Happy tenth birthday, Amazon.
It's hard to imagine life without the Web - and certainly hard to imagine life without some of the Web's long-term players - like Amazon. But Amazon has only just had its tenth birthday! Imagine that - ten years ago, e-commerce was the new frontier. Today - it's simply how we do business.
26 July 2005
Ten years ago, Amazon was an infant: a bright idea by Jeff Bezos, who had a handful of employees packing books to fulfil a small (but rapidly growing) number of on-line orders. Today, Amazon sells almost everything you can think of, a turnover of $6.9 billion USD per year and around 40 million active customers. (And let’s put things in perspective here: Dell, one of the biggest computer resellers, ‘only’ sold kit worth $3.5 billion USD last year.)
Well, we’d all like a slice of that kind of action, but, ten years on, what have we learned about e-commerce - and what can be learnt from Amazon?
Well, being first to the party is most definitely an advantage. The idea of Amazon is so obvious it’s a wonder it hadn’t been done. Bezos looked at the exponential growth of the Internet and realised that anything which grew that quickly wasn’t going to go away.
But one of the real key factors in Amazon’s success is its diversification. Bezos originally only planned to sell books, but his customers pestered the company for more products, so he started to sell music and films, too. This is classic one-to-one marketing, where you acquire a customer with one product, then find out what that customer spends the rest of his or her cash on - and then provide it. There are some good examples of this elsewhere. Take supermarkets selling petrol - it’s not their core business nor is it in any way synergistic to their core business. But the fact is that most shoppers arrive in cars - which need petrol. It’s an easy sale, especially if there is a price advantage.
Today, Amazon sells an astonishing number of items - demonstrating that its core strengths are in smart warehousing, rapid logistics and distribution - and, probably more than anything else, in continually adapting and improving its sales approach. In Amazon terms, the Web site provides the only sales interface to the organisation, so we’ve seen innovations such as personal recommendations (ideas for things for you to buy, based on your browsing habits and those of other customers who buy similar things), one-click ordering (which dramatically increased sales by making it easier to buy from Amazon), ‘your store’ (a personalised page with aggregated recommendations based on your buying habits, and recently viewed items (making it easier to remember what you’ve just glanced at). The list goes on. And on. Amazon never stands still. The company’s associates programme brings in millions in revenue and continually expands its customer base. And now, staggeringly, almost a quarter of its turnover comes from 900,000 third-party resellers - who sell used or new items via the Amazon Web site. This is real competition for ebay. Originally these items were separated off into a ‘marketplace’ - but now they are integrated into the main site, so that second-hand or third-party items are sold on the same page as the main Amazon product.
And one of the latest innovations is DVD rental - where you can have a rotating stock of DVDs that you can watch at your leisure, before posting back. At £9.99 for up to 6 DVDs a month (you can have up to three at home at one time) it stacks up pretty well cost-wise.
It’s this diversification that many businesses can learn from. Once Amazon had acquired a customer and provided a set of buying processes which made it easier to shop at Amazon than elsewhere, it was easy to add new items. From a marketing perspective, Amazon isn’t concerned with the old way of looking at things - market share (the amount of a particular market you own, for example, x% of the books market) but is concerned with ‘customer share’ - literally the amount of money you can extract from a particular customer. From resellers, the problem with market share is that customers are, by definition, also spending elsewhere. They spend £20 on books with you, but £20 on DVDs with someone else. Since you have everything required to sell them DVDs (Web site, warehouse space, packaging) it’s actually not such a big leap. The less they spend elsewhere, the more they spend with you - making you stronger and your competitors weaker.
The key is to ‘learn’ what your customers want. In the old days, Jones the Butcher could remember that Mrs Smith had sausages on Wednesday and bacon on Friday, but for a business with millions of customers, you’d need a heck of a memory! Of course, that’s what the Web can do for you, and what Amazon does so well. It ‘learns’ your preferences and is always pushing things at you - with recommendations and the like. It doesn’t wait for you to choose. You enter the store, and recommendations are there. You buy something, and complementary products are proposed. It’s personalised.
So behind Amazon is some excellent, well thought-out technology. But behind that is something even more powerful - a new marketing and sales model that uses its successful customer base to enter new markets quickly, cheaply and successfully.
And it doesn’t have to be the best on price. The Amazon shopping experience still leads the market, despite lower priced competitors such as Play and CDWow. All of this contributes to the Amazon brand - almost certainly the most trusted on-line brand in the world. And, when you consider that trust is the most important ingredient for on-line success, that’s an enviable place to be.
So the lessons to be learnt from Amazon aren’t around technology - or, if they are, it’s that technology is not the master in a successful e-business: marketing is. Amazon has succeeded because it thinks ahead, understands its customers, doesn’t sit on its laurels and continually not only exploits opportunities - it creates them.
