Once upon a time, a search for Amazon on the internet would lead us to scores of results from the Brazilian rainforest that borders Columbia, Peru and other South American countries. But, not anymore. Type “Amazon fire” and the top result that Google spits out would provide you details of where and how you can acquire the Amazon Fire TV stick!
Such has been the impact of Jeff Bezos and his enterprise Amazon!
Small wonder that when listing the top tech companies for 2020, the first name that selects itself is Amazon. Names such as Google, Apple, Microsoft and Facebook have made news but Jeff Bezos has created a cult today – both loved and feared for its pervasiveness.
The Amazon Journey
The aura of Amazon comes from the remarkable influence it has over our lives, given its ever-expanding list of products and services. The company has steadily surpassed Alphabet when measured by market cap, making it the world’s second-most-valuable publicly traded business behind Apple. Revenues from e-commerce grew seven-fold from an already massive base of $34.2 billion. Yet, this accounts for only 40% of the overall e-commerce market in the US, according to eMarketer, and globally even less, leaving plenty of head room for growth.
However, more than its size or revenue, Amazon needs to be measured in terms of importance to modern life and its ability to shape the US economy and subsequently, the global economy.
The Seattle-based company that started as a modest online bookseller in 1994 has grown into an internet giant that plays in nearly every sector. Take hardware for example. Amazon pioneered e-readers, before stumbling through a failed phone launch in 2014. And then came up with a novel home assistant, Alexa that is turning Apple’s Siri into a legacy technology and giving Google a tough competition in artificial intelligence (AI), despite criticisms on the ongoing privacy and security threats.
Daniel Raff, a professor of management at the Wharton School of the University of Pennsylvania mentions in an article on CNN Business, while Amazon began with books, they understood that the Internet was a source of information for them about who their customers were, and their customers’ search behavior and price sensitivity.”
Since 2005, that information has been concentrated around Amazon’s most powerful innovation: The Prime membership, which incentivizes consumers to consolidate as many of their purchases as possible within Amazon’s ecosystem.
Kantar Consulting estimates that in late 2017, about 57 million households in the US paid $99 a year — and $119, as of this April — for access to exclusive television content, discounts at Whole Foods and of course, fast free shipping. Rather than aggregating through a central hub, Amazon has built its own distributed empire of warehouses. Staffed by armies of workers and, more recently, robots, this network allows the company to deliver packages nearly as quickly as a shopper clicks the “Buy” button. Amazon now uses more than 100,000 robots in warehouses around the world to help move and organize products, according to The New York Times.
Between 2006 and 2018, Amazon spent billions for running more than 100 fulfillment centers. But that investment has paid off well. This new infrastructure not only helped Amazon raise its profit margin between 5% and 14% over that same period (by shortening travel distances and reducing the number of transfer points) but also helped the company enjoy the full confidence of Wall Street while never paying a dividend to shareholders, the news site mentions.
What’s more, after deflating brick-and-mortar retail, Amazon has become a brick-and-mortar retailer itself with its $13.7 billion acquisition of Whole Foods, its physical bookstores, and its foray into cashier-less convenience store.
Since 2014, Amazon’s operating profit has steadily improved, from $2.2 billion to around $4 billion for the next two years, to more than $12 billion in 2018, with analysts projecting $13.4 billion in 2019, as per The Wall Street estimates. Since 2015, the company’s robust quarterly profits have been boosted by its cloud computing arm, Amazon Web Services (AWS), a data hosting business that generated $6 billion in revenue last quarter.
Recently, Amazon has set its sights on online advertising, stealing market share and ad dollars from Google and Facebook and is conquering every market it sets eyes on. As a result, investors who have held the stock since 2010 have seen their investment increase in value dramatically, making it one of the largest companies in the world by market cap.
“The number one thing that has made us successful, by far, is obsessive-compulsive focus on the customer as opposed to obsession over the competitor,” Amazon CEO and founder Jeff Bezos is now the world’s richest man, with a net worth of $160.2 billion, according to Forbes, said at a recent global event in September.
The company has added pretty much everything to the basket, shaping the US economy and spreading its wings across every territory it plans to capture, as New York Times columnist Paul Krugman sees these traits as code for “monopoly power.”
One obvious secret to Amazon’s success is its relentless adherence to a set of principles that has proven to work across many different industries. The principles were articulated mostly by Bezos himself and are enforced in internal meetings.
Perhaps the most important core principle is putting the customer first. Everything else is secondary. Amazon employees have spoken about how they’ve been in meetings where revenue-generating ideas were rejected because they would be bad for customers.
Another key ingredient at Amazon is relentless experimentation and learning from failure. When the company’s Fire Phone flopped, it doubled down on hardware and found success in the Echo line of devices, personal assistant and Fire TV streaming products. Now, it unveils a huge mix of 15-20 odd new products every fall. Many continue to fail, but the one or two hits to justify the exercise.
The company’s $13.7 billion purchase of Whole Foods looked like a puzzling misstep at the time, but two years later Amazon is reportedly pushing full speed ahead into launching its own grocery stores, taking the lessons learned and data gathered from Whole Foods shoppers to direct its expansion.
