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How Amazon is changing the rules of e-tailing business

How Amazon changing the Rules of e-tailing business

Jeff Bezos created Amazon in 1994 as an online bookseller company and gradually transitioned this into music and video business. A veteran investment banker (Bezos) starting electronic commerce business sound crazy during those days, however in the span of 19 years he earned the title of the top e-commerce platform.

Amazon’s e-tailing business has reached $1 trillion marks recently that made it one of the most valuable companies in the world next to Apple, who achieved the $1 trillion mark in August this year.

Let us review, what made this online bookstore into achieving top spot in online retail and expanding further into other profitable portfolios?  

According to eMarketer, Amazon has captured nearly 50% of US e-commerce market and expected to generate $258.22 billion in US retail e-commerce sales this year, up 29.2% over last year.

Amazon learned to pick right opportunities in the online market and as Bezos once quoted, Your margin is my opportunity’ made this business tycoon touching new heights and thriving his dream as internet marketplace leader. Amazon posted $178 billion in sales last year. Its gross profit which excludes marketing and other operating costs was about $41 billion for the year.

Amazon is essentially two businesses under one roof; A mammoth e-commerce company with typically thin profit margins and a smaller and more profitable cloud-computing company that sells services to businesses. Amazon reported that its e-retail business brought in revenue of $46.78 billion, slightly lower than the average analyst estimate of $47.37 billion, but operating profit of $1.34 billion blew away expectations of $240 million.

Amazon’s worthy acquisitions:

The acquisitions made a path of expansion to become the largest retail empire.

In 2017 Amazon acquired promising startups including Harvest.ai, Thinkbox Software, Do.com, Souq.com, GameSparks, Graphic, wing.ae, Body Labs, Goo Technologies and Blink Home, the majority of which were acquired to support Amazon Web Services (AWS) growth.

Amazon-Acquisitions-by-Year

Pic: CB Insight – Multiple acquisitions help in the expansion of Amazon

1. IMDB, one of the largest movie websites in the world serves as an online database of information related to films, TV programs, and video games, Amazon had it in 1998. It allows users to purchase a DVD, Blu-ray, or download of a film.

2. Alexa collects information on people’s browsing habits online and provides analytics on those habits. It ranks the popularity of websites and acquired in 1999 for $250 million in stock. The acquisition provides access to implement more data insight into its daily operations.

3. Audible acquired in 2008 for $300 million, holds portfolio audio entertainment, information and educational programming on the Internet. The company deals in audiobooks, radio and TV programs, and audio versions of magazines and newspapers. Audible acquired the rights to 5,000 titles to AudioGO, its main competitors.

4. Zappos,  the leading footwear and apparel website in the world that offers return of your shoes up to a full year after buying them, as long as they’re in good shape. Amazon bought it for 1.2 billion in July 2009.

5. Annapurna Labs, which was bought by Amazon in 2015 for around $350 million. The “Alpine” semiconductor line madeAmazon’s first step into the chip market.

6. AbeBooks is marketplace offers, fine arts, collectibles, a print book-related company that works with independent bookstores to create an inventory of titles that are otherwise hard to locate.

7. Goodreads is a social cataloging website acquired in 2013 is home to online communities with book reviews, recommendations, and discussions.

8. Twitch.tv live video platform that caters video gaming, streaming of video games, broadcasts of e-sports competitions and other gaming-related events acquired in 2014 for $970 million.

9. Amazon RoboticsKiva Systems before being purchased by Amazon for around $775 million rebranded as Amazon Robotics. The company makes robots for various purposes. It is also working on the drone delivery tech market.

10. Whole Foods MarketAmazon interested in the physical store and had acquired the organic grocery chain Whole Foods Market for $13.7 billion cash.

Amazon recently concluded a deal on Indian grocery chain ‘More’ run by  Aditya Birla Retail Ltd (ABRL) to make its offline network stronger after counterpart Walmart is making acquisition of Indian online retailer Flipkart.

Amazon being internet company is more focused on varied portfolios with high transaction volumes, which were counted low profile. “Many enterprise software acquisitions are consolidation-driven while Amazon’s are focused on building and extending new business models. Taking this business model-based approach to evaluating Amazon’s potential acquisitions, the following companies deserve to be on their shopping list for 2018,” quoted in CB Insight report.

Innovation in the expansion:

The media report says the company is considering opening some 3,000 Amazon Go stores within the next three years. Such a move could push the company to tap into its existing local delivery system and could provide the company with valuable new data on its customers, quoted Baird Equity Research analyst Colin Sebastian in a note.

Go stores, are cashier less stores with ‘just-walk-out’ technology and payment through its app and tracks customers with camera and sensors use all the data it collects to improve its various offerings. It has opened four stores in Seattle and Chicago.

“Go provides another potential revenue-generating service offering … and for Amazon more broadly, this is also a massive data play,” Sebastian said.

Amazon runs on technology in its expansion as it has world’s three largest Linux databases and its architecture handles millions of back-end operations every day.

Amazon Web Services business, Amazon’s cloud-computing, reported revenue of $6.1 billion, up from $4.1 billion a year ago, with operating profit of $1.64 billion. Analysts on average had expected AWS operating profit of $1.47 billion and revenue of $6.1 billion.

Amazon’s entry into the private-label business continued with the launch of its newest brand, Wickedly Prime, Happy Belly, Mama Bear and Presto!. It holds Whole Food’s 365 brands, athletics apparel Peak Velocity, in furniture Rivet and Stone & Beam added many established brands to its website.

The customer value is the prime motive behind leveraging technology,

“We take the same approach with private label as we do with anything here at Amazon: We start with the customer and work backward, aiming to bring them products we think they will love,”

“We continue listening and learning from customers as we expand our selection,” an Amazon spokesperson said in a statement to Recode.com

Amazon succeeded amazingly at Artificial Intelligence (AI) as it is spread throughout departments. Machine learning technology is used by the product recommendation team to foster its product forecasts, and those insights are shared throughout the company. AI and machine learning empower three popular Amazon products: Alexa, the Amazon Go Store, and the Amazon recommendation engine, which generates 35% of its revenue.

Between 40 million to 50 million people in the United States use Prime, and, according to Morgan Stanley, those customers spend around $2,500 on Amazon annually, more than four times what nonmembers spend. According to the fast companynearly all of Amazon’s most recent innovations share a connection to Prime, which by some estimates accounts for 60% of the total dollar value of all merchandise sold on the website.

Amazon amazingly reshaped the online advertising dimensions after running on profit over advertisement and offers for others over its homepage as the main competitor to Facebook and Google. The advertising is a mix of data and analytics used on consumers shopping habits for highlighting product category. There is a specific membership fee to avoid advertisements and free delivery of products for members.

My Analysis:

Amazon is expanding its business with fresh ideas and using diverse e-commerce platforms after acquisitions i.e.cloud technology, private labels, and Prime membership. Amazon.com Inc. is a company driven for innovations in achieving its goal in the retail industry and across other categories to put its customer first. The tech giants are taking rout of finance that may open the door.

Amazon’s advertising services nearly $2.2 billion in revenue in the advertisement where Facebook and Google is the market leader.

In competition with Walmart in the US, it is expanding offline business in omnichannel strategy by having physical stores i.e. company-owned stores and automated Amazon GO just check-out technology that is convenience store for ending queues, unlike any other retail stores.

The year 2018 belongs year of technology and Amazon has it all. The competitors in online and offline convenience stores are feeling the heat of competition and technology giants are countering this opportunity. The mergers, acquisitions, IPO’s are taking the company to the new height and day by day company is using techniques to make transaction friendlier and Amazon is doing so Amazingly!

 

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