Leadership

Understanding the Amazon Effect

May 2, 2018
Amazon is the elephant in the room that’s shaking up markets and stomping out the competition. As we close out 2017, the world’s largest retailer has cornered an astounding 44 percent of all e-commerce sales. Here are few other statistics that illustrate the phenomenal dominance that “the Earth’s most customer-centric company” has achieved:
 
  • It is the largest driver of growth in the digital marketplace.
  • More than 55 percent of all product searches begin on Amazon.
  • Amazon has displaced Google as the #1 place to search for products.
     
Amazon’s Seismic Impact on E-Commerce
 
Amazon is no longer just a company--it is a force that is leaving no marketplace, industry, or branch of human affairs untouched. As 2018 approaches, there is talk that Amazon has more control over inflation than the Federal Reserve.
 
If Amazon can make the Fed chairman irrelevant, then just think what the online behemoth can do to your business. To put it mildly, no one can ignore the company and every business must have an Amazon strategy. 
 
However, zeroing in on an approach that makes sense for your specific business will undoubtedly involve tough decisions, tradeoffs, and careful deliberation. What are some of the considerations you will need to weigh? 
 
The first point you’ll have to reckon with is Amazon’s surging retail growth, which has increased by more than 900% in less than ten years. It’s been more than 2 years since Amazon surpassed Walmart as the world’s largest retailer, but most analysts believe this is just the beginning as they are expecting the company’s market cap to exceed $1.6 trillion within the next eight years. 
 
Recent Amazon milestones include:
 
  • Gobbling up Whole Foods
  • Sending shockwaves through the marketplace for apparel as it powered ahead of Macy’s, TJ Maxx, and other clothing giants.
  • Amazon accounted for more than 50 percent of e-commerce growth in 2016 and many experts are predicting that figure will be 80 percent in the next 18 months.
It’s a given that Amazon has the talent, data, strategy, scale, and distribution capabilities that are simply unrivaled (with the exception of the largest distributors). Ignoring them is impossible, competing against them is a very tall order. The only question, then, is should you view them as a threat or an opportunity? 
 
Amazon as an Opportunity
 
There is no doubt that partnering with Amazon can help you expand your customer base. With $6.4 billion in sales and 65 million Prime customers worldwide, selling through Amazon can turbocharge your reach.
 
With buyers migrating to e-commerce, and Amazon dominating the field, it’s often a no-brainer to utilize their platform. However, you’ll need to be mindful of some caveats. To begin with, you’ll be entering a crowded field and the competition to distinguish yourself from other sellers will be fierce. 
 
For that reason, your product must stand on its merits, be a differentiator, and be a value-add for your customers. If not, you’ll be competing solely on price on a platform that gives buyers an unprecedented ability to comparison shop, which can only mean a race to the bottom.
 
Amazon as a Threat
 
Amazon’s strengths can also work against your business. Time and again, the company has proven better than anyone at sniffing out inefficiencies and exploiting opportunities in the supply chain. 
 
Their ability to intermediate is second to none and they will squeeze out brands, manufacturers, distributors, and merchants that do not offer a unique value proposition. Put simply, you cannot hope to stay in the game with Amazon if your only differentiator is price and selection. In short, Amazon is a market force that will compel you to invest significantly in your business and compete at the highest up your game.
 
Takeaway
 
Amazon will dominate and reshape e-commerce for the foreseeable future. They are a colossus that cannot be stopped. Therefore, your only alternative is to learn from their success, study their best practices, and try to adjust to the new landscape that they effectively command. You can either ride the elephant or get trampled, but you cannot get out of their way.