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Amazon IO Report

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This is our first "Innovation Opportunity" report. We identifies opportunities in the Amazon ecosystem, in the areas of Relationship, Virtual and Integrated commerce. IO reports are published monthly.

This is our first "Innovation Opportunity" report. We identifies opportunities in the Amazon ecosystem, in the areas of Relationship, Virtual and Integrated commerce. IO reports are published monthly.

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    Amazon IO Report Amazon IO Report Presentation Transcript

    • BOLT IO Research Report Amazon IO*ABOUT BOLTBOLT is a unique Business StrategyMethodology that enables you to gaininsight and accelerate the execution of yourstrategy.BOLT is based on a simple set of conceptsthat enhances communication, alignment Jean-Jacques Dubrayand coherence.This IO report was prepared using our methodology and visualtools. I, GERAC sn’t JOHN s Doe B = mc2 Jef f Bezo ants zon’s eW Jean-Jacques Dubray “Ama n Empire, H nch Wa nt A Tec hCru Jack Greenfield orld”, Gregory Hastings The W * IO : Innovation Opportunities http://www.b-mc2.com © Convergence Modeling LLC Issue 1, Vol 1 February 2013
    • Background THE BOOK ECOSYSTEM FROM 1440 TO 1999 In the last quarter of 2012, Amazon consumer sold one billion items, for the first The book ecosystem CIRCA 1999 time. This is a far cry from the buys Hardly anything changed from the modest beginnings in 1995. invention of the printing press to the Book launch of Amazon. Today, Amazon competes effectively publishes At first, Amazon simply focused on with a broad spectrum of companies publisher becoming the largest bookstore. from Apple and Google, to Walmart and Target, to Safeway, to Serving Sizes Rackspace, to Netflix and Hulu, toFirst page of Amazon.com Groupon and of course Barns’n Noble (and so many others). startIn less than 20 years, Amazon built the most advanced global Purchase Mazecommerce platform in the world from the most boring ecosystem, orderthe book ecosystem, which barely evolved from 1440 to 1999. purchased ship delivered end Amazon is the best strategic player in tech, explained Venkat Rao a Forbes Magazine contributor and strategy consultant: “I’d even go so far as to say that of the big tech companies, Amazon is the only one that even has a strategic approach to its business. The other companies […] may make the occasional strategic move, but most of their behavior seems The book lifecycle CIRCA 1999 to emerge from internal compromises, sudden impulses, pet projects, Even from a lifecycle perspective, hardly anything changed since Aaron competitive anxiety, knee-jerk reactions or unexamined corporate values. With Montgomery Ward invented the mail-order business in 1872. Amazon though, you get the sense that you are watching a chess game unfold, in which Amazon is thinking multiple moves ahead, along several fronts. The opponents seem to fumble, rant and rave like so many headless chickens, while Amazon continues to systematically dismantle them”.BOLT IO Research Report Issue 1, Vol. 1 Feb 2013
    • Business Model THE BOOK ECOSYSTEM 2000-PresentVenkat Rao explained that “the list of key events [in Amazon’s consumerStrategy] is highly coherent” and well calculated: author 4" 7" 1. One-click shopping 9" buys sells used books 2. Free shipping over $25 10" (self) publishes advertise 3. Being first to market with a meaningful and usable, but predatory, offering for self- On Demand publishers (Amazon Advantage) at a time (late 90s) when getting traditional Book Book 8" distribution as a small or self-publisher was nearly impossible affiliate 4. Creating a used-book marketplace that made used books go from 4% of the market publishes resells new to something like 30% in just a few years publisher and used books 5. Fighting a supply-chain battle with on-demand printers, using its 24-hour shipping model as a weapon to bring print volumes to Book Surge, its in-house operation 13" reseller 6. Undercutting Lulu, the pioneering self-publishing operation catering to authors, with 5" its Createspace offering, which offers authors better margins 7. Booting up the Amazon Affiliate program (which, from unverified sources, accounts for about 40% of sales) 8. Making it brain-dead simple to publish on the Kindle Search 9. Creating a royalty option structure for Kindle publishers (70% between $2.99 and 13" found $9.99, 35% above $9.99) that leaves you with an offer you cannot refuse for the under-$9.99 price range 8" 14" exclusive recommended 10. Once the traditional supply chain had been sufficiently weakened that traditional publishers were no longer very useful, ramping up direct relationships with authors referred 11. Starting with an eBook experience that was as close as possible to traditional books, but pushing the envelope as fast as readers could handle, towards more flexible Buy digital formats (blogs on the Kindle, Kindle “singles,” and with the recently Purchase one click Maze announced capabilities of the Kindle format, high-quality graphics) 1" purchase Purchase order 12. Decisively promoting a pawn (ebooks) to Queen with its book-lending model and more than $25 Purchase recent offer-you-cannot-refuse for publishers who go Kindle-exclusive for at least the purchased first 90 days (in the next year, we will likely see a shift towards an ebook-first or ebook- 2" 5" used books only strategy for many small publishers; so far, ebooks have been considered a “plus” ship ebook 13" lending resold market). print 12" 6" on demand 13. All the while, keeping the core shopping experience familiar, but pulling out all stops 6" deliver to Kindle delivered 5" resell to increase conversions and same-visit sales with mechanisms ranging from book 24h Shipping previews/searches to related-reading recommendations, and bundling end recommendationsBOLT IO Research Report Issue 1, Vol. 1 Feb 2013
