What’s the big deal about $1 out of every $2 spent online in the US going to Amazon? 1


I came across a recent report from the “Institute for Local Self-Reliance (ILSR)” that looks at aspects of Amazon and its business model. The report highlights how

“behind the packages on the doorstep and the inviting interface, Amazon has quietly positioned itself at the center of a growing share of our daily activities and transactions, extending its tentacles across our economy, and with it, our lives.”

Photo credit : flickr.com/photos/tsevis/

A few talking points from the report:

  • Half of all U.S. households are subscribed to the membership program (Amazon Prime)
  • Half of all online shopping searches start directly on Amazon
  • Amazon captures nearly one in every two dollars that Americans spend online.

This last point is also generating a lot of buzz on social discussion sites like Reddit (link). Amazon’s growth story has been the stuff of B-School case and eCommerce reviews by analysts, reviewers and digerati for a long time. Let us take a quick look at what Amzon has become and what it does.

Amazon beyond eCommerce: product and services

The company that generates over $100 billion in annual revenue started as an online bookstore over two decades ago. The founder, Mr. Jeff Bezos’ vision and drive has continued to propel the company beyond its core eCommerce business into almost every imaginable digital segment (ref: List of Amazon.com products and services – Wikipedia).

The flagship – and most lucrative services – of Amazon include:

  • eCommerce marketplace: Shoppers on Amazon’s portals search and browse for products that they order. The items ordered are either fulfilled by Amazon or by third party sellers. Either Amazon or the 3rd party seller handles fulfillment for that purchase.
  • Amazon Prime – Shipping and Entertainment. Amazon Prime is a $79-per-year shipping discount service for select items that offers subscribers unlimited 2-day shipping with no minimum order size. In some markets, it is bundled with Amazon Video, an Internet video on demand service.
  • Digital publishing – This includes eBooks and kindle readers. Amazon has defined and shaped the multi-billion dollar self-publishing industry.
  • Amazon Web Services (AWS) – Amazon launched AWS in 2002, which initially focused on providing programmatic access to latent features on its website. The business has grown into a viable “cloud hosting” platform for enterprises looking to move IS applications from their data centers to the cloud. Amazon’s cloud-computing business, is already expected to top $12 billion in revenue this year, compared with $7.9 billion last year. As of December 2014, Amazon Web Services operated 1.4 Million servers across 11 regions and 28 availability zones.

Amazon has also been at the cutting edge of technology innovations including cloud hosting (AWS), Voice and Artificial intelligence (echo) and devices (e.g Fire phone)

Alibaba vs Amazon : Score 1 for Alibaba in China

Amazon aggressively retains the lead in digital services in North America while trying to go global. Mr Bezos’ China strategy, however, didn’t pan out as expected. China’s homegrown eCommerce giant Alibaba has made great strides in China, its home turf and is reportedly the largest business-to-business and consumer-to-consumer company in the world!

By all accounts, Alibaba has beaten Amazon to bag the E-Commerce crown in China. Last year, the company announced the total amount raised by its shareholders during an IPO exceeded $25 billion (Alibaba Claims Title For Largest Global IPO Ever With Extra Share Sales).

Amazon in India

It is too early to say if Amazon is retreating in China (link) but one thing is for certain: the company has renewed its focus on the next billion-people market – India. Forbes:

“Amazon had lost China, bullied by local players who understood the market much better. Jeff Bezos, its talismanic founder, was prepared to do whatever it takes to win in India—including signing a $2 billion cheque meant to outspend anybody who came in the way.”

Amazon took its first steps into the Indian market in February 2012 when it launched Junglee.com, a site which allowed customers to compare prices online but not purchase items directly. (bbc)

Since then, the company has jumped headlong by announcing large investments in the country. Last year, it announced it will invest another $2 billion in India. For a while Amazon was in hot pursuit of the Indian-incumbent Flipkart before the homegrown eCommerce giant began floundering. (ref: Has Flipkart lost No 1 slot to Amazon?)

 

The business of Amazon, Governments and Society

Amazon continues to make strides in America, its home turf and also in other parts of the world. While there is some grain of truth to the assertions made in ILSR writeup, the story of Amazon vs rest-of-eCommerce is not black and white. The consumer spending “50% of their money online” for Amazon’s products and services is doing so with eyes wide open. Buyers are being enticed by free or low-cost shipping, innumerable product choices recommended to them by use of data mining, the slick use of analytics and Artificial intelligence. Corporate procurement buyers are also being enticed by the attractive pricing of Amazon’s cloud hosting

All this brings us to the crux of the issue being raised by the ILSR writeup:

“In the first section, Monopolizing the Economy, we look at how Amazon is using its market power to eliminate competition and take control of one industry after another, leaving us with an economy that is less diverse and innovative, and which affords fewer opportunities for businesses to start and grow.”

With its tentacles in all corners of the global digital economy, it might feel like Amazon has grown “too big to fail.”

Policy makers and government leaders haven’t exactly been sleeping at the wheels. They are taking note of Amazon’s “power” and reach. For instance, a couple of weeks ago the eCommerce giant had to quickly pull out doormats depicting Indian Flags being sold by a vendor in its Canadian Portal (link). All it took was a couple of threatening tweets by India’s External Affairs Minister, Sushma Swaraj for Amazon to quickly pull the rug on the sale of offending doormats.

EU has also begun its pushback against Amazon (Guardian): “as of last year, the online retailer can no longer stop independent sellers on its German website from offering their own goods cheaper elsewhere, including on their own websites.”

In the U.S. there is a concerted effort by policy makers across the states to begin collecting state taxes from eCommerce sales. That’s a big switch from a few years ago, when Amazon fought to protect customers from sales tax, viewing it as a competitive advantage over brick-and-mortar rivals. (link WSJ)

Entrepreneurs, Startups and other businesses must also take charge by providing products and services competing in key segments where Amazon generates most of its revenue. Microsoft and Google are clearly competing against Amazon’s AWS to take the lead in the cloud business segment; and likewise for AI where Siri, Cortana and Google Now are giving Echo the runaround. Amazon’s Fire, hasn’t exactly set the market on fire; despite some Samsung’s Note 7 phones actually catching fire, their phones, along with Apple’s iPhones continue to lead the market.

Consumers are sure to lobby their lawmakers to ensure a level playing field in eCommerce while ensuring the regulations don’t stifle innovation, and the low cost of product and services we have come to expect.


Guest post by Mohan K. The author is an Enterprise Architect and technology transformation executive and digital strategist


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