What business is Amazon actually in?
If this is the question you’re asking, you’ve already lost. This is a typical question you’d ask about a typical company. Amazon, on the other hand, breaks every box that people try to put it in. In order to compete with the behemoth, you need to start asking yourself a different question: is Amazon even a company in the traditional way we think of companies?
Rather than creating a suite of products using traditional business strategy, Amazon is trying to facilitate how everything is bought and sold across the world. Amazon isn’t just “the everything store”; it aims to be “the everything economy.”
Similar to how governments create institutions to facilitate trade, the company is systematically putting in place institutional pillars that make it easier for producers and consumers to buy and sell products. Amazon then takes a percentage of the cut, similar to how governments levy taxes.
Amazon is going down the pyramid while other companies are going up.
I call this the Economy Pyramid Strategy, and the fact that it’s working so well has major implications for consumers, business, and society overall. Could this strategy revolutionize how business strategy is taught? Could Amazon establish its own government? What happens when one company has so much power (see James Patterson’s most recent bestseller, The Store)?
While the Amazon economy empowers tens of thousands of new merchants, it is literally eating other companies alive. There is a direct correlation between the growth of Amazon’s market value and the decrease of Amazon’s competitors. Amazon lets other companies experiment on their platform, but when those categories take off, it launches its own brand, and undercuts its competitors on price and placement within the Amazon store.
While the situation is dire for big brands, it’s not indefensible. We’ve explored companies that have been able to successfully compete with Amazon and have distilled the top five strategies:
Strategy #1: Own the pre- and post-transaction experience
If we have to, we as consumers purchase products and assemble solutions on our own, but when a company offers a ready-made solution that saves us time and effort (at a price we can live with), we’re grateful.
Meal delivery companies like Blue Apron, HelloFresh, and Freshly eliminate all the steps in cooking but the last one by shipping pre-made meals that require very little prep. (Amazon launched their own meal kit delivery service in July in order to catch up after falling behind for five years.)
Innovative companies across other categories are offering all-in-one solutions too. When it comes to selecting clothes, office equipment, or home furnishings, making informed decisions can be overwhelming and require hours of research.
Strategy #2: Turn your services into a platform
The fastest-growing companies in history, such as Google, Facebook, Uber, Airbnb, Amazon, and Netflix, are all platforms. The platform business model captures the most profit, builds a moat that is hard for competitors to cross, and scales quickly once it reaches critical mass. While building up a global workforce of employees to offer support services may take massive amounts of time and capital, a platform can get there in a fraction of the time. And, if you don’t do it in your niche, it’s likely that Amazon will — if it hasn’t already.
Companies that have successfully built a niche marketplace that offers services include Pampered Chef (kitchenware), Chloe & Isabel (jewelry), and HomeAdvisor (home services).
Strategy #3: Reduce every point of friction in your customer’s journey until you hit a ‘wow tipping point’
In a social media world, your customer experience IS a very meaningful part of your marketing. When people love what you do, they leave rave reviews on review sites. They share their experience using your brand on social media. They volunteer feedback in order to help you improve. They’re first in line when a new product launches. In other words, a great product is often the foundation for great marketing.
To reduce the friction at every step of your customer’s user journey, leverage your own customer data to uncover friction points and relentlessly remove them. Start by removing glaring problems. Then keep going until you reach the ‘Wow!’ tipping point.
Strategy #4: Create a must-have brand and then use it as leverage
One of the biggest threats to Amazon is the power of brand. A truly powerful, must-have brand like Apple or Disney doesn’t need Amazon.com to succeed. They have built a direct relationship with the consumer. As a result, Amazon has lost tens of billions of dollars in potential revenue because people buy Apple products on Apple.com or in the Apple Store.
By having a must-have or a luxury product, you give yourself choices on how to leverage your brand: using an embargo period (Netflix keeps its original content exclusive to Netflix for a certain number of days and then sells it on iTunes and other platforms. The other platforms are not only sources of cash, they are also marketing), allowing just some products to be sold on Amazon (1-800-Flowers sells some brands on Amazon and others only on its own site), not selling on Amazon at all (Birkenstock, for example, prohibits its sellers from selling on Amazon. Sales tripled to $800 million last year), and partnering exclusively with one brand. (Martha Stewart has a multi-year exclusive agreement with Macy’s).