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.

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Amazon IO Report

  1. 1. BOLT IO Research Report Amazon IO* JOHN GERACI, “Amazon’s Jeff Bezos Doesn’t Want An Empire, He Wants The World”, TechCrunch © Convergence Modeling LLC Issue 1, Vol 1 February 2013 BOLT is a unique Business Strategy Methodology that enables you to gain insight and accelerate the execution of your strategy. BOLT is based on a simple set of concepts that enhances communication, alignment and coherence. This IO report was prepared using our methodology and visual tools. ABOUT BOLT B = mc2 Jean-Jacques Dubray Jack Greenfield Gregory Hastings Jean-Jacques Dubray * IO : Innovation Opportunities http://www.b-mc2.com
  2. 2. Issue 1, Vol. 1 Feb 2013 Serving Sizes 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 to emerge from internal compromises, sudden impulses, pet projects, competitive anxiety, knee-jerk reactions or unexamined corporate values. With 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”. In the last quarter of 2012, Amazon sold one billion items, for the first time. This is a far cry from the modest beginnings in 1995. Today, Amazon competes effectively with a broad spectrum of companies from Apple and Google, to Walmart and Target, to Safeway, to Rackspace, to Netflix and Hulu, to Groupon and of course Barns’n Noble (and so many others). THE BOOK ECOSYSTEM FROM 1440 TO 1999 The book ecosystem CIRCA 1999 Hardly anything changed from the invention of the printing press to the launch of Amazon. At first, Amazon simply focused on becoming the largest bookstore. The book lifecycle CIRCA 1999 Even from a lifecycle perspective, hardly anything changed since Aaron Montgomery Ward invented the mail-order business in 1872. BOLT IO Research Report Background publisher Book consumer buys publishes start delivered purchased Purchase Maze order end ship First page of Amazon.com In less than 20 years, Amazon built the most advanced global commerce platform in the world from the most boring ecosystem, the book ecosystem, which barely evolved from 1440 to 1999.
  3. 3. Venkat Rao explained that “the list of key events [in Amazon’s Strategy] is highly coherent” and well calculated: THE BOOK ECOSYSTEM 2000-Present BOLT IO Research Report Business Model 4" 5" 7" 8" 9" 10" 13" publisher Book consumer buys publishes resells new and used books affiliate On Demand Book author reseller (self) publishes sells used books advertise Buy delivered purchased Purchase Maze order end ship ebook lending one click purchase deliver to Kindle Purchase more than $25 Purchase used books resold resell print on demand 24h Shipping referred Search recommended found exclusive 1" 2" 5" 8" 12" 6" 6" 13" 14" 13" 5" 1. One-click shopping 2. Free shipping over $25 3. Being first to market with a meaningful and usable, but predatory, offering for self- publishers (Amazon Advantage) at a time (late 90s) when getting traditional distribution as a small or self-publisher was nearly impossible 4. Creating a used-book marketplace that made used books go from 4% of the market to something like 30% in just a few years 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 6. Undercutting Lulu, the pioneering self-publishing operation catering to authors, with 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 9. Creating a royalty option structure for Kindle publishers (70% between $2.99 and $9.99, 35% above $9.99) that leaves you with an offer you cannot refuse for the under-$9.99 price range 10. Once the traditional supply chain had been sufficiently weakened that traditional publishers were no longer very useful, ramping up direct relationships with authors 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 digital formats (blogs on the Kindle, Kindle “singles,” and with the recently announced capabilities of the Kindle format, high-quality graphics) 12. Decisively promoting a pawn (ebooks) to Queen with its book-lending model and recent offer-you-cannot-refuse for publishers who go Kindle-exclusive for at least the first 90 days (in the next year, we will likely see a shift towards an ebook-first or ebook- only strategy for many small publishers; so far, ebooks have been considered a “plus” market). 13. All the while, keeping the core shopping experience familiar, but pulling out all stops to increase conversions and same-visit sales with mechanisms ranging from book previews/searches to related-reading recommendations, and bundling recommendations Issue 1, Vol. 1 Feb 2013
