From a real-time perspective, a snapshot of Amazon reveals a sprawling marketplace with the potential to become the largest transactional agent in the history of the world. From a strategic perspective, the long-term view of Amazon is that of a distribution platform that has no growth limitations and eagerly invites any product, brand, retailer or service entity in the world onto its platform to share this opportunity of limitless growth.
Amazon is one of the most powerful preemptive distribution platforms in the world because it can accommodate anyone and everyone, globally and without limits.
With current sales volume of about $90 billion and growing at an approximate annual rate of 30 percent, (while S&P’s 500 had an average rate over the past five years of about 5 percent), how can any strategically astute business not jump on Amazon’s platform? In fact, according to an article in “Business Insider,” third-party merchants (small businesses and major brands), account for the long tail of 83 percent of the products purchased from Amazon (see chart). Even major brands and brick-and-mortar retailers with sophisticated and growing e-commerce businesses of their own are also third-party merchants in Amazon’s marketplace.
Playing with Amazon should be a key distribution strategy for every consumer-facing business. As I’ve written ad nauseum, this is the “distribution century,” which requires preemptively distributing one’s product to each and every consumer first, faster, more often and always ahead of the competition. By definition, this requires the product to be easily and quickly accessible on every available distribution platform, even if it belongs to a competitor. Top Shop and Brooks Brothers operating on Nordstrom’s distribution platform comes to mind.
Furthermore, Amazon’s Prime subscribers clocking in at 50 million in the U.S. and nearly 80 million globally (according to a study by RBC Capital Markets) comprise an enormously powerful preemptive target for merchants because these customers buy more, and more often. And Primers are loyalists. So if a Prime subscriber also happens to be a loyal Macy’s customer, the distribution collaboration with Amazon becomes a positive synergy for both. Macy’s gains a new customer who is shopping Amazon and happens upon Macy’s products, and Amazon gains a customer who is shopping for Macy’s on Amazon’s site.
The Rock And a Hard Place
The ”Fulfillment by Amazon” program is largely responsible for the third-party growth. Amazon manages clients’ storage and delivery and free returns, and also permits them to become eligible for Prime two-day delivery. Additionally, the rest of Amazon’s loyal consumer base is accessible to these merchants.
However, there is “no free lunch” for participating in such a powerful new distribution platform. There are two potential risks for third-party participants in the program. First, the third-party merchant’s business becomes transparent to Amazon, providing a whole range of competitive information, not the least of which is pricing and product sales volume. Such intel becomes tempting for Amazon to copy and improve on third-party success factors. In fact, this has been a deterrent for many retailers and brands, and the reason for others to pull out of the program.
The second risk factor has to do with the fact that Amazon’s fulfillment process delivers merchants’ goods in Amazon packaging, and by making the products eligible for Prime shipping, customers are required to have Prime membership, which benefits Amazon, not the third party. Both of these elements dilute the third party branding. The final touch points with the consumer belong to Amazon. Its logo is on the packaging and the speed of Prime delivery is a reminder of Amazon’s great membership service.
Finally, doing business with Amazon raises the question of who owns the relationship. This sticking point zeroes in on the fundamental success factor for winning in the 21st century: total control of one’s value chain from creation all the way through to consumption.
So the ultimate question has to be: will the risks of Amazon to copycat and dilute the third-party’s brand presence at the final touch point outweigh the global power of Amazon’s marketplace and its rapidly growing millions of loyal consumers?
My answer: preemptive distribution trumps all. One’s brand strength, integrity and value are just the price of entry. If the brand cannot stand on its own, even when sharing a presence with another brand, then the brand’s days are numbered anyway.
Sell your stuff on it – potentially the largest marketplace in the world!
