The ‘Amazon Effect’ That Hits Almost Every Industry

Amazon is going into more industries than any other company. It’s hard to wrap one’s head around the scope the company is gunning for. It’s hard to not underestimate the Seattle giant.

Seeking Alpha looked for mentionings of Amazon in recent earnings calls:

A full one-fifth of the S&P 500 constituents referenced Amazon on a quarterly earnings calls or Investor Day in the last 90 days.

The scope and scale of the companies and industries referencing Amazon show the tremendous competitive reach of the e-commerce giant.

Amazon’s unique business model and its focus on growth over earnings pit it as a challenge to a host of profitable industries. […]

​Amazon is truly unique:

Despite not wanting to own the stock directly, investors should understand the tremendous impact Amazon is having on U.S. commerce. The breadth of industries represented in this article is truly astounding. We have never before seen a company eschew profitability for market-leading positions in such wide-ranging industries. The disinflationary impact of Amazon through the lower costs of goods to consumers is probably not properly captured in inflation statistics and underappreciated in the bond market. Our examination of historic equity multiples over time could be adjusted for the uniqueness of a company with an outsized capitalization weight, but not in profit-maximizing mode. No other company comes close to the breadth of competitor mentions on earnings calls as Amazon.


Digiday on talks with brands and manufacturers:

“With brands like Nike now selling on Amazon, it’s almost impossible for fashion brands not to cave,” one attendee said.

Thirty-eight percent revealed they’ve signed on with Amazon as a wholesale or marketplace partner. In fact, 10 percent said a majority of their sales are made through Amazon or another third-party e-commerce retailer.

“We call Amazon a ‘frenemy,’” a retail executive said. “We sell through our own site and through Amazon, and our customer prefers to shop our products through Amazon. That’s their choice, and that’s OK.”

digiday-amazon

​The faustian pact between Amazon and manufacturers is well known by now but you still have to go where your customers are. The problem is that your customers are in enemy territory. Digiday:

Some with firsthand accounts of foul play by the giant expressed their opposition to its expansion: “If you partner with Amazon, they’re going to use you to learn everything they can,” one founder said. “I did, and they built a private brand much like mine, using the same factory.”

CB Insights recently looked at the industries, some analysts say, are safe from Amazon. As always with CB Insights, this one is worth a thorough read as, unlike others, the analysts at CB Insights take into account the fluid nature of digitally driven markets.

When it comes to most industries, the question isn’t whether Amazon will enter or not; it’s how the internet giant will enter, and how big the impact will be.

​Take for example Paypal. Paypal may be safe from Amazon Pay today and if both only keep growing it would be safe in the future as well. But what if and when Amazon adds services around Amazon Pay? Amazon’s vertical nature takes payments along for a ride:

that limited view discounts Amazon’s customer-first focus and larger financial services vision. Data shows that Amazon has been interested in financial services — either to reduce friction in the purchasing experience, or to own more of the payments value chain — since at least 2003, when the company applied to patent a network-based transaction processing system. […]

The company is also now offering thousands of loans to e-sellers in India, the world’s largest e-commerce market, and has also been quietly expanding its relationship with Stripe, using the unicorn online payments startup to handle a growing share of its e-commerce transactions.

Those underpinnings have “primed” the company’s payments foundation to serve individuals, not just merchants. As Amazon keeps making it easier for customers to both store and spend their money in the Amazon ecosystem, more of them will — extending the company’s infamous network-effect cycle, pictured below, further into financial services.

Amazon Growth Cycle via CB Insights

​As above with brands, the same is true for payments: The action is where the customers are. And Amazon is building everything around that simple fact. It’s the aspect that gives the company its power.

This may even mean Amazon going into the building materials and construction space:

while there’s merit to Morgan Stanley’s analysis that lengthy contract negotiations may act an Amazon deterrent, the company’s ever-expanding logistics footprint could support further moves in industrial- and manufacturing-related areas.

Amazon began working directly with manufacturers back in 2013, using the Vendor Flex program (which has since evolved into “Fulfilled by Amazon”) to enter facilities and take control over the online retail logistics for manufacturers. Amazon’s patent activity regarding infrastructure-related initiatives — including applications around intermodal vehicle warehousing and aquatic storage — shows the company could offer such services to manufacturers of large equipment, creating relationships to support further market capture in the space.

This one quote from the CB Insights research is worth repeating:

When it comes to most industries, the question isn’t whether Amazon will enter or not; it’s how the internet giant will enter, and how big the impact will be.

The real and important question is the ‘how’.

One implication is that Amazon will come to your sector but it may not necessarily dominate it. In on-demand video streaming for example, Amazon Prime Video is already a household name. Being part of Amazon Prime makes the video service unique. The Prime bundle allows Amazon to compete asymmetrically with Netflix et al. But Amazon is not dominating the space and it most likely never will. (And neither does Amazon need to dominate the video space.)

The company can and will go into almost any sector. Amazon, then, is closing some avenues and leaving open some others. Think about what those may be.

That is the ‘Amazon effect’.

More on this topic:

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: