Are there weaknesses in Amazon's armor?
“Why do some stores succeed while others fail? Retailers constantly struggle with this question, battling one another in ways that change with each generation. In the late 1800s, architects ruled. Successful merchants like Marshall Field created palaces of commerce that were so gorgeous shoppers rushed to come inside. In the early 1900s, mail order became the ‘killer app,’ with Sears Roebuck leading the way. Toward the end of the 20th century, ultra-efficient suburban discounters like Target and Walmart conquered all.
“Now the tussles are fiercest in online retailing, where it’s hard to tell if anyone is winning. Retailers as big as Walmart and as small as Tweezerman.com all maintain their own websites, catering to an explosion of customer demand. Retail e-commerce sales expanded 15 percent in the U.S in 2012—seven times as fast as traditional retail. But price competition is relentless, and profit margins are thin to nonexistent. It’s easy to regard this $186 billion market as a poisoned prize: too big to ignore, too treacherous to pursue.”
emphasis mine.
No Stores? No Salesmen? No Profit? No Problem for Amazon. : By George Anders, 7 November 2013, MIT Technology Review
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I like this article a lot — not just for the two paragraphs quoted above (which hit on several points I’ve also made)
“The change in customer demand does not begin and end with a web site and is not limited to online sales. When someone wants a book, they will seek it out from any retailer, and their buying decision is affected not by the discovery process but rather the same mix of price and convenience that backs all of their sales decisions.”
Bookselling: Not Dead Yet. : RocketBomber, 12 July 2013
“The company lacks three of conventional retailing’s most basic elements: a showroom where customers can touch the wares; on-the-spot salespeople who can woo shoppers; and the means for customers to take possession of their goods the instant a sale is complete. In one sense, everything that Amazon’s engineers create is meant to make these fundamental deficits vanish from sight.”
Anders, MIT Technology Review, op cit.
“To Amazon, retailing looks like a giant engineering problem. Algorithms define everything from the best way to arrange a digital storefront to the optimal way of shipping a package. Other big retailers spend heavily on advertising and hire a few hundred engineers to keep systems running. Amazon prefers a puny ad budget and a payroll packed with thousands of engineering graduates from the likes of MIT, Carnegie Mellon, and Caltech.”
Anders, MIT Technology Review, op cit.
Right now, Amazon is winning the fight because they actively seek out ways to minimize their weaknesses. When a customer considers the ‘mix of price and convenience’ many, many times Amazon wins there, too. The question for competitors is how to find a chink in Amazon’s apparently fool-proof business model and attack-proof walled garden.
Walmart is trying to think laterally — leveraging what they have that Amazon doesn’t: Thousands of physical stores already in close proximity to their customers. Walmart suffers from two serious handicaps, though. First, Amazon has a 15 year head start, and second, Walmart has a serious image problem. For many consumers, Walmart = cheap — and not in a good way.
How to compete?
Read this: Taking down Facebook, piece by piece : Rian Van Der Merwe, 24 October 2013, Elezea.com
conclusion of the article: “Facebook is in a classic position where, as a dominant provider of horizontal social services, it is in danger of being taken down piece by piece by several vertical players who provide specific, narrow experiences very well. Facebook has become a social media firehose. It won’t be replaced by another firehose, but by a bunch of different cocktails that users can customize as they please.”
Is Amazon also a “dominant provider” with a horizontally-expanded business? One can also easily make the argument (in books, especially) that Amazon is also simultaneously trying to be a vertically-integrated near-monopoly — and I don’t mean “monopoly” in anti-trust terms, per se, but rather that Amazon is seeking to develop a self-sustaining, wholly-owned ecosystem of books that operates independently of the ‘old’ book market, to the point that the competition becomes irrelevant.
Ignoring books for a moment, though: Amazon is vulnerable on other verticals. Zappos and Diapers.com were bought up by Amazon before they could really become a headache — and perhaps also to keep them from becoming business-magazine-cover ‘success stories’ that might inspire others.
Where would I attack Amazon? I think DVDs might be an option, though it would be hard to recreate imdb.com from scratch. (Amazon bought imdb, too, btw). A ‘Goodreads’ for movies might be successful, though — maybe Rotten Tomatoes should try their hand at online retail.
Music is always an opportunity — iTunes seems like a winner here (Amazon is in 2nd place) but many smaller players are working the fringes. Music has always seemed like an indy, garage type endeavor (at least in myth) and I could see a mix of Pitchfork-like-reviews combined with Soundcloud-like-easy-streaming-and-sharing working exceptionally well — you know, except for the selling things and making money part. (if you figure that out, let me know)
Newegg and Tiger Direct already compete with Amazon in the computers, peripherals, parts, and small electronics space — and I think manufacturers are doing themselves a disservice by not doing more to explore and exploit direct sales to their customers.
(The same goes for publishers, especially the genre publishers in Mystery, Romance, and Sci-fi.)
This is all just food for thought: if I had a killer solution, I’d be writing a business plan and shopping for VC funding.
The point I’d like to make (yes, I’m finally getting back around to it) is that the e-commerce revolution is a change in customer demand. The better one enables customers — with good information, guidance in the form of curated collections and impartial reviews, ease of ordering, and sufficient choices — the better one will do. Indeed, price is the only consideration for some customers — but not all. A good experience, a no-bullshit approach, and intuitive seach tools (combined with expertise and selection) might go even farther than ‘lowest price’ with most customers. We all know: you get what you pay for.