An obsession with customers and a willingness to experiment then make it a key differentiator from its competition. At a time when other companies talk about innovation but iterate on one or two hit products, Amazon actually walks the talk. As Techtree reports, “Jeff Bezos appears undeterred in his quest to make Amazon the voice of everything and move on to making it the ‘everything of everything’. Even in a country such as India, the company has delivered something of a Super App that straddles everything from online retail to booking tickets. The company is now reportedly moving over to create connected lighting.
(Read the full story: Now, Amazon is Seeking to Spread the Light)
To tame the ever-fickle consumers, Amazon’s methodology including low prices, endless choice of products, a continuous stream of novel products and exceptional handling of logistics — will continue to make it a fearsome competitor in the next decade.
However, Amazon’s customer obsession has a dark side, believe experts. Time and again, employees find themselves in overworking condition and high stress level to help reach their customer goals. Take for example, the free delivery and same day delivery concepts which Amazon has designed for its restless customer.
The tech major also views suppliers, independent sellers and other partners useful in so far as they help the company get customers what they want, when they want it, at the right price.
Amazon has a seller strategy that competes directly with the vendors whose products it sells. In other words, the way it treats sellers on the Amazon Marketplace, pits third-party merchants against one another in a brutal pricing war. This is exacerbated by often ineffective enforcement against counterfeit products and against shady seller tactics.
There are also complains on how Amazon has used its cloud computing arm – AWS – to copy and integrate software that other tech companies pioneered. It has given an edge to its own services by making them more convenient to use, burying rival offerings and bundling discounts to make its products less expensive, says a report in Business Standard.
Even so, smaller rivals say they have little choice but to work with Amazon. Given the company’s broad reach with customers, start-ups often agree to its restrictions on promoting their own products and voluntarily share client and product information with it. For the privilege of selling through AWS, the start-ups pay a cut of their sales back to Amazon.
By lifting other people’s innovations, trying to poach their engineers and profiting off what they made, Amazon is choking off the growth of would-be competitors and forcing them to reorient how they do business, the report mentions.
All of this has fueled scrutiny of Amazon and whether it is abusing its market dominance and engaging in anticompetitive behavior. The company’s tactics have led several rivals to discuss bringing antitrust complaints against it. And regulators and lawmakers are examining its clout in the industry.
The more powerful Amazon gets, the more complaints about these practices will grow, putting the company at odds with antitrust regulators and lawmakers who are aggressively starting to take on Big Tech.
Yet despite various use and abuse of its power, consumers largely trust Amazon with everything from their personal information and buying habits to the literal conversations they have in their own homes. According to a study conducted by The Verge with consulting firm Reticle Research, Amazon is the most-liked and trusted technology brand by a wide margin. One likely explanation there is that the company has a strong relationship with its customers, thanks in part to its zealous commitment to low prices and a seemingly never-ending quest to make modern life more convenient.
Read more: What Makes Amazon the Most Trusted Brand
All Pervasive Amazon
With the exception of China, where Alibaba is the sole marketplace, the penetration rate of Amazon continues to grow worldwide. Amazon’s ecommerce dominance in North America and most of Europe is phenomenal. In the US, 50% of all e-commerce sales happen through Amazon, with its closest competitor, eBay, pulling in just 6%. And after hitting growth plateaus in western markets, it has turned its eyes toward countries like India, where it sees a huge potential for growth and profit in the country’s e-commerce market that is worth $100 billion by 2022, as estimated by a Nasscom-PwC study.
The growth trajectory is not smooth though in a market where e-commerce represents just 3% of total consumption. Amazon keeps facing steep competition from Walmart-owned Flipkart – the domestic ecommerce powerhouse. Amazon’s efforts are complicated by new e-commerce regulations in India, which prohibit foreign companies from selling their own products like the Amazon Echo or the Kindle, and from negotiating exclusive deals with sellers.
To keep up with the ecommerce major has tapped the local market by expanding its brick-and-mortar presence while also customizing its e-commerce experience for consumers. Both Amazon and Flipkart have faced charges of abusing their large market position. The All India Online Vendors Association, which represents over 3,500 online sellers, accused Amazon in the Competition Commission of India court of using their dominant market position to favor certain sellers and engage in predatory pricing.
Meanwhile, Mukesh Ambani-owned Reliance is preparing to roll up small merchants into a large online platform and take on Amazon and Flipkart. And because Reliance is a wholly Indian company, the same restrictions against selling products where a company holds more than a 25% stake don’t apply.
But Amazon is not shaken. It has already set up its biggest office building in Hyderabad, signaling the centerpiece of the e-commerce giant’s growing investment in the country.
Indeed, Amazon is giving its competitors a tough time. Amazon is starting to claim its share of the cake to both Google and Facebook, and is promoting advertising within its own platform. Today this segment only represents 4.3% of Amazon’s revenues, but the statistics predict a great growth to the point of being able to be done in 2020. In fact, Facebook has officially recognized Amazon’s advertising business as a threat. Google, on its part has begun to compete directly with Amazon in France, turning Google Shopping into a marketplace. It seems likely that Google will expand this model to other markets in an attempt to stop Bezos’ global domination.
Considering that Jeff Bezos is already building his own airports, looks like Amazon is nowhere close to taking a pause in its journey towards becoming everything for everybody!