Amazon is one of the sternest companies to compete against. With founder and CEO Jeff Bezos at the helm, Amazon abstains from profits, deals with slim margins, and is persistent about prioritizing their customers. Bezos picks out competition with only low prices, and takes a hard-line in negotiations with companies that want to sell products on Amazon. This has led to Amazon taking exceedingly more e-commerce sales than any other online website has.
Amazon merely started as a website to buy books online, but today it sells everything. It’s expecting to do sales of $91 billion this year.
In a blog post on competing with Amazon in 2013, Andreessen Horowitz investor Jeff Jordan stated that, Amazon is larger than the next dozen of largest e-sellers combined together! Its sales advantages are incredible.
Benedict Evans, an analyst at Andreessen Horowitz, recently wrote an article on Amazon and its selling strategies. In it, he included information on how Amazon is ready to give up profits for more sales.
It’s important to know that it’s not like Amazon can’t make money. It’s just that it chooses not to make money. As Evans puts it down, Amazon has hired someone at the company whose job it is to make sure that net income gets to zero.
Amazon takes almost every dollar of cash earned that it generates, and pumps it right back into the company.
Amazon’s willingness to reinvest its money back into the company even as less as a dollar makes it an intimidating company. Its run is like a startup company, or any other 20 year old mainstream company.
But recently, it feels like the grounds of competition have changed. As Amazon expands into more verticals, its pure number of competitors has exploded, and they’re attacking Amazon as they appear one of the strongest companies in the market in ways which are both big and small. But in spite of this Amazon remains a rooted company.
The startups that could disrupt Amazon
For instance, Andreessen Horowitz just invested $44 million in Instacart, which is a grocery delivery service. Instacart hires people to drive down to groceries and buy products that customers have ordered using their smartphone. This appears to be a direct competitor to AmazonFresh, which also delivers groceries to customers, but to a fewer areas than Instacart does.
The Instacart example is mentioned, partly because the company exists almost entirely because of our smartphones and the desire for instant gratification.
Mobile apps are changing shopping (mobile commerce grew three times faster than e-commerce year-over-year overall). But, except its recent release of the Fire phone, Amazon has hardly done anything different to distinguish their mobile experience from the desktop experience. It basically just converted its website into an app for the phone. With the Fire phone, Amazon went far in the opposite direction to create something new. Part of the reason why the Fire phone hasn’t attracted much customers, is that it feels like the phone exists mainly as a medium to the Amazon ecosystem. Besides providing a gateway for “everything” on one website, customers prefer to go for a more personalized e-commerce app which is specific to their wants. Therefore being an “everything store” isn’t an advantage when customers are pointing at things specifically.
Lee Hnetinka, founder and CEO of New York City-based startup WunWun thinks his company beats Amazon in several ways. WunWun is a delivery service app that allows customers purchase goods from local stores, and then delivers them within an hour for free at lower prices.
“We’re also empowering merchants,” Hnetinka stated to Business Insider “We’re giving them the strength to compete with Amazon.” Although he also says that he doesn’t “wake up every day thinking about how [WunWun] can he beat Amazon,” he’s not afraid of the competition in the market.
The other reason the Instacart story is important is that it only competes with Amazon because Amazon is doing everything now. Instacart only focuses on grocery giving it full attention whereas Amazon doesn’t.
The “everything” store
In the last nine months, Amazon has made three new innovations into hardware, with a TV streaming box, the Fire smartphone (which was largely seen a flop), and its Square-killer, Local Register. Moreover, it also owns Zappos, Diapers.com, and IMDB. But there’s a lot more, that’s just a taste. There are very few companies in the market trying to do all that Amazon does.
The giant companies that want to impede Amazon
Amazon isn’t under attack from just startups companies, though. There are big companies too with deep pockets ready to challenge Amazon.
Chinese e-commerce giant, Alibaba is about to the IPO. It’s expecting to raise $21 billion in the biggest IPO in history, giving Alibaba billion in cash to try to get through the U.S. market and compete with Amazon.
Google makes its money when people do commercial searches for products they need. As Amazon grows in power and ubiquity, consumers go straight to Amazon.com to do searches for stuff instead of Google. To give a comeback, Google has tried to improve its shopping results by providing more e-commerce options for the people.
The companies compete in many other ways. Amazon just launched a new mobile ad network that could be a disadvantage for Google. Google is testing Shopping Express as well, a delivery service that goes right at the heart of Amazon’s e-commerce business. Google partners with local stores therefore if you order something using Google, it will deliver it the same day.
“People still think of Amazon only as a retailer,” says SunTrust analyst Robert Peck, “But when you think about all of its investments, it has expanded into many new areas than it can handle”.
Whether it’s expanding vastly, spending too heavily, and losing its focus are a important questions. When Amazon revealed it expects to lose a sum of $410 to $810 million in Q3, investors panicked, and the stock tanked more than 10%. Overall this year, it’s down nearly by 20%.
Scott Tilghman, from B. Riley & Co., said that though the company is used to Amazon’s slim profits or even losses, it downgraded its estimates because “we are finding no limit to the company’s spending this time around.”