This is our first "Innovation Opportunity" report. We identifies opportunities in the Amazon ecosystem, in the areas of Relationship, Virtual and Integrated commerce. IO reports are published monthly.
2. Issue 1, Vol. 1 Feb 2013
Serving Sizes
Amazon is the best strategic player in tech, explained Venkat Rao a Forbes
Magazine contributor and strategy consultant:
“I’d even go so far as to say that of the big tech companies, Amazon is the only
one that even has a strategic approach to its business. The other companies
[…] may make the occasional strategic move, but most of their behavior seems
to emerge from internal compromises, sudden impulses, pet projects,
competitive anxiety, knee-jerk reactions or unexamined corporate values. With
Amazon though, you get the sense that you are watching a chess game unfold,
in which Amazon is thinking multiple moves ahead, along several fronts. The
opponents seem to fumble, rant and rave like so many headless chickens,
while Amazon continues to systematically dismantle them”.
In the last quarter of 2012, Amazon
sold one billion items, for the first
time. This is a far cry from the
modest beginnings in 1995.
Today, Amazon competes effectively
with a broad spectrum of companies
from Apple and Google, to Walmart
and Target, to Safeway, to
Rackspace, to Netflix and Hulu, to
Groupon and of course Barns’n
Noble (and so many others).
THE BOOK ECOSYSTEM FROM 1440 TO 1999
The book ecosystem CIRCA 1999
Hardly anything changed from the
invention of the printing press to the
launch of Amazon.
At first, Amazon simply focused on
becoming the largest bookstore.
The book lifecycle CIRCA 1999
Even from a lifecycle perspective, hardly anything changed since Aaron
Montgomery Ward invented the mail-order business in 1872.
BOLT IO Research Report
Background
publisher
Book
consumer
buys
publishes
start
delivered
purchased
Purchase
Maze
order
end
ship
First page of Amazon.com
In less than 20 years, Amazon built the most advanced global
commerce platform in the world from the most boring ecosystem,
the book ecosystem, which barely evolved from 1440 to 1999.
3. Venkat Rao explained that “the list of key events [in Amazon’s
Strategy] is highly coherent” and well calculated:
THE BOOK ECOSYSTEM 2000-Present
BOLT IO Research Report
Business Model
4"
5"
7"
8"
9"
10"
13"
publisher
Book
consumer
buys
publishes resells new
and used
books
affiliate
On Demand
Book
author
reseller
(self) publishes
sells used books
advertise
Buy
delivered
purchased
Purchase
Maze
order
end
ship ebook
lending
one click
purchase
deliver to
Kindle
Purchase
more than $25
Purchase
used books
resold
resell
print
on demand
24h Shipping
referred
Search
recommended
found
exclusive
1"
2"
5"
8"
12"
6" 6"
13"
14"
13"
5"
1. One-click shopping
2. Free shipping over $25
3. Being first to market with a meaningful and usable, but predatory, offering for self-
publishers (Amazon Advantage) at a time (late 90s) when getting traditional
distribution as a small or self-publisher was nearly impossible
4. Creating a used-book marketplace that made used books go from 4% of the market
to something like 30% in just a few years
5. Fighting a supply-chain battle with on-demand printers, using its 24-hour shipping
model as a weapon to bring print volumes to Book Surge, its in-house operation
6. Undercutting Lulu, the pioneering self-publishing operation catering to authors, with
its Createspace offering, which offers authors better margins
7. Booting up the Amazon Affiliate program (which, from unverified sources, accounts
for about 40% of sales)
8. Making it brain-dead simple to publish on the Kindle
9. Creating a royalty option structure for Kindle publishers (70% between $2.99 and
$9.99, 35% above $9.99) that leaves you with an offer you cannot refuse for the
under-$9.99 price range
10. Once the traditional supply chain had been sufficiently weakened that traditional
publishers were no longer very useful, ramping up direct relationships with authors
11. Starting with an eBook experience that was as close as possible to traditional books,
but pushing the envelope as fast as readers could handle, towards more flexible
digital formats (blogs on the Kindle, Kindle “singles,” and with the recently
announced capabilities of the Kindle format, high-quality graphics)
12. Decisively promoting a pawn (ebooks) to Queen with its book-lending model and
recent offer-you-cannot-refuse for publishers who go Kindle-exclusive for at least the
first 90 days (in the next year, we will likely see a shift towards an ebook-first or ebook-
only strategy for many small publishers; so far, ebooks have been considered a “plus”
market).
