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
- Vertically Focused sites (e.g., Diapers.com, Zappos.com, Drugstore.com, Fabric.com, Abebooks) SPENT $1.5B
- Infrastructure solutions (Kiva Systems) SPENT $0.8B
- Digital sales (e.g., Audible.com, Brilliance Audio, Lovefilm International, LexCycle, Amie Street) SPENT $0.3B
- 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
- 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.
- 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.
- 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.
- Avoid deep discounts. Margins online are already thin. And there will be constraints to growth as you outgrow your deal inventory.
- 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
- 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.