The Amazon Ecosystem: Prime Day or Doomsday?
eCommerce blew apart the restrictions on retailing, opening up the space for smaller businesses to grow explosively and transformationally. Never before could such small operations reach as large an audience with their products and generate the revenues they are capable of in 2017. Established retail giants have joined the bandwagon too now, albeit at their own pace and with varying degrees of enthusiasm.
Of course, one name is becoming increasingly synonymous with ecommerce, and in the retail press it is practically a byword for the apparent impending doom faced by traditional retail. Treating Amazon as the grim reaper of established chains is hyperbolic for a number of reasons, but firstly, let’s remember those small and medium sized businesses again.
These are enterprises in the genuine sense of the word, run by entrepreneurs, finding their space in the market and getting ever better at supplying it. At Volo, I’ve been privileged to meet many such people. They are nimble, driven, and smart — and they’re winning.
In the US especially, but also increasingly in Europe, these businesses are using Amazon to their advantage. It’s not just a marketplace for them. It’s a fulfillment partner, carrier, customer service center, a marketing department, and a lender.
These businesses are willing to see Amazon as an opportunity, not their enemy. After all, your enemy doesn’t typically let you sell your goods in their store, much less offer to fulfil your orders.
Naturally, this comes at a cost, and not just a monetary cost in the short term in the form of selling fees and FBA fees. The cost is that the customer is Amazon’s customer. This means that long-term, selling solely on Amazon is not a secure business foundation. They might do a whole lot for small businesses, but those businesses do well to avoid developing a total reliance upon Amazon — after all, it’s far from the only place customers will buy from.
What’s Prime Day got to do with this?
Prime Day (11th July 2017) offers a neat link between the Amazon ecosystem it has created for 3rd party sellers and the wider ecommerce ecosystem. Perhaps surprisingly, both have the chance to gain from the event.
Amazon’s aims are twofold: increase Prime subscriber numbers, and drive adoption of Amazon technology.
The Prime service is so powerful in loyalty terms that Amazon is happy to invest massively in resourcing this shopping peak so that it can make deals exclusive to Prime subscribers.
The smartest thing about Prime Day is that it kills two birds with one stone for Amazon. By using deals on their devices as headline discounts in promoting Prime Day, they drive both outcomes at once.
The losses made on the physical devices sold at such low prices are irrelevant compared to the strategic aim of achieving a kind of software lock-in not seen since the dominance of Windows. If Amazon can get a household to use all of its smart-home tech pieces, the benefits are huge — it becomes the operating system of the home. In many ways, this prize is far bigger than becoming the dominant operating system of computers.
Leaving Amazon’s ambitions aside, from the perspective of the businesses for whom Amazon is a sales channel, Prime Day is a wonderful thing. It’s a totally invented and marketing-driven sales peak they spent nothing to generate. Amazon’s deals on its aforementioned tech products act as loss-leaders, drawing huge traffic numbers to the site as a whole, and benefiting all those present.
Some might argue that businesses which take the advice offered earlier and diversify their sales channels are not genuinely seeing an increase from Prime Day traffic, as it’s cannibalised from their other sales channels. Volo sales data contradicts this viewpoint. For example, if this were true, eBay revenue should significantly drop on Prime Day. In fact, we’ve seen very little change on Prime Day for eBay compared to the same day the previous week, for the past two years.
US businesses trading on Amazon using the Volo platform saw a 46% revenue uplift on Prime Day 2016 compared to the previous week. The extra sales boost Prime Day generates does not appear to come at the expense of other revenue sources.
In fact, according to Hitwise, 12 other major retail sites in the top 20 saw a week-over-week increase in traffic on the day. eBay saw 27 million visits on the day in 2016, and macys.com experienced a traffic surge of 41% on the previous week. Prime day 2016 was surpassed in traffic terms only by Black Friday and Cyber Monday in 2016. When Amazon spends millions to market Prime Day, it’s far from the sole beneficiary.
The wider ecommerce world benefits from a new shopping peak too — and those independent businesses trading on Amazon Marketplace benefit even more.
But shouldn’t businesses be afraid of Amazon?
Any business trading on a marketplace or sales channel they don’t totally control should definitely have a certain wariness, and they should look to move away from dependence on any given sales channel. That certainly applies to businesses selling on Amazon. However, the type of business I described earlier has no need to be genuinely fearful if they manage this risk appropriately.
That said, there are businesses who should be afraid of Amazon, or more specifically they should fear what it represents. The success of Amazon is in figuring out what customers want, and doing it well. In that sense, it practically holds a mirror up to consumer desires. For businesses who look at Amazon and are afraid, there is a much bigger problem for them — they’re afraid of adapting to what shopping online looks like in 2017. Is ecommerce to blame for traditional retails demise? Probably not it, its more likely due to them not evolving or adapting to their market and consumers. They could learn something from those smaller players riding on the success of Amazon.
