One of the things I'm not sure the general public is aware of is that there's a very high stakes war going on behind the scenes between Amazon and much the e-commerce ecosystem. As the author points out, Amazon is good at what they do; maybe too good.
If you're a small e-com retailer, selling your goods on Amazon can seem like the magic bullet you've been looking for. They can provide you a huge audience overnight. And if you have a good product at the right price, you're probably going to do well on Amazon. The danger is when you do well enough that Amazon takes notice, because if you're little slice of the industry starts to look too profitable, Amazon will come in and start selling in your category direct. And they're bigger than you and can do it on a smaller margin. Entire verticals can be consumed in a matter of weeks if Amazon decides to set up shop next to you. Amazon is really good at destroying the retailers that they helped in the beginning.
But it doesn't stop there. Once Amazon squeezes out the small players, they start acting like Walmart with the manufacturers. They start dictating margins and pushing down prices. And they can do it because they've monopolized the distribution channel. Amazon isn't making a lot of friends with manufacturers lately.
My point is that while this may be a clear win for consumers, it's a very sticky situation for manufacturers, distributors and retailers. If you go to most of the major e-commerce trade shows, you'll find that people are actually quite fearful of Amazon. They're looking for ways to widen the gap, not close it. Heck, in the past year I've actually started to get contractual obligations from some major manufacturers that I CAN'T sell on Amazon. They're mandating that all of their retailers keep their product off of there because they're scared shitless that it's just a matter of time before Bezos starts dictating their margins.
For better or worse, I do think Amazon will be successful to some degree with this project, but there's going to be a lot of behind the scenes fighting to get there.
Thin margins are a sign of an efficient free market. Any long lasting large margin is a sign of a market failure.
Maybe Amazon is just really good at that free market thing.
I agree though that it's starting to be time they get a more viable competitor. I'm sure, however, that when they decide to actually try and make a profit instead of just grabbing market share, competitors will pop up. In the mean time, while they continue to operate at zero profits, basically as a charity to consumers, this is a win for efficient free markets and consumers (read everyone) in general.
There's a few other players trying to do similar things. The big box stores are getting better at their online fulfillment. Sears is famously going that route putting a bunch of brands together. No one has come up with the silver bullet to really eat into Amazon's market though, so time will tell.
> The danger is when you do well enough that Amazon takes notice, because if you're little slice of the industry starts to look too profitable, Amazon will come in and start selling in your category direct. And they're bigger than you and can do it on a smaller margin. Entire verticals can be consumed in a matter of weeks if Amazon decides to set up shop next to you. Amazon is really good at destroying the retailers that they helped in the beginning.
Retailers have been doing this to manufacturers for years with store brands. All large retailers analyze their sales data to find out exactly when a product has reached critical mass in popularity, then commission their own store-branded version.
The only difference here is that Amazon doesn't just have their own sales data, but that of everyone that uses their platform. So they can take it a step further and do this to other retailers in order to come up with an ideal SKU mix. Then they do what other retailers have done and start cannibalizing the manufacturer's margins by commissioning store brands.
Apple iBooks lawsuit by the US government is relevant here. Book publishers and Apple made a deal to change pricing to an agency model, where the publishers dictate the price. The US government sued them on the basis of anti-competitive price collusion. This slapped Apple and let Amazon go back to it's race-to-the-bottom pricing. In fact the US government is right that Amazon's methods are the essence of a free market. They are just bad for every other player and lead to Amazon expanding it's market share and thus making Amazon more of a monopoly.
Very interesting twist.
It gets bad for consumers if:
1. Once Amazon has all the market it raises prices.
2. The price pressure on manufacturers, publishers, and other producers of goods causes those businesses to fail and stop making their products, or to produce lower-quality products.
3. Amazon gives preferential treatment to merchants using their auxiliary services. They already give preferential treatment to merchants using Amazon Fulfilment by writing off (at least some of) the bad merchant feedback caused by fulfilment issues. This effects customers (as well as merchants) because from the customers perspective failed fulfilment is the same no matter who does it.
The thing is, though (1) largely hasn't been broadly observed and (2) consumers should be able to dictate to the market whether or not they are willing to pay for quality.
Certainly in the EU. I am not sure about the Walmart situation though, since something similar is tolerated here (Germany) with the supermarket oligopoly.
Given their size, you can be certain that Amazon is being watched. It's possible they are already running afoul of the rules:
Probably "depriving smaller competitors of customers by selling at artificially low prices they can't compete with", since they offer insanely cheap shipping.
I am a big Amazon.com customer, and I'd be very happy to see this widespread. I am tired of Paypal trying to use my bank account as the primary payment mechanism, and having to switch it most of the time. I would love to have more of my purchasing consolidated in a single place. Amazon also has a fantastic return/refund policy - would be interested to see how well that ports over to the payment mechanism.
I have a trust in Amazon that goes well beyond the rational. If something isn't for sale on Amazon, I probably won't buy it. If I purchase with Amazon, it'll show up, it'll work, and if I want to return it, it'll just happen. I've had one or two issues with their Indian customer service via chat, but any real issues where I ended up getting on a phone, it got solved straight away.
I deeply and truly believe Amazon is on my side, where I believe Paypal is actively out to screw me.
I actively avoid Paypal for anything other than Ebay, and that's only because Ebay won't let anyone else but their own payment system on the site. I'm usually quite happy to use Google's payment system and I'll be just as happy to use Amazon's.
