Posted by Sucharita Mulpuru on August 3, 2012
Last week, my colleague Brian Walker and I released a lengthy overview of Amazon, its role in retail, and what eBusiness executives need to do to compete with this growing retail force. The larger undercurrent of the report is that Amazon is affecting everyone’s business: its tentacles extend far into digital and physical goods, it is vertically integrated but also a distributor, it is unafraid to spend money to gain market share, and it can successfully compete on price with retailers far bigger than itself. And when disruptive forces arise, they dominate for years. So that begs an even bigger question of Amazon: if this is its decade, who will displace it? The company seems unstoppable now, and it will take a radical new business to displace it. Here are three possibilities:
- Walmart with a monster marketplace. Walmart in its current form will only continue to lose share to Amazon. While Walmart continues to focus on aggressive pricing by pressuring suppliers, Amazon has an equally compelling value proposition for shoppers because it has a lucrative marketplace. And while Walmart has dipped its toe in a marketplace its own, it’s really been a mediocre effort. BUT if Walmart really had a bona fide marketplace, say, by acquiring eBay, it would give it an economic model more similar to Amazon’s: a high-margin business that can bolster the low-margin one. And deeper Walmart pockets mean that someone could finally out-Amazon Amazon.
- eBay with no listing fees. If Walmart doesn’t have the guts to figure out how to win back the market share that Amazon has taken, the next player is eBay itself. Amazon’s entire profit model hinges on its ability to offer a vast selection, which needs to come from marketplace sellers. And to date, Amazon has created a compelling alternative to eBay in large part because it doesn’t charge listing fees. The single biggest change to disrupt that ecosystem would be if eBay eliminated its lucrative listing fees. That’s highly unlikely, as eBay doesn’t even see itself as a competitor to Amazon (rather, its focus is on X.commerce, which is a B2B play, and PayPal), but this is the radical change that would give Amazon a run for its money.
- A vertically integrated retailer. One of the most interesting business models to surface in the most recent eCommerce boom has been the subscription model. While taking some of the best parts of the flash sale world — the urgency, the limited assortment, the call to action — these models are unencumbered by the biggest challenge of the flash sale world — access to inventory. In fact, these businesses are the opposite — they manufacture to demand and, in some cases, like the celebrity sites such as JustFab, they capture economies of scale and shift spend away from other destinations like physical stores. A slew of sites ranging from Everlane to StyleSaint promise to take advantage of this new wave of manufacturing, but in fact some of the biggest retailers like Gap or Abercrombie may be even bigger beneficiaries from a model like this because they have large customer databases and could better manage returns through their stores. Successfully locking in demand in a big way would be the biggest thing since, well, Amazon.
Google, Apple and even Microsoft could also buy themselves some of Amazon’s market share, though that’s a discussion for another day. But the biggest threat to Amazon is of course itself. Already, it is viewed as a competitor to everyone in the retail ecosystem, and its broad focus and ruthless ambition threaten to worsen the customer experience. The Kindle Fire, for instance, didn’t turn out to be an iPad killer, and if more merchants were to leave the Amazon marketplace, the company may turn out to be its own worst enemy. But for now, an Amazon that keeps stealing market share from everyone else is here to stay.
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