Will the Amazon model sustain?
“If you want to create and capture lasting value, don’t build an undifferentiated commodity business.”
-Peter Thiel
Most of you who clicked this article would consider me a fool to write a story like this. Amazon is THE biggest E-Commerce giant in the world and anyone who thinks it is not is downright dumb….Right.
Amazon emerged in the year 1995 as a retailer to sell books online. From there we saw an exponential evolution to what it is today. Amazon now sells anything from clothing, electronic gadgets to even fresh fruits with the acquisition of Whole Foods. With every passing month, Amazon saw a parabolic increase in the number of products and sellers listed in their platform but with more number of products the ease of cataloguing became harder and harder. How many times have you gone into page 3 after you hit search?
Let me explain it in a simpler way. Amazon started as a book shop, that grew into a Supermarket but it didn’t stop there. It is scaling way beyond what it thought it could achieve. This directly affects our user experience because the more the products more the chaos. We human beings always thought that more choices, will enable us to decide better, but psychology has proven that if the number of choices goes beyond a threshold, it is less likely we are to make a decision. Read more about The Psychology of Choice here.
This becomes even worse if the product we are looking for requires the user’s creative insight. Buying products like clothing, phone cases, paintings etc becomes super hard due to the unlimited number of choices which comes in different colours, designs and brands.
Malls are cooler.
So hey, let me correct what I said before. More products may kill Amazon’s cataloguing business but it won’t kill Amazon the company, because Amazon was never an E-Commerce company. Surprised?
Peter Thiel in his book Zero to One talks about how monopolistic companies will try to make themselves undifferentiated with their competitors so they can protect themselves and their unmolested profits. The biggest lie Amazon sold us was that it is an E-Commerce company, it is not, it is the world’s biggest and most efficient warehousing and logistics company PERIOD.
We can compare this model with that of malls. Since consumers are getting more and more brand loyal, they go to certain selected brands, rather than to a shop that sells multiple brands together. Amazon knew that this problem can effectively slow the company’s growth in the years to come.
If you do a study of all the R&D Amazon is doing in-house, like developing drones for delivery, developing Amazon maps for delivery partners, improvements in Amazon Prime Bundle so consumers opt for faster delivery etc, we see that their focus is on bringing your product the moment you click buy. It is said that Amazon’s AI will get so efficient that in the years to come, the product would reach your nearest fulfilment centre even before you click the buy button!
Amazon’s vision statement is as follows
“To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.”
Amazon’s aim is not to become just any E-commerce business, but it wants be the center of the E-commerce industry, like a Search Engine. This vision is already visible, consumers would now rather go to Amazon to search for products than go to Google. So in the years to come Amazon will surely embrace the problem we discussed above and open its doors for other E-commerce enterprises also to utilise services provided by Amazon like Technology enabled Warehousing by Amazon Fulfillment Centres, Faster deliveries with Amazon Transport Service (or the ATS) and even an Amazon Payment Gateway (like Amazon Pay). So a company like Zara which already has a very user friendly site that allows you to buy just their products, no longer have to worry about any of the warehousing, logistics or payment related problems, Amazon will cover those services for you.
Pivoting is essential for every company to survive in this evolving world and the best way to pivot is by solving the evolving problems we consumers face.
