Amazon is planning to be the most ubiquitous company to ever exist
The evolution of Amazon is not less but a remarkable journey, starting from Jeff Bezos garage in 1996 throughout 7 years of losses, it's now close to a $1T market cap, reaping off the benefits of an ever-increasing customer base and its accompanying network effects. One might wonder how much room is left to grow for Amazon.
Looking at the different markets in which the company is in or planning to roll out on gives a clear hint for Amazon’s prospects. The company is not planning to halt its expansion and will continue to aggressively grow, which is what it seems like any other big tech company is attempting to do.
Amazon’s growth is incumbent to the unveiling of three prospective situations: the anticipated growth of e-commerce, Amazon’s voice bid and the success of its diversification strategy into services.
E-commerce hasn’t taken over just yet
If we look at e-commerce sales over the total retail sales in the United States, it may give the impression that we are still at the infancy stage of online shopping. A mere 14.3% of retail sales have been done through online channels in 2018, and according to the last Forrester report, in 2022 e-commerce will have reached 36% of retail sales. If Amazon maintained its market share, it would be on its way to doubling its e-commerce sales in less than 4 years.
Businesses like Shopify are empowering company owners to make the online transition. Wix, which was originally only focused on being a website builder, also allows users to create their e-commerce. Companies are sustaining the retailer exodus towards online platforms.
The main value proposition offered by these two companies is the ease of creating a platform embodying the user’s brand proposition towards the public, something Amazon has never offered nor plans to in its foreseeable future. The company has always offered a simplistic almost bland user experience, entirely focused on frugal-shopping — many of Amazon’s products allow users to “Buy now with 1-Click”.
And so even though Wix and Shopify offer a very attractive customer solution, third-party sellers are turning into selling through Amazon. The main reason behind it is that they gain instant access to Amazon’s 30M monthly users, whereas building a website from scratch will turn into investing in promotions and brand development to build traffic.
The tremendous success of Amazon’s fulfillment centers and Amazon Prime are the main reasons behind this spurt. Sellers love focusing on the core of their businesses and leaving the hefty shipping and customer service to Amazon’s fulfillment centers. On top of that, Amazon Prime is a total sensation among its users, building on the retention and growth of the platform’s user base. As a co-effect, the more users sign up for premium, the more the userbase grows and the more attractive Amazon becomes for sellers.
“Alexa, what’s on my shopping list?”
Echo, empowered by the cloud technology Alexa, was inspired by Star Trek’s voice computers. A risky multibillion-dollar investment has turned out a great way to contact users, with presence in more than 150 devices, ranging from headphones to cars and smart homes.
Market research behind the Echo launch was not extensive and was approached rather more like an experiment. Even Jeff Bezos stated in his 2018 shareholder’s letter that “No customer was asking for Echo”. If the importance of voice-enabled devices was not as clear back then, it is now a reality that voice will be a big part of our daily lives in the coming years.
By 2022 the spending in voice shopping will have multiplied by 20 times in the United States alone according to OCCStrategy, totaling an amount of $40B. Amazon has a huge advantage in tapping into those sales, as it now accounts for roughly 75% of voice-enabled devices market share. And its speaker has proven to be an exceptional salesman, as 85% of its suggestions end up being selected by its users.
Like its also giant peers Apple and Google, Amazon is tapping into services. Although Amazon had some video-related businesses since 2006, its real growth did not start until 2016, the year Prime Video launched worldwide. Big tech companies tapping into online video subscriptions have hinged pure-play companies like Netflix, who suffered its first major loss of subscriptions in early July 2019.
Besides audiovisuals, Amazon has a music subscription service. The company had already worked in Music services to the public, but it had never offered it as a subscription. The Amazon Music Unlimited service has grown tremendously, close to 70% over the last year. Once again, diversified tech companies are getting an edge on the pure-play players like Spotify.
Amazon’s music service is thriving due to several reasons. First, Amazon Prime existing users are getting free-trials for the music service. Second, music can be directly delivered through Amazon’s hardware thanks to Alexa. Third, Amazon Music is being offered in bundles: Amazon music costs $10 as a single service, $8 for prime users and only $4 if you listen to it on the Echo speaker. Lastly, it’s tapping to a different user-base than Spotify’s users: people over 55-years of age are three times more present in Amazon than in Spotify.
Big tech’s aggressive growth
Amazon is adopting an aggressive growth strategy, but it’s not the only one doing so. Google’s parent company Alphabet recently lost $572M in its AI company Deep Mind, and Apple is further investing in its self-driving car infrastructure.
It now seems that in order to remain competitive big tech firms have to sacrifice stability for growth, even if they have to take upon larger debts to fund expansion. By not complying to the general evolution of its peers, Amazon would win large short-term profitability in detriment of long-term relevance, the latter being in all big tech companies vision.