  4. 4. Issue 1, Vol. 1 Feb 2013 From a retail perspective, Amazon is deploying the same commerce platform across it’s entire competitive landscape. It’s platform controls some key states in that landscape: customers are “informed” with the best and largest catalog on the planet, they are often purchased on Amazon too, but the Web cannot “show” anything other than pretty pictures and it cannot deliver products as fast as they can be picked up from a physical location. No matter how hard Amazon has tried to make the “showed” state irrelevant, it is not, shoppers often need to see a product before they 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 (on Amazon), see (in a Store), purchase (on Amazon). Retailers are responding by rapidly implementing a price matching strategy. Amazon will have to conquer the “showed” state of the lifecycle otherwise a Walmart will grab the purchase state and push Amazon to start charging for referrals. Apple’s Retail Strategy has also shown that a retail presence is a key enabler to service its products and educate the customer, which for some of the products Amazon sell is rapidly becoming a must, including the Kindle. Amazon has purposely left some key states to the competition, with the Apple Retail Model in mind, it could well become its Achilles Heels BOLT IO Research Report The Competitive Landscape ! The three keys to understand Amazon’s ecosystem • Amazon commands 30% of product search (Google 23%) • Big box stores have engaged in a price matching strategy to limit “showrooming” • Service and education capabilities are quickly becoming a key competitive differentiator
  5. 5. Over the last decade, Amazon has grown to be one of the best run, most innovative company and certainly one of the fiercest competitors in the world. However, we also believe that retail is undergoing a massive transformation towards relationship, virtual and integrated commerce and Amazon leaves many Innovation Opportunities open. Historically, Amazon has heavily invested on the “purchased - delivered” transition of the order lifecycle. This was, of course, the only way to compete effectively with physical stores. Even today it continues to invest heavily in that area with Amazon Lockers. Yet, retailers from Nordstrom to Walmart and even Apple are showing that the barriers between retail and e-tail are quickly fading and price alone will no longer be a viable competitive advantage in the context of “delivery matching”. Even though logistics remain the keystone of retail, higher level (and higher margin) capabilities ranging from service to assistance to education can quickly become a must have to retain ever sophisticated shoppers in your ecosystem. Amazon is starting to experiment with integrated commerce. Last year reports have emerged that it will start selling physical goods through Kindle (Android) apps. Amazon need to transform its catalog into a series of apps which provide commerce capabilities integrated with the tasks their customers are trying to accomplish. Amazon’s investment in Living Social does not seem to provide the return it expected. Both Groupon and Living Social are fighting for their lives while Zulily is thriving. Amazon needs to understand that its platform represents a massive competitive advantage to drive the decoupling of business processes across all commerce activities and lead the “virtual commerce” revolution, again, with a large network of affiliates. Amazon is furthest behind in relationship commerce. When everything will be said and done, Jeff Bezos will realize that relationship commerce maybe its biggest blunder. With possibly the largest customer base in the world combined to its ability to track the shipment of presents to friends and relatives, Amazon has never invested in weaving these relationships into a commerce function. The same thing is true of the relationship between people and the products they buy. Amazon mines that information to sell new products but has no particular focus on replenishment of consumables, maintenance, repair or operations. Amazon’s ecosystem represents a massive opportunity for innovators to create solutions for relationship, virtual and integrated commerce on Amazon’s platform. If you enjoyed this report or if you want to learn our methodology or discover more relationship, virtual and integrated commerce opportunities, you can purchase a copy of our book on Amazon or iTunes. BOLT IO Research Report Issue 1, Vol 1 Feb2013 The 3 driving forces of 21st century commerceIO* Relationship Commerce Sell to the relationships between people and between people and products • Apple Cards application • Retailer need to track the relationship between people and between people and their products Virtual Commerce Most businesses have built their value in optimizing the coupling of 3-5 processes. This is no longer true, business process decoupling is very disruptive because it enables “virtual commerce” • Zulily, AirBnB • Point of Sales need to be integrated with virtual stores Integrated Commerce Mobile computing offer a unique opportunity to assist (and sell to) consumers who are performing specific tasks • Skylanders Cloud Patrol application • Amazon is quickly ramping up to support a network of affiliates with an in-app purchase SDK * IO : Innovation Opportunities

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