a16z Board Partner and former Microsoft executive Steven Sinofsky had a great post on Medium (originally a tweet storm) in which he shared an alternative view on Amazon’s journey. Instead of the usual narrative about world domination, he makes the case that this Amazon’s moves are Amazon just becoming a traditional retailing empire – like Sears, WalMart, et al.
For Amazon’s logistics mastery, think of Walmart in the 1980s. For the loyalty driven by Amazon Prime, think of the Sears store credit card. For Amazon Basics, look at house brands of nearly every retailer. And, for Amazon Advertising, look at the channel structure (rebates or discounts for shelf placements) of every retailer.
Again, it is a great post and is right on most counts.
That said, while all of this points to Amazon becoming a retailing behemoth just like those of the past, I think technology available today enables a behemoth of hitherto unprecedented size, scale, and strength.
The obvious counter point to all this would be to look at the past. Walmart’s dominance felt unbeatable – until it wasn’t. But, let me explain why I look at Amazon’s dominance differently.
(1) The online-offline combination at scale is formidable. Anyone who’s taken a class in Supply Chain will tell you that it is impossible to be both broad and efficient on one channel. Online distribution and centralized warehouses are great for expensive products with high demand uncertainty (TVs, diamonds). They suck for steady demand, low value products.
Put simply, Amazon’s online business is very efficient at shipping you books or CDs or even televisions – but is very inefficient at shipping diapers. So, it was only a matter of time before Amazon expanded into physical retail (3000 stores are on the way by 2021).
Omni-channel retailing makes the prospect of a profitable “Everything Store’ very real.
(2) 4 Stars is made possible by the retailer – Go is made possible by the technology giant. Amazon announced a new store called “4 stars” in New York City. The store will feature the most popular products bought by New Yorkers on Amazon. It makes complete sense and is something Amazon is well positioned to pull off. The challenge with physical stores is optimizing sales per sq foot. Here, Amazon will only sell the most popular items. Social proof works.
You can imagine other retailers with massive online footprints (there aren’t many – but you can still imagine it) pulling something like this off.
Amazon Go, however, is about more than that. Go brings together mastery in computer vision and deep learning that has been honed for years thanks to an ecosystem that features projects like Alexa and AWS. There isn’t another retailer on the planet who can pull this off. In fact, I’d wager that there are less than ten companies on the planet that have the talent required to do this. Amazon is part of a very elite group of technology leaders.
(3) In the race to build the OS for the home, Alexa is the one to beat. Amazon has been going after the home for a few years now. After a few failed experiments, the combination of Alexa and Echo have definitely been a home run. But, in typical Amazon fashion, they’ve sought to build on that. Whether it is attempting to get to know your wardrobe via the Echo Show, be your home security vendor via Ring (acquired), and the recent Alexa microwave, Amazon is the clear frontrunner.
Again, the technology chops required to make Alexa work rules out every retailer. We’re thus left with 3 other companies with working (to various degrees) personal assistants – Apple, Google, and Microsoft. Facebook could be added to the list and will likely give it a shot too.
Microsoft is (mostly) focused on the workplace and Apple’s DNA is decidedly not mass market retail. All this brings us to Google and maybe Facebook.
We can begin by ruling out Facebook’s chances. Ads is a problematic business model when you’re creating home devices with personal assistants that listen to people’s most intimate conversations. And, Facebook has repeatedly proved it will use any and all data available (including what you share for security purposes) to target ads. That’s not going to be helpful in their quest for the home.
That, then, brings us to Google. The biggest challenge Google faces is the same as that of Facebook – it is an advertising company. But, luckily for Google and in no part thanks to its many moon shots, it has a brand that stands for more than that – at least relative to Facebook. This is getting undone with the various recent revelations about excessive tracking. That said, I’d posit that they still have hope.
And, that hope is critical because securing a foothold in retail has existential implications for Google’s growth. Steven Sinofsky’s point about Amazon’s ad business being the equivalent of retailers charging for great shelf space indicates why this is so. Since retail searches in the past two decades have generally started on Google, Google has taken home that money. But, as Amazon becomes that default place to begin the retail journey, Google will lose out heavily on future growth.
So, unless Google does what all successful retailers do and builds a successful house brand (Google Shopping), it is going to lose a massive portion of the e-commerce pie. If Google is to succeed in this, I believe Google will need to draw a strong and visible separation between its ad monetization and Google Home. If people perceive a strong connection, they will not buy.
I stress “perceive” because Amazon has a rapidly growing ad business too. Customers, however, think of Amazon as a retailer first. And, perception matters.
(4) The internet has created global (i.e. world minus China) winner take all effects – especially for platforms. The internet has enabled global domination by a few corporations at an unprecedented scale. Steven Sinofsky’s post points to Walmart’s scale in the 80s and 90s. But, I’d argue that Amazon is different because it is both a retailer and a platform of retailers (Fulfillment by Amazon).
It means Amazon’s domination is not limited to its ambitions as a retailer. Just as Facebook is the global internet’s (again, global = world minus China) default town square, Amazon is the default market with merchants from all across town. That’s something Walmart or any major retailer in the past never had.
I think that is also why the narratives around retail and ridesharing seem to be running parallel. Just as we’re seeing massive global ridesharing networks consolidate into two opposing forces (Uber, Softbank, Didi, Grab vs. Lyft, Go-Jek, Waymo), retail pits Amazon versus Walmart, Google, and JD.com. The stakes are much higher compared to the 1980s and 90s.
(5) Amazon’s momentum can likely only be stopped by two forces – the government and itself. In sum, I think Steven Sinofsky is right in saying that a lot of what Amazon is doing isn’t as disruptive as is often portrayed. But, I do think equating Amazon to every other retail empire doesn’t do it justice. Its mastery of omni-channel retailing, access to cutting edge technologists who are building for Alexa and AWS, and its formidable platform chops make it really hard to beat.
As a result, I believe there are only two possible ways Amazon’s expansion will be stopped – regulation or poor strategy/execution on its part. As long as Jeff Bezos is around, my guess is that we’re effectively left with government/regulation as the only realistic option.
(6) I’m hopeful Amazon will help build out a better global retail empire. While they’re at it, I’m hopeful team Bezos will help build a better global retail empire in the coming decades. There’s benefits to massive consolidation and I’m hoping some of these benefits will be used for good.
3 areas where I’d love to see Amazon innovate –
1. Ethical global supply chains. We live in a world where everyone owns a smartphone – however, only a tiny minority of which are ethically built. Amazon’s heft means it can make ethical standards mandatory for its 3rd party retailers as well as its own supply chain. Amazon’s internal recruiting famously has “bar raisers” – folks who form part of the interview panel to ensure they’re raising standards. I’m hopeful they’ll raise the bar on supply chains too.
2. The Amazon recycling program. What if Amazon created program to recycle its famous cardboard boxes?
What if, for example, this program recycled both boxes and goods purchased on Amazon?
3. More sustainable products. Building on the above two points, what if Amazon pushed for more sustainable products by making more of them available on Prime?
At Amazon’s scale, every step made toward sustainability will be a giant leap forward.
I’m well aware Amazon’s past record in these areas hasn’t been great. Their treatment of their warehouse employees has come under fire in the past. Better often makes margins worse and it is, after all, still day 1 at Amazon.
However, I’m hopeful there’ll come a time when Team Bezos reconciles the fact that it is also year 20 at Amazon. While they’ve (admirably) retained their scrappiness, they’re also among the most powerful corporations on the planet.
And, if responsibility is proportional to power, they certainly have a whole lot of it.