that I'm a brand, and so I want to be able to get the best dog treats in your paws and arguably in your jaws. Trademark. Thank you. I'm a marketer. By trading, what I want to be able to do is I want to find out what you're searching and then I obviously want to be able to meet you there with the product that makes most sense for you. The problem is that today when I'm advertising, I can only advertise, or I used to be able to only be able to advertise on your search terms or your queries, but now I can advertise on your prompts, which means that when you don't know what you want and you want just a smaller amount of selection, Margo's tuned in. I can now target specific prompts for you rather than specific search terms or queries. So, Margot, easier way not just for you to find those treats, but for me to find you finding those treats
- [19:17]
A
that we've seen of more generic sponsored prompts. You know, I think I got the word that, you know, we're already seeing, but stronger performance across click, spend and sales. Which then raises the question of like, why is Amazon moving from more branded sponsored prompts to more generic ones? Like, what are they probably seeing in consumer behavior that marks that this is the smarter move?
- [19:37]
B
There's a company called Wark, sister company or former sister company of Flywheel, and they do a lot of industry research. One of the pieces they found was that consumers who are searching actually end up almost searching, completely unique from each other, and very little of those searches end up including brands. Um, we can share the, the data at some point. I think the, the research itself was really interesting, but the, the finding that I think is fascinating there that then ties me from brand to generic is that most prompts are arguably generic unless they come from some sort of dropdown. So there are versions outside of Amazon that are a little bit more drop down, but most of them come with a, a suggestion. I imagine that people who are looking in that space are probably actually not looking by brand, but probably looking a little bit more by category to do some research. And it feels a little bit less targeted by brand and a little bit more tailored to individual. So time will tell, all of this is very much wet paint. This is a brand new launch that our team has just started testing with. But to me, that feels like this is generic intentionally because that's what consumer demand is and that's Just how consumers are searching for some of these things. At the same time, you probably will see a convergence around different themes. So that probably would be what people end up bidding on is some of those almost like broad match phrase match, exact match bidding. I bet you broad match bidding is going to end up matching some generic themes. And it's like how do I then add shows up relative to generic broad match prompt?
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A
In you going through all of that, it kind of just sounds like, oh, it's just basically the basics of paid search advertising just in a slightly different format in terms of like what you can do and what you're looking for.
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B
Arguably it's a, it's a new format, it's a different way that consumers can search the. It's a different shelf, it's a different experience. But it's like it's still people querying a thing to find a result to buy a product that has to be to tie together stories. It has to be available and has to be to the price that they want. The basics actually are still the basics and they still exist underlying all of this.
- [21:50]
A
And I think this is not an original thought unfortunately, but I was chatting with some other Flywheelers in that brains don't have a ton of control other than on and off at the moment when it comes to where you're showing up in sponsored prompts and how much money is getting fueled in there, et cetera. It's kind of the first time where you can't just throw more money into it. It's like you can't increase your bids and hope and that makes your product show up. Like the LLM is looking for so much more in terms of like the organic content and the back end kind of attributes of your product and even probably the ratings and reviews which you really can't influence as a brand. Like you just have to have a good product. And so that also kind of changes just the dynamic of what paid search looks like in an AI kind of environment.
- [22:36]
B
I mean, I think this is what makes this the most fun. This is also the most. I'm incredibly biased when I say this is where Flywheel cuts our teeth the best, but I think there's only so many ways that you can continue to refine your sponsored product and your paid search strategy with Amazon. I mean we do a lot with AMC audiences that let you then cut out of search and get back and target consumer rather than search term. But there's only so many ways you can refine, refine, refine before you've done it. And a lot of the retailers are actually starting to launch their own version of AI bidding, where you could just be like, I'll just do theirs instead. So, like, Performance plus works great. I think it's called Marty within Walmart. I'm sure it works great. But this is new frontier where even the retailers are just figuring themselves out. This is where test and learn is king again. And I'm fired up by that because it's new frontier. You can go pioneer.
- [23:40]
A
Ay, thank you.
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B
We teed up last time that we think that the world is changing and that this is the place where we see that change probably manifesting. I don't think that we're going to solve it in a month, but I think that it is something to watch. And as we look across the broader landscape, there continue to be others that are popping up. So Sephora launches an app within an AI ecosystem. Target now has an AI shopping assistant. This continues to expand and grow and develop at a rate where I think it just, it's just interesting to watch. So I'm happy to kind of sit back and be like, oh, the thing's changing. But you and I have now planted our flag that we think what direction it's headed.
- [24:28]
A
Yes. We could probably talk about this for the next few years and maybe forever. This might just be like, this is forever in terms of this industry that there will be something to talk about and something innovates and there's something new. And I also, I was doing some research on the. Just looking at the past few integrations that Claude has done with both like lifestyle things and specifically Instacart is what I was working on and just how like, interesting and how it's embedded into the experience and what signals fuel what, like. It's really fascinating.
- [24:57]
B
Completely. Yeah. And I think it's also become an expectation of consumers and of shareholders. Everyone is both bored by it. The sentiment is low, but also everyone is now just. It's. It's based expectation. You, you log in and you're looking for that assistant. You. You assume that it will be there. Uh, it's really interesting how easily trained we are as consumers.
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A
Yeah, that's one way to put it. I wish my dogs were as easily trained as I am with adopting AI, but that's.
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B
You've trained me to talk to Margot easier than I think you've trained Margot.
- [25:33]
A
And that wraps up this episode of this month above the fold. Thank you to Dani, as always, for the insights and tune in next month to stay ahead of what's happening in commerce and to impress everyone you know, but most importantly, to impress your boss. Okay, we'll see you next time.