Planes, trains and ships are just the tip of the icebergs in disruption
By Chris H. Petersen
Image Credit: Franky242
I’ve finally decided Amazon is a lot like Donald Trump. Both command a disproportionate share of media coverage. Love them or hate them, the reason they are in the news a lot is that they “don’t fit the mold”. The very nature of their strategy is disrupting the status quo. In the case of Amazon, it is easy to miss what is really going on behind the scenes as the next shock headline rolls through the news. Amazon’s long game is not about one day delivery or even delivery within hours. The dirty little secret about Amazon is that they are not a retailer, or even a marketplace. Whoa be it to any retailer or distributor that doesn’t understand the Amazon’s Pac-Man strategy of gobbling up and disintermediating competitors at all levels.
Why this is important: Retailing “ain’t what it used to be”. There is a new global war to create an integrated value chain that creates unprecedented, differentiated consumer experience. Great time to be a consumer, tough time to be a “retailer“.
Omnichannel shoppers have changed everything in retail
People most often ask me what is so different about retail today. The answer is quite simple – it is how you and all of your friends shop. You shop anytime and everywhere, sometimes using multiple channels simultaneously! But, the significant change is not where you shop, but your new expectations for personal value in both the shopping and purchase experience.
Price will always be a component of a product purchase decision. However, Amazon has been brilliant at creating a consumer centric value equation where convenience, reliability and service trump lowest price. Amazon is certainly not the only ecommerce player that has been successful in dramatically luring consumers online. But, Amazon has been at the forefront in driving disruption in ways that competitors like Walmart are struggling to match.
Amazon’s dirty little “secrets” that are unfolding in plain sight
Image Credit: Stuart Miles
It is interesting how Bezos is able to grab the headlines and literally make news with announcements of plans for delivery by drones. While many scoffed, the first home delivery by drone occurred last week (another company not Amazon). A golf course just announced future delivery of balls, tees and “beverage of choice” anywhere on the course. So, what seemed like Amazon fantasy is quickly becoming a reality as consumers become aware of what is possible in terms of experience and service.
The drone announcement was designed to grab media attention. Many of Amazon’s initiatives are more subtle, downplayed or not even discussed publicly. But, when the initiatives are pieced together, it becomes clear that Amazon has, and continues to play a masterful game of “long ball”. Their plan is a “Pac-Man” like strategy of gobbling up competition and disintermediating competitors, not just in retail, but at all levels of the value chain. The biggest danger for many is that that many of Amazon’s initiatives appear innocuous or even crazy as a single initiative. But, the value of the whole strategy for world domination is much greater than the sum of its parts.
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Nuking the fashion industry through value disruption
The latest retail headlines have focused on how Amazon is poised to disrupt the fashion industry. Amazon bought Zappos for a reason, and it wasn’t just for selling more shoes. Amazon has a learning culture of studying categories to learn the business, and identify consumer centric opportunities. They bring suppliers skillfully into their marketplace. Once they understand the emerging trends, they figure out how to capitalize through their own strategic ways of differentiating through speed, convenience, reliability and service. What woman doesn’t want the latest fashion faster than the stores can provide, at a good price. Fashion, especially fast fashion is a prime target where Amazon can deliver speed, convenience and price!
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Project FBA – Gobbling up local fulfillment, lowering costs
Back in 2013, Amazon inconspicuously announced FBA – Fulfillment by Amazon. At the time, it made a lot sense that Amazon would offer pick, pack, storage and shipping services for retailers selling on Amazon’s platform. FBA in fact was a key ingredient to making Amazon Prime more robust and successful. In addition to helping to sell profitable Prime relationships, FBA generated significantly more volume through Amazon’s systems. This subsequently lowered Amazon’s costs while generating revenue from competitors that were selling through Amazon’s marketplace!
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Project “Dragon Boat” – Disrupting worldwide direct fulfillment
FBA success mushroomed into Amazon strategy named “Dragon Boat”. Dragon Boat is aggressively focused on expanding Amazon’s global fulfillment capabilities to compete with global competition like Alibaba. A very important component of the Dragon Boat strategy is creating a fulfillment network capable of flowing goods from foreign factories all the way to the consumer’s home. With this ultimate “direct to consumer” capability Amazon can disrupt, and disintermediate many middle men in the supply chain. This not only lowers costs, but more importantly, it gives Amazon direct control over the layers of the value chain.
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“Global Supply Chain by Amazon” – Disintermediation of shippers
Some of the latest headlines have reported that Amazon will begin leasing space on planes and ships. There are also reports that Amazon is in fact buying its own planes, trucks and ships. Sounds crazy. So did Prime and two day shipping. Getting into fulfillment services is not about just filling in holiday peak demand. By acquiring fulfillment capability at lower than wholesale rates, Amazon is able to leverage the massive amounts of inventory in its shipping hubs, especially in manufacturing locations like China. By controlling the shipping, Amazon can literally create “one click” seamless ordering and fulfillment worldwide. The other genius is that by acquiring fulfillment capacity to serve its own high volumes, Amazon can offer discount rates to small merchants to entice them into the Amazon marketplace.
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The looming “cloud” of disruption and disintermediation
What is often missed in Amazon’s strategy is the aggressive growth and position in cloud services. A classic case of Amazon’s integrated disruptive strategy is in the cloud created for Prime members. Amazon leverages other fees and services to support new initiatives to create compelling value. Prime members get free music and movies through cloud streaming. Prime customers can play their music through Amazon Echo, with is a direct portal to their cloud. Members can store their photos (currently unlimited) free in the Prime cloud. The genius is that once the consumers get hooked on the ease and value of the cloud, Prime collectively becomes more valued and is renewed. Guess what … Amazon is now building out this amazing value cloud for B2B as part of their global distribution and fulfillment strategies …
No one will need to call FedEx … there will be an Amazon app in the cloud to seamlessly schedule direct delivery from the factory to the consumer!
What does all this mean … Don’t bet against a disruptor!
Does Amazon make mistakes? Absolutely. But, what they do best is fail rapidly. They take baby steps quickly … they learn by getting merchants into their marketplace. Amazon does more than learn how to incrementally improve a piece. They are masters at integrating strategy based upon improving customer experience and value!
It truly is a great time to be a consumer! A very tough time to be a retailer, distributor or even a shipper like FedEx. Amazon is not only raising the bar, but rewriting the rules that will change the consumer experience and expectations forever.
