In response to Amazon’s disruption potential. Silicon Valley and Shopify are motivated to form strategic alliance against Amazon… back in 2012.
E-Commerce — The New Retail Competitive Landscape
The rise of E-commerce has brought up by the change of consumer behaviour and technological advancement. It gives retailers cost advantage over spacial occupations and extends its promotion funnel from physical to online. It leads to double digital growth over the past 10 years.
However, the sales strategy and customer journey in the retail sector have not changed. The AIDA, also known as the purchase funnel, describes as the system of sales conversion. Attention/Awareness, which is to create brand or product exposure. Interest, which is to deliver the message of how you product will add value. Desire, which is to form an emotion connection with the customer to purchase your product. Action, which is to achieve the final result, subscribing your newsletter, purchasing a product etc.
As E-commerce industry grows, the cost of capital to start a business has become so small and more people are willing to start a business. Dropshipping, is a business model that requires no upfront cost where different process of the value chain is distributed among various platforms. Individual could build an online storefront using Shopify, gain consumer traffic by imposing ads on social media and search engines, handle payments with Paypal or Stripe, have the manufacturer (e.g Aliexpress) to manufacture and ship the packages to the end consumers.
Amazon the Integrator
When the internet digitalizes what used to be analog assets, amazon wanted to aggregate these process together and occupy as much of the value chain as possible. With a vision to be “Earth’s most customer-centric company”. In early stage Amazon wanted to internalize operations from storage, payment, logistics and sales, and have developed a variety of strategy to growth its brand and investments.
- Amazon began as a platform with majority of the sellers being unregulated third-party sellers and provided them with storage and shipping through Fedex, slowly when Amazon has extended its in-house distribution network with greater brand exposure Amazon is charging these third-part sellers more and thus increasing the share of Amazon’s own product.
- Amazon adopted various marketing initiative, introducing Amazon influencer program and Prime membership to generate sustainable revenue and gain brand exposure from influencers.
- Amazon developed its in-house distribution network from utilizing Fedex strategic partnership network to deliver products to shipping its own product to customers at a faster pace than any shipping company.
If we put Amazon into the context of AIDA, it’d look something like this.
- Customers come to Amazon directly
- Searches on Amazon get directed to Amazon/3rd-party merchant products
- Amazon handles payment (with trademark on its “Buy Now” button)
- Amazon facilitates storage, packaging and logistics
- The package gets delivered to door with an accurate tracker system
The power of owning all these different phases of a value chain not only provides Amazon with cost advantage, but also a greater negotiation power. In 2018, Amazon took a step further to double down on its private label business, further strengthen its power to manipulate service charge against third-party seller. So now, Amazon as being one of the most successful company but on the flip side, it will be a disadvantageous to society if public developed too much reliance on Amazon while there is not much competition out there. And this is something the regulatory body and other companies in the Silicon Valley are super aware about.
The Anti-Amazon Alliance
Many have argued if Walmart is a direct competitor with Amazon. However, the closest company that’d you would have to complete on online traffic and customer experience will be Shopify. Shopify is the backbone of small E-commerce businesses and although Shopify does not sell anything on its website Shopify has converted 218 million sales with its online infrastructure outsourced to 3rd party merchants.
Being the contemporary website builder and pay processor, it failed to deal with logistics moreover sales. Thus, from a perspective of social welfare optimization, Silicon companies like Google, Facebook have teamed up with Shopify and WooCommerce against Amazon.
Google in 2012 introduced Shopping pay-to-play, with the intention to display customers various sellers for a single product, in order to gather more real-time data but also to provide them with alternatives other than just Amazon. In 2020 April, Google doubled down on its features and Google turned its search engine feature into a commerce marketplace for 3rd-party seller to gain better exposure and yet another way for Google to drive ad sales.
The challenges for Amazon in the future from a high level is to maintain its brand reputation from anti-trust issues and complete in the SaaS space. As AWS is expected to exceed Oracle to be the second largest cloud service provider and ongoing content creation competition with Netflix and Disney. With current capital structure, it is likely Amazon could buyout distressed Media company to strengthen its Prime Video channel.