Recent Bezos moves include buying grocery store chain Whole Foods and launching the Echo © PA Images
Recent Bezos moves include buying grocery store chain Whole Foods and launching the Echo © PA Images

What will Amazon do next?

6 April 2018

As Jeff Bezos’ internet giant tussles for control in yet another region, the global contest for the share of consumers’ wallets is much more complicated than a winner-takes-all narrative might suggest, with each contender facing their own risk.

The company was discussed thousands of times in 2017 by America’s largest companies on calls with investors, transcripts show – more often, even, than Donald Trump. The name of the business has even become a verb – to be ‘Amazoned’ is to be crushed because the company entered your sector. And thousands of CEOs are afraid they may be crushed.

The fear is understandable. Amazon is growing at an astonishing rate. Sales grew by 25% in 2017, compared to a 3% rise in revenues for Walmart, America’s biggest company. The old cliché – that Amazon was growing without actually making any money – no longer applies: it has now posted profits of $1bn in six separate three-month periods.

The three pillars of Amazon’s prosperity are: the Amazon Prime membership scheme (through which it shipped 5bn items in 2017); Marketplace (where it sells items for other sellers, taking a 15% cut of sales and another 15% if they are sold via Prime) and cloud computing arm Web Services, which makes so much money it funds Bezos’ strategy of running Amazon’s other businesses at near breakeven to gain market share.

In the past three years, Amazon has paid $13.2bn for supermarket chain Whole Foods – while experimenting with cashier-less convenience stores; won an Academy Award through its Hollywood studio; all but created a new product category with the Echo smart speaker; leased its own cargo planes; obtained a licence to handle ocean freight; acquired businesses in home security, AI and online gaming; sold tens of millions of its digital personal assistant Alexa and began to assemble a delivery operation that could compete directly with FedEx and United Parcel Services.

That’s the stuff we know about, but what else is on the corporate agenda?

Shira Orvide, a columnist for Bloomberg Gadfly, writes: “Amazon has shown interest in other categories of physical stores – custom-made clothing, furniture and home appliances – big retail areas that, like groceries, remain stubbornly offline.” Fashion is another target. (It’s easy to forget how much scope Amazon still has to grow: though it collects roughly 44 cents of every dollar Americans spend online, more than 90% of US retail sales still occur in physical stores.)

Two other sectors – healthcare and finance – look to be in Amazon’s sights.

The threat of the company entering the healthcare market has spurred Walgreens Boots Alliance to start negotiating the takeover of AmerisourceBergen, one of the largest distributors of prescription drugs.

The announcement that Bezos, JP Morgan chief Jamie Dimon and Warren Buffett, are cooperating on a new company to ‘fix’ American healthcare – reducing the financial burden on the US economy – has startled incumbents. Yet it has also sparked concern that this could be a mission too far, even for Bezos. In comparison, selling $1bn worth of shares every year and ploughing that into his space venture, Blue Origin, seems a relatively safe bet.

In finance, Amazon’s approach is much more low key. It will team up with a bank to launch a credit card for small businesses – a market dominated by American Express, which suffered a 1.4% dip in its share price when the story broke.

The revelation that Amazon is piloting a wholly-owned home cleaning service in Seattle, home to its head office, does underline the fact that, in its self-declared quest to be “earth’s most consumer centric company”, it regards every economic transaction – of any kind, size or location – as a potential revenue earner.

The market that has, so far, defied Bezos, is China, where Alibaba has flourished with a similar business model to Amazon’s, growing its own cloud computing business at remarkable speed. The forthcoming battle between Alibaba, JD and Amazon has been trailed with the kind of media hype preceding an Alien v Predator Hollywood blockbuster.

There are legitimate concerns about how successfully the Amazon formula can be applied outside the US market, which it dominates. That may change as the company gets to grips with Souq, the Middle East e-commerce giant it acquired last year for $583m. That said, it is harder still to envisage Alibaba and JD making the kind of cultural changes necessary to flourish in North America and Europe. Their enormous home market may be fiercely competitive but barriers against foreign entrants have helped them maintain their dominance.

In India, Amazon is tussling with local online e-commerce giant Flipkart for control of an enormous, rapidly expanding market. Founded in 2007, Flipkart is backed by an illustrious roll call of investors, notably Microsoft, eBay, Tencent (owner of social media app WeChat) and Soft Bank. Walmart is in talks that may ultimately give it a majority stake in the Indian online retailer.

Fuelled by an extra $5bn investment, Amazon seems to be gaining ground. In 2017, according to research by Forrester, Amazon’s share of the Indian e-commerce market rose to 31.1%, compared to 31.9% for Flipkart. The study also found that 80% of metropolitan consumers shopped at Amazon, compared to 65% at Flipkart.

Walmart’s planned investment in Flipkart has certainly raised the ante, with one American stock market analyst declaring: “For Walmart, this is their last opportunity to counter Amazon.”

The global contest for the share of consumers’ wallets is much more complicated than a winner-takes-all narrative might suggest. Amazon and Walmart have the edge in North America. Alibaba and JD dominate in China. Rakuten, which has recently announced a strategic alliance with Walmart, is the major player in Japan. Amazon leads in online retail in Europe – with 43% of the German market – followed by German start-up Zalando. For each of these giants, succeeding in global e-commerce is like playing speed chess against several players simultaneously.

Each contender faces their own risks. In the short run, Amazon has to roll with the punches as Trump’s tweeted criticisms affect stock market sentiment. In the longer term, a greater threat may be how regulators with a longer attention span than Trump’s perceive the company’s apparently bottomless appetite for growth.

The question nobody wants to answer about Amazon is what happens after Bezos. Amazon’s relentless growth has obscured the fact that, in many ways, its founder has reinvented the conglomerate – at the very moment when General Electric, the world’s most famous conglomerate, is mired in existential uncertainty.

Under the legendary Jack Welch, GE operated on the principle that, if you had good managers, you could succeed in any market. That worked brilliantly under Welch, but not so well under his successor Jeff Immelt. It seems to be working, albeit in sectors where technology is key, for Amazon. But, after Bezos has left, will Amazon experience similar turmoil to GE?

Amazon’s rivals certainly hope so. Then again, as Bezos is only 54, and pretty healthy, they may have to wait at least a decade to find out. And by then, who knows how many markets – and businesses – will have been ‘Amazoned’?

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