Having read George Taylor’s interesting article on “The battle over global commerce: Amazon vs Rakuten“, I feel a bit of perspective is needed. Amazon is a true giant that spans over many different business and Rakuten is the challenger trying to catch up. However, they are not the only commerce companies that want to be global.
I spent time in Seattle and New York in the latter part of October 2012 and one company has been following me coast to coast is Amazon.com. I had meetings with folks in operations and research and Amazon was given plenty of air time.
Before, I start I few things I need to make clear: I have no positions in any of these companies. I have little or no access to investment bank reports and the ideas contained in this piece is based on conversations I had with folks whom I believe are thought leaders and observations which I have made.
At the moment I think Amazon is the clear market leader with regards to being a technology commerce company. Lets be clear, Amazon is far more than being a just an e-retailer, it is a complex business with many value propositions that cater for a variety of customers.
I consider Amazon to be the model which many other ecommerce businesses are trying to replicate (Rakuten, Alibaba and some others). I doubt if any will succeed due to 2 factors: Jeff Bezos is arguably the best product manager around in terms of focus and being forward thinking (the late Steve Jobs had the same focus with regards to execution).
Secondly, Amazons consistent optimization is what differentiates itself from rival companies. The next time you go to Amazon, have a look at the URL, it contains a variety of variables which they track. They execute the small things very well and have the best customer experience from any of the big ecommerce players. Their search is something to behold and you get the appropriate results in a high number of cases. There are a few companies whom I believe can challenge Amazon, whether they will, is a completely other story.
1. Amazon is at the moment it’s own biggest concern.
Under the surface, there are some big potential challenges that is going to face Amazon pretty soon ( max 12 months). I see brands revolting and telling suppliers to not have products listed on Amazon. Why? Their 3P product which is driving their growth at the moment is super competitive. However, this competitiveness is leaving brands to fend for themselves. Amazon is so big at the moment that the loses do not have an effect with regards to their catalog.
Secondly, I believe Amazon has been investing heavily into distribution centers, does this ever repay all of the millions of dollars invested? Fulfillment by Amazon is the by product excess space in warehouses in my mind. Amazon has ensured that they can offer services (fba, amazon payments etc) to other business in a utility manner. If the sellers leave in droves, then the revenue leaves the Amazon ecosystem.
Can anyone explain to me why AWS still goes down in some regions? Surely if it is projected to make a billion dollars this financial year you would place a higher level of priority on a long term solution, right?
The one thing that counts heavily in Amazons favor is the fact that they occupy the mind of customers in purchase mode. I cannot stress enough how critical Amazon Prime is for Amazon’s long term future. One, other thing I am convinced of is that the heavy investment into distribution centers and investing into the robots for the distribution facilities are for same day delivery. If you know that by buying from Amazon will lead to you having the items inside 12 hours, I see a lot of pain for retailers if it happens. One thing has been very curious in my time in Seattle has been the amount of Amazon Fresh trucks I have seen. Why? Simple, Amazon is using Seattle to test same day delivery.
The contenders ( in order of how I big the reality of the challenge is):
I think Apple is the one big player staring down Amazon.com. Well, they have an intense loyal following and are a disruptive company just like Amazon (consider the impact that Apple has had on the music industry). The consumer facing model is very similar but Apple only retail their own products, but they are the only company that can match Amazon in terms of content availability for users (books, music and video). How long before Apple revokes Amazons apps and software? They have the scale and the money to battle Amazon head on.
I am firm of the belief that it is a matter of time before Apple starts monetizing their customers better. The Cupertino company has changed and Tim Cook has become even more focused on their customers.
One thing that is becoming clear for me is that Apple has 2 big advantages over Amazon. They have a physical retail presence which is a massive capital generator. Secondly Apple has a deeper connection to their users which is called the iPhone. The one major weakness for Amazon is that the ereaders are usable outside the US but it only can handle ebooks. In general mostly all content is available for Apple users across the world. It may read like something small but Apple has a much greater earning potential versus Amazon internationally for its content business.
