Amazon Is Out-Amazoning Amazon

by David Wyld 4 months ago in business

If you think Amazon is the dominating force in retail today, you are right, but not for the reason most may think!

Amazon Is Out-Amazoning Amazon

Since DARPA (the U.S. military's Defense Advanced Research Projects Agency) laid the foundation for the Internet and Sir Tim Berners-Lee invented the World Wide Web (no, Al Gore had nothing whatsoever to do with it!), one thing has been a constant as the online world has evolved: What you think is likely to happen is not what actually happens. In instance after instance in the now decades-long history of the Internet, the so-called "experts" and futurists—with the accuracy that makes futurism a field that literally anyone can be an authority in—have been consistently wrong in anticipating how the Web would develop and who the winners and the losers might be because of that.

Trust me, as a strategic management consultant and professor with more rings around the tree that he would like to admit, as hard as it might be for twenty and even thirty-somethings now to believe based on what has been available to them in their formative and early adult years, the world of online retail has not evolved as the experts projected in the early days of online commerce. Believe it or not kids, Amazon was not always Amazon! In fact, Amazon is just 25 years old this year (2019). When the company was founded by Jeff Bezos in 1994, as chronicled in The Everything Store, he and his then wife (future independent woman-multi billionaire divorcee MacKenzie Bezos) drove across the country to drop anchor in Seattle for his crazy idea, it was to sell books on the Internet, not everything on the Internet! So the Amazon that we see today as the de facto place to turn to first for darn near everything was founded as just another niche player in online commerce. However, it was Amazon's marketing prowess and strategic foresight that enabled the company to become the dominant player in online retailing that it is today. Witness the explosive growth in revenues that Amazon has experienced over the past decade.

Annual net revenue of Amazon from 2004 to 2018 (in billion U.S. dollars)

Source: Statista, May 2019 - (https://www.statista.com/statistics/266282/annual-net-revenue-of-amazoncom/)

However, as much as many of us think of Amazon as the default, go-to destination for just about anything that we want to buy today, Amazon itself is changing how it presents what is available for sale on the site in a very meaningful way. In fact, what is happening is nothing less than a "sea change" with Amazon, even as the reputation of Amazon as the go-to destination for anything and everything that you might need or want to buy today is growing.

Consider the metrics on actual Amazon sales as they have occurred on the Amazon site. What is happening is this. Even as Amazon is more and more becoming the default destination on the Web that both individuals—and increasingly corporate buyers—turn to on the Web to buy the "something" that they need/want to buy, more and more of the sales on Amazon are coming from third-party sellers.

As can be seen in the graphic below in data compiled by the research firm Statistica, around 2015, the aggregate dollar amount of goods sold by third-party sellers on Amazon reached a point where that total outpaced the aggregate sales volume of Amazon's direct sales. And since that inflection point, the trend has only been accelerating.

The Growth of Third-Party Sales on Amazon, 1999-2018

These third party sellers are companies that make their goods available for sale on Amazon, giving the consumer an alternative to buying items from Amazon directly. In many instances, the third party sellers may be offering items that are not available from Amazon directly. However, in other cases, the online customer may well be presented with a choice of purchasing an item from Amazon directly, or alternatively, from a third-party seller on Amazon. And thus, Amazon serves to be both a platform for e-commerce and a competitor for e-commerce at the same time. While this blurs the lines for consumers as to who exactly is the seller with what they are looking to buy, the key thing is that Amazon remains the destination that they go to in order to fulfill the felt need that they have for a particular good.

What does this mean in reality? What it entails is that while we still think of Amazon often first, and, in actuality, only, as where we got to search for anything to buy on the Web, Amazon itself is changing to become more of a platform for e-commerce, rather than the complete e-commerce solution itself. As much as the company has used its storage and data management capabilities to create an entire web services enterprise for business, Amazon is transitioning from being the seller of all things to the provider of the platform on which all things are sold. Now this may seem like a semantic difference, but in actuality, this makes for a huge strategic shift, both for the company and for us as consumers. As we go forward, we may more and more go to Amazon as a source of alternative sellers of products, much as we do on eBay today, rather than as the seller of the products we are looking to buy.

This means that Amazon is fast becoming an e-commerce platform with really unparalleled reach and scope, and as such, it will likely become, in time, even more so the "go to" destination for both individual consumers looking to make purchases and for small and even large businesses conducting buying for their organizations. And so yes, it is very likely that for at least a few, if not many, years to come, Jeff Bezos will have the last laugh. This is because Amazon is rapidly assuming the role of the Web itself. As consumers go to the Web to buy "whatever," yes some will search on Google and Yahoo and other such sites. But as Amazon becomes more and more equated with shopping on the Web, this means that the growth of Amazon as a platform on which e-commerce is transacted will likely see rapid growth over the coming years. And as more people, both in their personal and professional lives, come to equate being on Amazon with shopping for the things that they need to buy, Amazon will be able to expand and further its reach and become an even greater force in e-commerce, even if its own direct sales revenue may in fact not keep pace with those selling their products through the Amazon Marketplace.

About David Wyld

David Wyld ([email protected]) is a Professor of Strategic Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, publisher, executive educator, and experienced expert witness. He is the founder and publisher of both The IDEA Publishing (The Best in News, Information and Content Marketing) and Modern Business Press (Creating the Readable - and Enjoyable - Academic Journal - Not an Oxymoron!).

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business
David Wyld
David Wyld
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David Wyld

Professor, Consultant, Doer. Founder/Publisher of The IDEA Publishing (http://www.theideapublishing.com/) & Modern Business Press (http://www.modernbusinesspress.com)

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