I view Amazon as the biggest competitor of almost all companies running independent ecommerce website operations. It is very likely Amazon will remain the biggest competitor for the foreseeable future.
This might be stating the obvious for those who already work in the ecommerce market, and their CEO Jeff Bezos has openly stated he wants Amazon to be the company "that sells you everything".
The question is, why do companies help their biggest competitor and risk putting themselves out of business?
But it is worth starting by looking at why Amazon is such a success and why they are so hard to compete with.
Why Amazon is such an ecommerce success
Amazon has the best ecommerce technology in the world and they put their “customers” first. Most people reading this will be Amazon customers and will remain so.
Amazon provides everything that you could want in an ecommerce site — choice, price, convenience, security, great customer service and an overall excellent experience.
They back up all this with a hugely powerful commercial operation. Simply put, most of us enjoy shopping with Amazon.
This competition benchmark set by Amazon is a great thing for the consumer. Their high standards have helped to drive the entire ecommerce industry’s technology and standards upwards.
Why do companies support Amazon?
But back to the initial question:
Why do companies support and promote Amazon, their biggest competitor?
What do I mean by this? Companies willingly:
- Sign up to Amazon to sell;
- Hand over product and price data (that it has cost them generally tens of thousands of pounds to assemble);
- Pay Amazon round 20% of their net sales.
And this all happens with very little thought. Companies would obviously never do this for any other competitor, never mind their biggest competitor.
What Amazon gets from sellers
Amazon then have all of the data for free. They do not have to invest in the stock. They can test to see what sells and what does not with a huge customer base.
They can bid automatically on PPC and almost certainly come first for the sellers’ products because of high CTRs. They can also start remarketing successfully.
The upshot is that the selling company does all the work and then loses its PPC rankings to Amazon. This means significantly increased future costs for any traffic to their own site.
However this is only part of the story. The selling company fulfils all of Amazon’s customers’ orders of their stock. After subscribing to Amazon’s policies the company is not allowed to put in its own sales collateral with the product or get the customer’s email address.
The company has won an order at a 20% CPA after handing over its data to Amazon.
However Amazon has won something much more valuable — they have won a customer by leveraging their competitor’s data and work. Amazon has also acquired useful market information.
The power of Amazon
All this is the case for standardised commodity style products, but it is also the same for “home brand” products.
Amazon has very powerful software to watch what sells where and models what the profit margin is. Based on this value the software will automatically flag products for their procurement department to seek out to buy.
Even if these are branded products that a company owns and has produced themselves, it will not offer total protection in many cases. Amazon will be aware and seek an alternative that it can then sell to their customer (formerly your customer) and build revenue from that product set.
Amazon also has the right to:
- Cancel your selling account without notice;
- Find out who supplies your product;
- Cut you out completely and take a hit on margins;
- Cut prices;
- Take your market.
Companies go along with this strengthening their biggest competitor in markets they plan to compete in continually without considering the consequences.
Exceptions — companies that should go all in with Amazon
Some companies will benefit by working with Amazon. These are generally companies that:
- Require a short-term boost in sales for cash flow;
- Have runs of products that once sold are gone and that they do not need to compete with Amazon on;
- Are closing down or clearing part of their business and want to dump stock;
- Want to use Amazon to test a market themselves;
- Have a trading model of buying and selling stock and moving on to different product stock once one batch is cleared;
- Are not in markets for the long term.
Amazon is a totally different proposition to other marketplaces such as eBay. Amazon is not just a marketplace; it is a market participant just like you.
In a financial market, the equivalent of Amazon would be the London Stock Exchange — they provide the market, but they are also the biggest trader in all the stocks on its own exchange.
Companies should have a very clear strategy on Amazon and should think carefully about the consequences of this strategy in the mid- to long-term.
We will all remain Amazon customers because they provide a great customer experience — and this is alongside their commercial strength that makes them such a huge competitor of all independent sellers in the ecommerce industry.
Note: The original version of this article was published in August, 2015.