Amazon’s Future

Amazon is a great case study for our methodology. Amazon is a formidable innovator and strategic player. Not only did Amazon single-handedly pioneered the Platform, but it remains a fierce competitor to Apple and especially Google.

Amazon’s achievements are epic, Jeff Bezos took the most boring and probably oldest ecosystem on the planet, an ecosystem that had barely changed from 1440 to 1999 and turned it into the most advanced commerce platform in the world, delivered the first successful commercial Cloud, the Kindle and competes head to head with Apple and Google which have far more resources.

How did the book ecosystem looked like before Amazon (from a retailer’s perspective)?

How did Amazon changed it? Venkat Rao published a thorough analysis of Amazon’s Strategy from 2000 to present. We will publish our complete analysis of Amazon’s strategy in the book. Here, we will simply look at how they transformed their ecosystem and how they could transform it further? Here is what we saw:

Based on the moves that Venkat identified (again, just looking at the ones that have a direct impact on the ecosystem):

  1. 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
  2. Creating a used-book marketplace that made used books go from 4% of the market to something like 30% in just a few years
  3. Undercutting Lulu, the pioneering self-publishing operation catering to authors, with its Createspace offering, which offers authors better margins
  4. Booting up the Amazon Affiliate program (which, from unverified sources, accounts for about 40% of sales)
  5. Making it brain-dead simple to publish on the Kindle
  6. 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
  7. Once the traditional supply chain had been sufficiently weakened that traditional publishers were no longer very useful, ramping up direct relationships with authors

How will Amazon innovate in a relationship-Commerce (rCommerce) world? Here is how we see their ecosystem evolve.

Amazon could mine many different relationships:

Author-Reader: obviously with a print format, a book is static and cannot evolve until the following edition. In the Platform era, readers can ask for clarifications and authors can add footnotes and references, transforming the book into something a lot more dynamic.

Reader-Reader: Amazon is already sharing with their readers the sentences of a book that a majority of readers highlighted. Social eReaders also enables readers to exchange ideas about the book, in real-time or not. Who knows, why not even offer readers the ability to collaboratively rewrite sections of the book?

Book-Book: Amazon could create a new business model where readers can access the references of the book (for a fee), or maybe the entire referred book, for a short period of time, as you explore the reference.  How many more books do you think Amazon could sell if they let readers explore references?

Book-Products/Location: the book could also be easily be connected with products or even locations. Why wouldn’t Amazon set trips based on particular stories for readers who want to follow the steps of their heroes? Conversely, if you are in a given place or heading on a trip, why not be able to query your library in such a way that sections of books that talk about that particular location can be made available easily? Similarly, why not be able to purchase products based on the content of the book or search for product references in your library?

Author-Author: again, a book is inherently a static document, with a begin and an end. Why not allow authors to collaborate and let different authors create different paths that inter-relate and let readers chose the path of the story they prefer, or different levels of details. Amazon could then charge based on the path and create a revenue share model.

… and we could go on and on, talking about the relationship between books and games, books and friends, and so on.

rCommerce is here, there is a massive land grab that is about to happen since pretty much every commerce activity is unRelated today.

But that’s not it, our analysis shows something else. Amazon could be fighting the wrong battle altogether  They would be extremely lucky if they could remain a platform operator and take a dent at Apple or Google’s market in the long term. They lack a key component: the relationship engine (as described in our chapter, “the world in motion”). Apple has the potential to acquire its own, and Google will find ways to grow Google+, but Amazon has no means to acquire or built that capability. If it continues on its path to build a full platform, up to smartphone, it will waste precious resources that could be used to win a much more important battle.

Amazon is inherently an “App” company. The Kindle is an app, not a device. As we have seen above it can even be made a greater app, that could dominate the digital content industry, even ahead of iTunes. But Amazon could extend the reach of its commerce platform much further in the app world in a couple of dimensions:

a) the micro-commerce dimension: catering to the SoniCares of the world (see “the world in motion” chapter). It could look back at it’s entire catalog of products and decide which item should be micro-commerce enabled.

b) the just-in-time commerce dimension: the Platform is about to prove further (if it was needed), Clay Christensen’s theory that:

what’s really important is understanding the job that customers are trying to accomplish

The platform is putting a magic wand in every customers’ pocket. Whatever job they are trying to accomplish, they can order whatever product or service they need, get support from the vendor, or other consumers, …

Amazon has the opportunity to reinvent commerce, and bring commerce as you need it, just-in-time, with a collection of apps assisting jobs that Amazon customers do with Amazon’s product.

Amazon is an app company but it doesn’t know it. The Kindle is an app, micro-commerce and just-in-time commerce are a lot of apps that Amazon could bake like cookies. If they don’t? Walmart or somebody else will…

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