Big Tech are powerful but they aren’t without competition.
To counter Temu’s aggressive rise, Amazon recently launched Amazon Haul, a budget-focused storefront aimed at consumers seeking the best deals on low-cost essentials. Amazon Haul differentiates itself from the main Amazon store by offering steep discounts on products across categories like electronics, fashion, and home goods. Think of it as Amazon’s response to disruptors like Temu and Shein—both of which have gained massive traction for their ultra-low prices.
So, why did Amazon feel the need to create Haul? The answer lies in Temu’s rapid growth and increasing traction among younger, price-sensitive shoppers. In 2023, Temu achieved a gross merchandise value (GMV) of $15.16 billion, which is remarkable for a newcomer. In comparison, Amazon’s GMV for the same year stood at $700 billion, while Shein, another formidable competitor, reached $45 billion in GMV. Although both competitors are still far from catching up to Amazon, its rapid growth rate and burgeoning customer loyalty are enough to raise concerns.
One of Temu’s biggest advantages is its clever use of the de minimis rule in the U.S., which allows imports under $800 to bypass duties. This loophole has enabled Temu to flood the market with ultra-cheap goods directly from China. However, with increasing calls to tighten these regulations, Temu’s business model could face significant hurdles. Interestingly, Amazon Haul may encounter similar challenges since it is effectively replicating Temu’s model and sourcing from the same Chinese sellers.
Amazon’s decision to launch Haul is a smart tactical move. Rather than slashing prices across its entire platform, Amazon is segmenting its audience, targeting budget-conscious shoppers without diluting its core brand. This allows Amazon to test the waters in the ultra-low-cost space with minimal risk. If Haul gains traction, Amazon can retain these price-sensitive customers; if it doesn’t, the main business remains unaffected. It’s a low-risk way to experiment with consumer preferences.
Amazon’s share price has outperformed PDD (Temu’s parent company) year-to-date.
Spotify Dives into Video Podcasts
Meanwhile, in the digital content space, Spotify is stepping up its game to challenge YouTube’s dominance. Spotify, after leading the audio podcasting space, has now launched video podcasts alongside a revamped Spotify for Creators platform to entice both creators and listeners. This move is an effort to regain market share, especially as YouTube increasingly captures the video podcasting segment with its established infrastructure and massive user base.
The question is whether Spotify can replicate YouTube’s success in engaging users visually. Historically, Spotify is synonymous with audio, and shifting that perception could prove challenging. Users associate Spotify with music and podcasts, not videos. Even if Spotify gains some traction in video podcasts, it risks diluting its core brand identity. In my view, this copycat move may not yield the strategic advantage Spotify hopes for and could create confusion around its market positioning.
Despite the heightened competition, neither YouTube nor Spotify is engaging in a price war. In fact, both platforms are raising prices while continuing to grow their user bases:
- YouTube will discontinue legacy plans like Google Play Music and YouTube Red, with U.S. subscribers facing a price hike to $13.99 per month from 2025 onwards. Prices for YouTube Premium have also been increased in Europe.
- Spotify raised its Premium subscription to $11.99 in June 2024, up from $10.99 previously.
Yet, both companies are still managing to grow their revenues:
- YouTube’s ad revenue for Q3 2024 reached $8.9 billion, up 12% year-over-year.
- Spotify’s revenue for the same quarter hit €4 billion, reflecting a strong 19% year-over-year growth.
These price increases signal that both platforms are confident in the stickiness of their services and their ability to retain users despite higher subscription fees.
Spotify’s share price has outperformed Alphabet’s year-to-date, as the latter has been weighed down by ongoing antitrust lawsuits targeting its search business and advertising dominance.
Between the two, I’ve received feedback from users who highlight YouTube’s superior recommendation engine. It consistently offers better suggestions and caters to a broader range of interests beyond just music. Plus, for YouTube Premium subscribers, the ability to watch content ad-free is a significant draw, even if it comes at a higher cost than Spotify Premium.
While incumbents like Amazon and YouTube remain powerful in their respective markets, new challengers keep them on their toes. Whether it’s through launching budget-focused stores like Amazon Haul or expanding into video content like Spotify, competition drives continuous innovation that ultimately benefits consumers.
As an investor, I lean towards Amazon and Alphabet (YouTube’s parent company). These firms have other businesses with strong positions in areas like cloud computing, e-commerce, and digital ads. Their moats are deep, and while challengers are nibbling at the edges, the incumbents remain formidable with multiple growth levers.
