5 Things we can learn from Amazon’s Acquisitions

Online retail, though it has grown leaps and bounds, still has significant secular growth left – only 10% of US sales are online today. Ok, so that’s a big market but Amazon owns approximately 20% of U.S. Online Retail sales (ex Travel / Auto / Auction) and the larger it gets the faster it could grow.

Top eCommerce Sites Gaining Market Share in US, 3Q’09 vs. 3Q’10 Excludes Auctions, Autos and Large Corporate Purchases
So how do you compete with Amazon given the significant economies of scale its been able to capture namely purchasing power, shipping infrastructure and mountains of consumer data?
The answer can be found by looking at Amazon’s acquisitions. You can bucket Amazon’s acquisition in US in the last 5 years in 5 major categories:
  1. Vertically Focused sites (e.g., Diapers.com, Zappos.com, Drugstore.com, Fabric.com, Abebooks) SPENT $1.5B
  2. Infrastructure solutions (Kiva Systems) SPENT $0.8B
  3. Digital sales (e.g., Audible.com, Brilliance Audio, Lovefilm International, LexCycle, Amie Street) SPENT $0.3B
  4. Flash sales / Local Sales  (e.g., invesment in Livingsocial.com, buyout of Buy VIP and Woot) – went on to build MyHabit SPENT $0.1B on disclosed acquisitions – not counting its partial stake in Livingsocial
  5. Content (e.g., Digital Photography Review, Foodista) UNDISCLOSED so likely not material to financial results

Given the number of e-commerce operations that exist out there – Amazon has hardly been acquisitive choosing to bet big on a few names. But there are a number of things you can learn from the data points or the lack thereof:0

0. Its tough to get acquired by Amazon. This may be obvious to some of you but I’m amazed at how few acquisitions they’ve made.

  1. Avoid being a content creator Content creators, even those that link very clearly to purchases, don’t get a big payoff. They reside in a different part of the value chain and create leads for the retailers and that hasn’t led to large $ acquisition by Amazon.
  2. Develop a vertical focus and build efficiencies around that vertical. This intense focus on a category enables you to have effiecieny and understanding of a customer that would be difficult for Amazon to easily replicate. In the case of Diapers.com the intense focus on Moms allowed Diapers to solve a major problem: How do you make money selling / shipping bulky low value items? The answer was to build super-efficient supply chain and warehouses, kill diapers as a category, and make money on other household items.
  3. Avoid deep discounts. Margins online are already thin. And there will be constraints to growth as you outgrow your deal inventory.
  4. Obsess over customers – that’s what Zappos did. It built a culture around customer obsession and that was one of the primary reasons Amazon bought Zappos. Categorizing shoes, paying for returns, etc. – Amazon could have done this itself and thrown a lot of money at, but the culture is difficult for any company to replicate
  5. Keep betting on digital delivery – its the way the world is moving and Amazon is investing.

Okay so this begs the question – What verticals are left to focus on? Electronics, toys, and baby products categories, for example, already have near 20 percent online market share.

So the things to compete on are apparel, home furnishings, cosmetics etc. Or tackle consumers segments like Diapers did e.g., child going to college /moving, buying a house, career change, mid-life crisis (just brainstorming), etc. Picking a category of items or a customer and really studying the microcosm intensely is the way to build a retail business that Amazon would look at acquiring.

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Start up idea: Fix event search


As some of you know, I’ve recently moved to SF. Wanting to meet people, I’ve made it a point to get out to as start-up type events as I can to talk to people and learn more about the ecosystem. I have been highly disappointed with Eventbrite’s and Meetup’s discovery tools. Here’s why the space is ready for disruption:

  • Large market There are 11M searches per month for events in Google in the US alone (25M worldwide)
  • No way to search all the event websites out there at once  Someone needs to do what google did for products, recipes, news, etc. The good news is the event market is fragmented but not as fragmented as some of the things Google has already indexed. The 80/20 of events will be within college calendars, in Facebook, Eventbrite, Citysearch Ticketmaster, and Meet ups. Ticketmaster is the big elephant in the space. Crawling through this data across sites (except for college calendars) cannot be very difficult.
Based on data from compete.com unique visitors per month; Others includes: Eventbee, Skillshare, Acteva, and Regonline
  • Major improvements needed in search functionality. Do what kayak did and allow people to search by a lot of criteria. Here are somethings I usually don’t find:
  1. Hours and dates timing – obvious but still not done well (please see Eventbrite’s search for how not to do this … Why can’t I specify dates? What does $, versus $$ mean?)
  2. Are there tickets available?
  3. Number of attendees / size of event
  4. Is it a repeat or a first time event?
  • Integrate with my other accounts. Some (not all) are already integrated with Facebook and Google Maps but it would be great if they were integrated with:
  1. Google Calendar – as in find out when I’m busy vs Free
  2. Linked In – as in know in which field I work and tell me which professional events are best suited for me based on my professional contact