    • The Competitive Landscape Amazon has purposely left some key states to the competition, with the Apple Retail Model in mind, it could well become its Achilles HeelsFrom a retail perspective, Amazon is deploying the samecommerce platform across it’s entire competitive landscape.It’s platform controls some key states in that landscape: customersare “informed” with the best and largest catalog on the planet, theyare often purchased on Amazon too, but the Web cannot “show”anything other than pretty pictures and it cannot deliver productsas fast as they can be picked up from a physical location. Nomatter how hard Amazon has tried to make the “showed” stateirrelevant, it is not, shoppers often need to see a product beforethey buy it, be it a book, a dishwasher, a 50” TV or a toy. So far,they have responded by quickly “optimizing” the process: find (onAmazon), see (in a Store), purchase (on Amazon).Retailers are responding by rapidly implementing a price matchingstrategy. Amazon will have to conquer the “showed” state of thelifecycle otherwise a Walmart will grab the purchase state andpush Amazon to start charging for referrals. !Apple’s Retail Strategy has also shown that a retail presence is akey enabler to service its products and educate the customer, The three keys to understand Amazon’s ecosystemwhich for some of the products Amazon sell is rapidly becoming a • Amazon commands 30% of product search (Google 23%) must, including the Kindle. • Big box stores have engaged in a price matching strategy to limit “showrooming” • Service and education capabilities are quickly becoming a key competitive differentiatorBOLT IO Research Report Issue 1, Vol. 1 Feb 2013
    • IO* The 3 driving forces of 21st century commerceOver the last decade, Amazon has grown to be one of the best run, most innovativecompany and certainly one of the fiercest competitors in the world. However, we alsobelieve that retail is undergoing a massive transformation towards relationship, virtual and Relationship Commerceintegrated commerce and Amazon leaves many Innovation Opportunities open. Sell to the relationships between peopleHistorically, Amazon has heavily invested on the “purchased - delivered” transition of the and between people and productsorder lifecycle. This was, of course, the only way to compete effectively with physical • Apple Cards applicationstores. Even today it continues to invest heavily in that area with Amazon Lockers. • Retailer need to track theYet, retailers from Nordstrom to Walmart and even Apple are showing that the barriers relationship between people andbetween retail and e-tail are quickly fading and price alone will no longer be a viable between people and their productscompetitive advantage in the context of “delivery matching”. Even though logisticsremain the keystone of retail, higher level (and higher margin) capabilities ranging fromservice to assistance to education can quickly become a must have to retain eversophisticated shoppers in your ecosystem.Amazon is starting to experiment with integrated commerce. Last year reports have Virtual Commerceemerged that it will start selling physical goods through Kindle (Android) apps. Amazon Most businesses have built their value inneed to transform its catalog into a series of apps which provide commerce capabilities optimizing the coupling of 3-5 processes.integrated with the tasks their customers are trying to accomplish. This is no longer true, business processAmazon’s investment in Living Social does not seem to provide the return it expected. decoupling is very disruptive because itBoth Groupon and Living Social are fighting for their lives while Zulily is thriving. Amazon enables “virtual commerce”needs to understand that its platform represents a massive competitive advantage to • Zulily, AirBnB drive the decoupling of business processes across all commerce activities and lead the • Point of Sales need to be integrated“virtual commerce” revolution, again, with a large network of affiliates. with virtual storesAmazon is furthest behind in relationship commerce. When everything will be said anddone, Jeff Bezos will realize that relationship commerce maybe its biggest blunder. Withpossibly the largest customer base in the world combined to its ability to track the Integrated Commerceshipment of presents to friends and relatives, Amazon has never invested in weavingthese relationships into a commerce function. The same thing is true of the relationship Mobile computing offer a uniquebetween people and the products they buy. Amazon mines that information to sell new opportunity to assist (and sell to)products but has no particular focus on replenishment of consumables, maintenance, consumers who are performing specificrepair or operations. tasksAmazon’s ecosystem represents a massive opportunity for innovators to create solutions • Skylanders Cloud Patrol applicationfor relationship, virtual and integrated commerce on Amazon’s platform. • Amazon is quickly ramping up toIf you enjoyed this report or if you want to learn our methodology or discover more support a network of affiliates withrelationship, virtual and integrated commerce opportunities, you can purchase a copy of an in-app purchase SDKour book on Amazon or iTunes. * IO : Innovation OpportunitiesBOLT IO Research Report Issue 1, Vol 1 Feb2013