13. All the while, keeping the core shopping experience familiar, but pulling out all stops
to increase conversions and same-visit sales with mechanisms ranging from book
previews/searches to related-reading recommendations, and bundling
recommendations
Issue 1, Vol. 1 Feb 2013
4. Issue 1, Vol. 1 Feb 2013
From a retail perspective, Amazon is deploying the same
commerce platform across it’s entire competitive landscape.
It’s platform controls some key states in that landscape: customers
are “informed” with the best and largest catalog on the planet, they
are often purchased on Amazon too, but the Web cannot “show”
anything other than pretty pictures and it cannot deliver products
as fast as they can be picked up from a physical location. No
matter how hard Amazon has tried to make the “showed” state
irrelevant, it is not, shoppers often need to see a product before
they buy it, be it a book, a dishwasher, a 50” TV or a toy. So far,
they have responded by quickly “optimizing” the process: find (on
Amazon), see (in a Store), purchase (on Amazon).
Retailers are responding by rapidly implementing a price matching
strategy. Amazon will have to conquer the “showed” state of the
lifecycle otherwise a Walmart will grab the purchase state and
push Amazon to start charging for referrals.
Apple’s Retail Strategy has also shown that a retail presence is a
key enabler to service its products and educate the customer,
which for some of the products Amazon sell is rapidly becoming a
must, including the Kindle.
Amazon has purposely left some key states to the competition, with the
Apple Retail Model in mind, it could well become its Achilles Heels
BOLT IO Research Report
The Competitive Landscape
!
The three keys to understand Amazon’s ecosystem
• Amazon commands 30% of product search (Google 23%)
• Big box stores have engaged in a price matching strategy to limit
“showrooming”
• Service and education capabilities are quickly becoming a key
competitive differentiator
5. Over the last decade, Amazon has grown to be one of the best run, most innovative
company and certainly one of the fiercest competitors in the world. However, we also
believe that retail is undergoing a massive transformation towards relationship, virtual and
integrated commerce and Amazon leaves many Innovation Opportunities open.
Historically, Amazon has heavily invested on the “purchased - delivered” transition of the
order lifecycle. This was, of course, the only way to compete effectively with physical
stores. Even today it continues to invest heavily in that area with Amazon Lockers.
Yet, retailers from Nordstrom to Walmart and even Apple are showing that the barriers
between retail and e-tail are quickly fading and price alone will no longer be a viable
competitive advantage in the context of “delivery matching”. Even though logistics
remain the keystone of retail, higher level (and higher margin) capabilities ranging from
service to assistance to education can quickly become a must have to retain ever
sophisticated shoppers in your ecosystem.
Amazon is starting to experiment with integrated commerce. Last year reports have
emerged that it will start selling physical goods through Kindle (Android) apps. Amazon
need to transform its catalog into a series of apps which provide commerce capabilities
integrated with the tasks their customers are trying to accomplish.
Amazon’s investment in Living Social does not seem to provide the return it expected.
Both Groupon and Living Social are fighting for their lives while Zulily is thriving. Amazon
needs to understand that its platform represents a massive competitive advantage to
drive the decoupling of business processes across all commerce activities and lead the
“virtual commerce” revolution, again, with a large network of affiliates.
Amazon is furthest behind in relationship commerce. When everything will be said and
done, Jeff Bezos will realize that relationship commerce maybe its biggest blunder. With
possibly the largest customer base in the world combined to its ability to track the
shipment of presents to friends and relatives, Amazon has never invested in weaving
these relationships into a commerce function. The same thing is true of the relationship
between people and the products they buy. Amazon mines that information to sell new
products but has no particular focus on replenishment of consumables, maintenance,
repair or operations.
Amazon’s ecosystem represents a massive opportunity for innovators to create solutions
for relationship, virtual and integrated commerce on Amazon’s platform.
If you enjoyed this report or if you want to learn our methodology or discover more
relationship, virtual and integrated commerce opportunities, you can purchase a copy of
our book on Amazon or iTunes.
BOLT IO Research Report Issue 1, Vol 1 Feb2013
The 3 driving forces of 21st century commerceIO*
Relationship Commerce
Sell to the relationships between people
and between people and products
• Apple Cards application
• Retailer need to track the
relationship between people and
between people and their products
Virtual Commerce
Most businesses have built their value in
optimizing the coupling of 3-5 processes.
This is no longer true, business process
decoupling is very disruptive because it
enables “virtual commerce”
• Zulily, AirBnB
• Point of Sales need to be integrated
with virtual stores
Integrated Commerce
Mobile computing offer a unique
opportunity to assist (and sell to)
consumers who are performing specific
tasks
• Skylanders Cloud Patrol application
• Amazon is quickly ramping up to
support a network of affiliates with
an in-app purchase SDK
* IO : Innovation Opportunities