Be Like Water

Amazon’s expanding empire and the state of ecommerce innovation

The landscape of ecommerce is a vast one, with room for platforms and brands both huge and small.

Because of the nature of our work — web optimization and user experience design for boutique ecommerce shops — our clients tend to look very little like the juggernauts of ecommerce. That’s of course totally great and fine.

But once in a while, we like to step back from the day-to-day and gaze a little more widely at the giants that stride assuredly across that landscape.

In today’s case, we’ll be looking at just one giant: Amazon.com.

Full disclosure: I worked for Amazon for a couple of years, in their seller services unit. Obviously, being part of the inner workings of just one part of a company, even a pretty large part, can’t tell an entire picture. And this is just one ex-insider’s view of things, so take it with a grain of salt.

But I was still privy to some important dynamics — particularly the relationship between Amazon and the third-party sellers that use its platform for sales and/or fulfillment. It’s those dynamics that I’ll be reflecting on here.

Read on if you care about how ecommerce innovation happens, and how to stay ahead of the times.

Sealing the cracks

Amazon has spent the last couple of decades laying down roots, widely and deeply. Today, its empire has a rainforest-like reach, and has become seemingly unconquerable. Still, a few intrepid competitors have occasionally managed to wade into the jungle and find a barren spot, a sliver of a niche they can deforest, then plant their own patch of greenery and beat the juggernaut at some tiny part of its game.

For a time, Quidsi/Diapers.com, managed to do that. Their novel business model, which involved offering recurring orders for diapers and other essentials, was proving to be a thorn in Amazon’s side. It took the cutthroat corporate espionage of Amazon’s “Competitive Intelligence” team, along with some serious price-cutting, to finally force the issue and urge Diapers.com into a buyout.

But as savvy as Diapers.com proved themselves to be, the fight was probably always Amazon’s to win. Hell, they were willing to lose $100 million on diaper sales just to show Diapers.com how serious they were. I bet Diapers.com founder Marc Lore understands pretty well that you can go to battle with Amazon, but the wider war is kind of a façade, because Amazon’s already won it. Any battle is the war.

Lore, of course, is now running things at Jet.com. While Jet’s business model has invited skepticism, and you could argue their algorithm-driven pricing approach is more of a novelty than a real value-driver for customers, you have to give them credit for trying something novel. They’re doing some interesting things when it comes to innovating in customer service, too.

I’m usually wary of painting direct cause-and-effect relationships, but I think the Jet case demonstrates how Amazon’s dominance has provided a context — even a push — for others to innovate. To find a niche and optimize the heck out of it.

In this way, Amazon has done us all a favor by showing us what not to do: be like them.

Like the Bruce Lee quote, Amazon has forced much of the rest of the ecommerce ecosystem to:

“Be like water making its way through cracks. Do not be assertive, but adjust to the object, and you shall find a way around or through it.”

But what happens as Amazon uses its clout to continue sealing the cracks of its empire, making it even harder for competitive innovation to trickle through? This gets into knottier territory, and I still don’t know how I feel about all of it — whether the reality Amazon has created is ultimately good or not for consumers and the ecommerce ecosystem in general.

Besides, “innovation” and “disruption” can mean a lot of different things. How do we differentiate “real” innovation or disruption from merely tinkering at the margins, or worse, inconsequential song and dance?

In the Amazon-dominated reality that is online retail in 2016, perhaps it’s still possible to make a better fiddle — but what’s the use if Rome is burning?

As Amazon squeezes out niche players through sheer dominance, what’s left to innovate that can’t be bought up? Sure, someone could come along and revolutionize something like delivering personalized recommendations for a huge cross-category product set (one thing Amazon hasn’t nailed, not even close). But there isn’t much keeping Amazon from putting on the press and forcing an acquisition of that technology or company as soon as they like what they see.

Is anyone out there likely to beat Amazon at their own game anytime soon? No.

Beat them at something specific, something different, for a period of time? Maybe.

Building a better boulder

How exactly did Amazon get so dominant? The reasons are manifold, but I want to reflect on one element of their rise, one I saw firsthand when I worked there.

You might expect a company with so much market clout to be lacking when it comes to operational dynamism. That’s not what I found.

At least from where I sat, in seller services, even this small section of the company wouldn’t be mistaken for a lean startup. But for such a large organization, the seller services division displayed a remarkable nimbleness.

I saw an organization that knew how to stay on its toes despite the constraints of its size and top-dog status. There were no heads in the sand. Far from it.

Amazon’s market leadership, at least as it applies in the third-party sales arena, operates as kind of a structural constraint. The core third-party business model, and the massive market leverage it has created for Amazon, is foundational: Amazon’s in charge, and sellers fall in line or perish. And this reality, as advantageous as it is to Amazon, poses an impediment to certain kinds of creativity. Nobody’s rewriting the book anytime soon.

But I also saw how at the same time, employees were encouraged and expected to apply some creative destruction to the outer layers of that model, to chip away at the boulder’s surface so it could roll even more smoothly down the hill. If you had a great idea that could spark new seller sign-ups or existing merchants’ gross merchandise sales, you were expected to put that idea to the test, and to do it with urgency. This was evidence in action of Amazon’s longstanding cultural emphasis on acting quickly and asking for forgiveness rather than permission.

The next evolution

What’s Amazon’s future? Will the company ever turn a profit? And what the $*%^ happens when they do?

To be honest, they’ve had so much time to plan for that reality, I have to think they’re ready for it. I’m not a financial analyst, or even much of a business expert. This is just bald common sense talking. You can spin the profit assumption — that somehow, somewhen, Amazon will need to run in the black — into a number of potential scenarios and outcomes. But when it comes down to it, I have a lot of trouble believing Amazon’s not prepared for how that might unfold.

Like any huge company, some bloat has set in, but Amazon’s got it in check. Their belly’s getting big, and they can’t run like they could 10 years ago, but they can still see their toes when they step on the scale.

They’re big enough, and smart enough, and diversified enough, that their fortunes are unlikely to shift drastically anytime soon.

I just hope the same holds true for the actual Amazon.


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