For a long time now, Amazon has ruled as the Goliath in the eCommerce industry. Starting out as an online bookstore, Amazon expanded its reach to include almost any item you could ever think of purchasing. On top of that, it provides video streaming for its Prime subscribers, music downloads, and even a grocery delivery service for certain US states.
But is Amazon still the leader in eCommerce?
No one can claim that Amazon is not one of the most ballsy eCommerce companies going. They identify every boundary in the industry and step right over the mark to provide new innovations for customers and retailers.
Some would argue that Amazon have been faltering on occasion recently which might be the first signs of a decline in dominance. A less critical eye, however, might believe that Amazon is intentionally cutting a few strings to make way for newer ventures in eCommerce.
First sign: Shipping costs
Scott Galloway, Clinical Professor of Marketing at NYU, stated at the DLD15 conference that the ‘Achilles heel of Amazon, Amazon’s heel...is [that] their shipping costs are exploding 40% a year.’ They are losing close to $4 billion on shipping, and the reason for this could be attributed to their brazen nature and determination to continue leading the game.
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It cannot be denied that Amazon’s logistics are second to none, that’s why so many consumers flock to buy products there rather than direct from the independent retailer. We trust that when we place an order on Amazon it will be at our door on the date we are promised. To compete with Amazon’s lead, these smaller businesses are forced to improve their chances of attracting customers by offering services like free delivery. As a result, two-thirds of packages ordered over Christmas were shipped to customers free of charge, according to Galloway.
‘eCommerce companies work very hard to sell their products on their own websites,’ says Jonathan Bellwood, Peoplevox founder. ‘By directing sales from marketplaces like Amazon they can reap all of the benefits and develop trust and loyalty with their customer base. The flip side is that when peak season hits, particularly Christmas, these independent retailers might favour Amazon to make use of its Prime offering and logistical prowess, guaranteeing that their customers receive every item on time.’
But should Amazon’s shipping deficit be viewed as a stumble? With the recent US federal regulations approval, Amazon can now start outdoor tests on their new drones. This technology, if it comes to fruition, promises to offer deliveries within 30 minutes for as little as $1. According to Raffaello D’Andrea, co-founder of Kiva Systems, Amazon currently spend between $2-$8 per package but with drones the cost per package drops to as little as 10 cents over six miles. As such, they may be making a loss at the moment, but the introduction of drones could see them keep their leading status and make the money back in very little time.
Second sign: No more webstore
Recently, Amazon announced that they were closing down their webstore and encouraging retailers to move their shopfronts to another platform. It is actually unsurprising that Amazon are planning this, however, given that eCommerce shopfront software is becoming one of the most competitive industries today.
With webstore platform companies like Magento and Shopify battling for pole position, unless Amazon were to dedicate their efforts entirely to this venture, and they already lead in so many other ventures, it seems only logical that they step aside to let the fully-committed companies pave the way here.
‘The eCommerce world is becoming such an ingrained part of the commerce world now that Amazon’s biggest challenge could be that they don’t have brick & mortar stores,’ says Jonathan. ‘As creative as they are with drones, Amazon Lockers, and Click & Collect, physical stores benefit from having inventory more locally for collection or delivery. This can significantly cut down on shipping costs.’
While the news may appear to show that Amazon is losing its way, it seems more likely that Amazon are actually holding an ace up their sleeve. Errors are being made because that is how we do better - we learn from what isn’t working to develop something better than before. It might just be that Amazon are letting a few services drop away so that they can dedicate time and resources to pushing forward with the innovation we have always known to expect from this leading eCommerce giant.
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