Your experience mirrors mine exactly, and I think that is why the customer loyalty for Amazon goes well beyond simply cheaper prices. It's the whole package that makes the company awesome.
That was one 'tiny' merchant's view of the situation. I suspect that Amazon will be a lot more 'engaged' with larger merchants if it suits their purposes. I wouldn't write off Amazon strategy based on one first person account.
FWIW, they have told me I was one of their largest (I vaguely remember three years ago "the largest") customers "on mobile", and I was at a level where I was having nearly routine meetings with at one point a whopping seven people on their end climbing up the management hierarchy (who would, of course, tell me they could not provide ETAs on anything being fixed, and over the course of six months in contact, and now two months since I bothered talking back to them, still not even the most trivial of fixes have happened).
If you would like to compare how your company will fare in such a situation, I move a few million dollars a year through their service. I consider that tiny in be grand scheme of things (so I use that term), certainly in comparison to Amazon itself, but I am a giant in comparison to most of the other people who will be looking at their service seriously (I feel like most people who reach my size prefer not to rely so much on third-party payment networks; in fact, I don't even want to anymore, and am hoping to start doing direct credit card billing soon, ironically via PayPal Payments Pro, at which point Amazon is getting the axe).
But really, the most important points I made are very general: 1) this isn't new, as they've been in the PayPal-competitor business since 2008, and 2) to the extent to which this is somehow a new launch for Amazon, it is demonstrative of a pattern wherein they keep releasing new payment services without showing how they are related to each other and without having any kind of feature parity: this isn't a new service... this is a new feature of an existing service... and that's exactly how companies like PayPal and Alipay both added it... years ago.
Thanks for the clarification, I didn't mean to be offensive, I was just quoting your term re 'tiny'.
It looks to me as though the announcement, which may not be new (I'm not sure) indicates a new marketing push towards smaller retailers, but then I'm not involved enough to know for sure.
And I would just say that Paypal has an awful reputation as far as their treatment of their customers, so I would perhaps be a little wary of putting too much reliance on themr for your switch?
I didn't take it as an insult: just a misubderstanding.
FWIW, I have loved PayPal. They actively improve things, tend to be easy to deal with, actually fix bugs you report (although not immediately, but it does happen), and I have an account manager who actually gets things done when I need stuff done. Even before I was large enough to warrant a personalized person (I currently do like 6-7 million a year via PayPal), I always found talking to their customer support simple. Frankly, I think most of the issues dealing with them are because people don't understand the payment processing business much and end up using PayPal's service for things that you shouldn't (preorders being a big one, which includes small conferences) and then freak out rather than attempting to work something out with PayPal (like, I got my account locked once: somehow I got it fixed in a couple hours).
Apples and pears? Google does not own one of the world's largest online retail outlets, whereas Amazon already has its own hugely loyal customer base. Different?
Exactly. Google does not have my credit card and I don't want to give it to them. Amazon already has it. Just like I prefer to use PayPal when I can to avoid giving a new online merchant my credit card directly, I could now use Amazon for that purpose.
If I hadn't ever created a PayPal account in the first place then I would have no motivation to make one. With Amazon I already give them the credit card info to make purchases on Amazon. PayPal is just a middle-man so I have no reason to use them already.
Well, except that PayPal lets you receive payments too. Now that I think about it, I believe I created my PayPal account originally to accept payment for a website job. Only later did I add my credit card to make eBay purchases. So I can't completely replace my PayPal account with Amazon services yet.
Google might not have your credit card, but it has the credit cards of 500 million people that have Android phones and purchase apps[1]. I think that's a pretty sizable chunk of the population. Being able to use Google to buy things (and digital things) is huge. Yet Paypal still rules as of today.
I think that if Amazon starts to become more like Paypal, then we'll see more stories of them freezing funds and locking accounts. I would be much more upset if my established Amazon account was frozen over a trivial payment issue.
True that Google doesn't own the world's largest online retail outlets, but it is one of the worlds largest web companies. On par with Amazon. Google also has a loyal customer base (Android, Gmail, Chrome, people that swear by Google+), I think it might be a closer comparison than you think.
If you're a small e-com retailer, selling your goods on Amazon can seem like the magic bullet you've been looking for. They can provide you a huge audience overnight. And if you have a good product at the right price, you're probably going to do well on Amazon. The danger is when you do well enough that Amazon takes notice, because if you're little slice of the industry starts to look too profitable, Amazon will come in and start selling in your category direct. And they're bigger than you and can do it on a smaller margin. Entire verticals can be consumed in a matter of weeks if Amazon decides to set up shop next to you. Amazon is really good at destroying the retailers that they helped in the beginning.
But it doesn't stop there. Once Amazon squeezes out the small players, they start acting like Walmart with the manufacturers. They start dictating margins and pushing down prices. And they can do it because they've monopolized the distribution channel. Amazon isn't making a lot of friends with manufacturers lately.
My point is that while this may be a clear win for consumers, it's a very sticky situation for manufacturers, distributors and retailers. If you go to most of the major e-commerce trade shows, you'll find that people are actually quite fearful of Amazon. They're looking for ways to widen the gap, not close it. Heck, in the past year I've actually started to get contractual obligations from some major manufacturers that I CAN'T sell on Amazon. They're mandating that all of their retailers keep their product off of there because they're scared shitless that it's just a matter of time before Bezos starts dictating their margins.
For better or worse, I do think Amazon will be successful to some degree with this project, but there's going to be a lot of behind the scenes fighting to get there.