The fact that Amazon does not have a mobile phone in their offering is leaving a gap for its competitors. (I have a feeling that Amazon will acquire a specific mobile phone company.. Nokia, they then have maps which become crucial for their same day shipping business especially with the locker programme that Amazon is pushing. A few handy patents will also help Amazon fight back against their technology rivals.)
Yes, I said Alibaba. International expansion has been done cautiously from Amazon’s point of view. They went into India with Junglee.com which is more of a comparison engine than a marketplace. The big Indian ecommerce businesses are not found on Junglee due to fear of Amazon competing against them. In the next 3 years I believe Amazon will become more dependent on international revenue (outside the US), it is dependent on them making making profit from the heavy investment in the last 12 months.
Alibaba has positioned itself as the ecommerce company in China and Amazon has battled to take market share away from Alibaba and its ecommerce business Taobao. However the customer experience on Taobao leaves a lot to be desired. I have concerns over Taobao ability to retain their partners over the next 3-5 years. Jack Ma leaving day to day operations at Alibaba is a big deal. Is the company still focussed? They need to move into South East Asia pretty soon to defend their turf from new challengers.
eBay is slowly transitioning to a technology commerce company. They are marketing themselves as being pro seller unlike Amazon who is pro consumer. They have spent vast amounts of money on acquisitions, but the results are impossible to see.
eBay have a few things they need to get resolved: the customer experience is not on Amazons level yet. Search is still a problem for the company and Project Cassini continues to drag on. eBay is the furthest on mobile commerce than any of Amazons rivals. That is going to be their focus for competing against Amazon in my mind. I also belief that eBay is going to have to make a decision on their own retail play. Are they a platform for others or will they also stock the popular items ( imagine the traction they could get if they had the iPad mini or any newly launched product available a day after launch?) for customers to buy? If eBay execute in this regard I can see them being a bigger competitor for Amazon..
I thought Walmart would rise to become a real online challenger to Amazon. However, it seems that after they acquired Kosmix it went nowhere. The acquisition was a way to show the market that they want to compete with Amazon but it seems Walmart has a much larger issue to deal with. If they truly want to challenge Amazon, they need to have a change of culture. The retail culture needs to change to ensure that they have a clear vision to work on. Walmart is the retail version of Amazon.com, super competitive with suppliers and are focussed on ensuring that users get the lowest pricing. It is all good to spend millions of dollars on acquisitions but the acquisitions need to become part of the overall revenue generation strategy.
The Japanese ecommerce business is playing the PR game very well but the truth is, that they have a lot to do to be considered an Amazon competitor. In Japan the businesses are head to head as is the case with Germany and the US. The US business buy.com markets themselves as non competitive to their marketplace sellers. I have yet to encounter evidence that the business is growing and making revenue
Does Rakuten have a strategy outside their successful empire in Japan? At the moment it seems very opportunistic and invests when businesses such as buy.com were in need of funding. Their investment in Pinterest makes little sense and the lack of transactional business is going to make Pinterest a long term problem for Rakuten.
6. Regional challengers
I am fully aware that this is outside the scope of my initial question but I think we can agree that in the next 5 years Amazon is going to push into new markets. They want to become a global power with regards to being a technology commerce company. Australia, Eastern Europe, Latin America, Russia and other regions are at the moment being dominated by non-Amazon businesses. It will be interesting to see if they acquire or build companies in these growing ecommerce markets.
Amazon is a disruptive ecommerce technology company whom I believe is going to be difficult to compete head on with. It is going to take entrepreneurs, ground breaking technology (as seen at decide.com) and a long term strategy to beat them in my opinion. Being able to create seller dependency or network effects for third party sellers on another platform that is not owned or operated by Amazon is the key to competing.
Bezos and his lieutenants are in position of strength at the moment, but Wall Street and other factors can take the momentum away from them. It is for the above mentioned businesses to step up and execute otherwise Amazon is going to become very difficult to challenge on a one to one basis.