What future challenges does Amazon face?
“I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.” These are not the words of a sceptical analyst, but of Amazon’s very founder Jeff Bezos.
By Natalie Berg
Amazon is the titan of 21st century commerce. It accounts for nearly half of all US e-commerce sales. Amazon’s various devices, from Echo speakers to Dash buttons, seamlessly funnel purchases through to its platform. Its algorithms promote its own products. Forget Google – Amazon is the world’s largest product search engine. It has access to data unlike any other retailer in the world. For decades, Amazon hasn’t been subject to the same tax laws as its bricks and mortar counterparts. Its retail business is subsidised by higher-margin segments like Amazon Web Services (AWS) and advertising is quickly growing to become another highly profitable revenue stream. You don’t need to be an antitrust guru to recognise Amazon has reaped the rewards of an uneven playing field.
The retailer may be, in many ways, uncatchable but they’re not flawless. And Amazon’s astronomical growth to date certainly hasn’t gone unnoticed in Washington, where the topic of its dominance is getting increasingly more airtime. Trump’s tweets get all the publicity, but Amazon is now facing bipartisan backlash and even Bezos himself recognises that it’s only normal that a sprawling empire like his attracts greater government scrutiny. There are growing calls around the world – from Capitol Hill to Westminster – for existing legislation to be rewritten for the digital age.
I believe we are slowly inching towards ‘peak Amazon’. No other retailer has so successfully embedded itself in the consumer’s life and physical home. Amazon has become ubiquitous. Through its ecosystem, Amazon is an indispensable resource, a way of life even, for many shoppers – but as Amazon spreads its tentacles into ever more categories and sectors, its brand elasticity will be tested. Will shoppers accept Amazon-branded groceries along with their Amazon-branded Echos and Kindles, music and video streaming, and, potentially in the future, Amazon-branded bank accounts and healthcare services? Consumers will sacrifice many things for convenience (price and privacy, for example). But I believe sentiment would quickly change if Amazon became too powerful, too pervasive.
This isn’t entirely unlike the major UK grocers who spent a good chunk of the noughties diversifying into services like banking and entertainment, only to retrench and focus on their core grocery offering a decade later.
So what else is keeping the good folks in Seattle up at night? The fact that pure-play e-commerce is dead. Amazon now needs physical stores to offset rising shipping and customer acquisition costs, but also to engage with shoppers in a way that they can’t do online. This will be particularly important as Amazon moves further into grocery and fashion sectors. For all its perks, shopping on Amazon is quite a functional, transactional experience. It’s great for buying, less compelling for shopping. Amazon will disrupt bricks & mortar by cutting out the main sources of friction – ie checkout – and generally using technology to bring the physical store into the 21st century. But expect Amazon to move slowly here. The entire industry is watching with bated breath to see if the retail colossus can do one of the most fundamental things in retail – operate stores.
And finally, Amazon is conscious of going from ‘disruptor’ to ‘disrupted’. Let’s not forget that Sears, one of the oldest US retailers that finally filed for bankruptcy this year, was actually considered the Amazon of its time. Meanwhile, the CEO of Amazon’s biggest rival, Walmart, keeps a photo on his phone that lists the top US retailers by decade to remind him of the dangers of complacency. The next Amazon is out there somewhere – and my bet is that it’s in China.
Amazon: How the World’s Most Relentless Retailer will Continue to Revolutionize Commerce, co-written by Natalie Berg and Miya Knights, and will be published on 3 January 2018.