We all should be in love with Amazon. For consumers, the company provides choice and convenience. Unlike many technology company, the online retailer’s strategy is driven not by short-term profit, but by investment, innovation and growth.
Amazon is in constant state of innovation releasing new products and services. Amazon Basics, {Amazon’s own products), Itsu (selling drinks and snacks), Alexa and apparel. These new offerings reinforce consumer perception that they are getting affordable prices for goods. As stated on its website, “low prices, fast delivery, vast selection”.
The company’s supply chain is second to none.
And then of course, there’s the beast known as Amazon Prime. It has 100 million+ members offering products and contents and providing free delivery for goods. Amazon Prime has disrupted a number of marketplaces, particularly home entertainment and film.
In Europe, 22% of all online sales went through an Amazon platform in 2017. The company has 43% of US eCommerce market share (FoxBusiness). It is the largest Internet retailer in the world as measured by revenue and market capitalisation. Second largest after Alibaba Group in terms of total sales.
Clearly it is the dominant global retailer progressively invading many different segments of the retail world.
Yet, the trend that received very little attention has been Amazon’s growing ambitions in the B2B arena. As a result, thousands of enterprises now rely on Amazon’s infrastructure. The company’s cheap, flexible cloud computing services to start and scale up.
eCommerce landscape
eCommerce revenues continue to grow at a rapid rate. Consumers increasingly choose to buy via a variety of devices and maintain relationships via digital channels. As a result, business priorities remain:
- Revenue and profitability growth
- Retain customer
- Utilise new technology to support revenue and business growth
- Attract new talent
Top concerns of businesses remain:
- Increasing operational efficiencies
- Decreasing order cycle time in today’s ecommerce world
- Adopting new technology such as AI
- Amazon’s increasing dominating presence in the marketplace
What is Amazon’s Business Model?
According to Gareth Carroll, NetSuite Business Development Director, “Amazon is a software company, it’s a manufacturer, it’s a cloud company, it’s a distributer, a logistics powerhouse and a leading AI company in the world. In contrast, most of Amazon’s competitors, compete just in one of those levels. So they are an unbelievable machine.”
Amazon Web Services (AWS) is the 5th largest software company in the world ($17.5 bn). Its been an important part of Amazon’s growth and profits that is funding Amazon’s investments e.g. AI-as-a-Service, healthcare, Alexa voice services.
There is a perception that Amazon is only working in the consumer marketplace. For a long time, Amazon was considered a key competitor to eBay. An alternative way to buy products from other vendors.
However, increasingly Amazon is focusing on the business market. According to Carroll, Amazon are now going after the B2B marketplace in a very aggressive way. And companies across all sectors are now beginning to understand the impact this may have in their respective business.
Carroll believes the company thrives in a world where there’s a demand for a better way of life. They have all the tools and skills and the platform and technology to take full advantage of this.
Amazon is all about getting close to customers, insights – customer acquisitions. It has 160 open positions for data scientists globally on its careers website (October 2018). The business model is totally different to other organisations. It’s about growth by acquisition of customers. And not about profitability.
Jeff Bezos, CEO at Amazon wrote in a letter to shareholders in 2017: “One thing I love about customers is that they are divinely discontent…people have a voracious appetite for a better way. Yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’.”
Amazon discussions about profitability is more about being an efficient business. They don’t believe in passing expenditure to the customer. They believe in ensuring the customer pays the best price for the product at the right time.
Ranga Bodla, NetSuite Head of Industry Marketing, says: “Amazon is not looking to disrupt industries. They look at the potential of margins in a business. If there’s potential for revenue, then they will enter the marketplace.”
He adds: “If there’s margin in your business or sector, Amazon is probably looking at that business, and looking at how they can grab their share of that marketplace.”
The mechanism for entering new marketplaces and sectors – Amazon Business.
What is Amazon Business?
Amazon Business is the next stage evolution of Amazon Supply which emerged in 2015. Amazon Business is a marketplace platform with features tailored to businesses. Businesses can set up employees or users to buy supplies on Amazon.
The platform contains features and tools to help businesses manage spend and buy online. It’s free for all businesses ranging from one-person startups to Fortune 100 companies.
To date, Amazon Business has $10bn in sales. More than one million customers from all industries and company sizes. More than 85,000 business sellers have been added since 2015. The service has been extended to the UK, Germany, France, Italy and Spain.
Thriving in an Amazon World
How could any business compete against Amazon Business?
Ranga Bodla, suggests that startups should continue to use Amazon, as a ‘startup fuel’. Utilise Amazon’s reach to access new customers with minimal upfront investment. Take advantage of Amazon’s reach to test new markets, new product categories, new brands, etc.
Established brands are advised to jump on the bandwagon. Utilise Amazon to grow online presence as a direct seller or Amazon Vendor Central.
Essentially, for all businesses, across any sector, Amazon can only be seen as a necessary evil. The company’s low margins and shopper-advocate approach. It’s massive global reach requires selling on the Amazon platform a high priority.
However, Amazon demands high standards from its suppliers and partners. Setup operations and technology to meet Amazon’s stringent requirements for notifications, shipping, fulfillment, product availability, returns, etc.
Consequently, making Amazon your friend should be done at arm’s length. Amazon can easily enter your marketplace and suddenly overnight become your competition.
What does it mean for business?
All businesses have to decide, if Amazon is the right channel for their business? To ignore Amazon, will be to operate your company at your peril.
To effectively compete against Amazon, your business has to find its niche. It must own specific key words (e.g. products, target market, delivery). To ensure, the business is seen as the subject-expert in that particular field or product or service sector.
If possible, add concierge services that differentiate the business from competitors including Amazon. For instance, specialised light-touch services e.g., handwritten notes, product samples, unique packaging.
Build a fan-base. Create a culture that makes your customer feel special. Businesses must become as obsessive about their customer, as Amazon.
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Amazon: Friend or Foe was a round table discussion at Oracle NetSuite’s SuiteConnect event in London.
The event was facilitated by Ranga Bodla, NetSuite Head of Industry Marketing. Jeanney Kim, Celigo Senior Product Marketing Manager and Gareth Carroll, NetSuite Business Development Director.
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