Beyond Aggregation: Amazon as a Service

Beyond Aggregation: Amazon as a Service

In late 2015, Amazon made a strategic mistake by closing down its Webstore business and redirecting its customers to Shopify, proclaiming the Canadian company as its preferred partner. However, since then, Shopify's business model has transformed from a SaaS model to a commission-based one.

Amazon, on the other hand, has extended its offerings of the popular Prime membership program to merchants off its platform through a new service that integrates the payment and fulfillment options onto third-party sites. This move shows how Amazon is evolving from being just a retailer to being a services provider.

One of the key services that Amazon provides is Amazon Web Services (AWS), which operates on a massive scale and benefits from economies of scale. The cost to build AWS was justified because Amazon's e-commerce business was its first and best customer. Developers have access to enterprise-level computing resources with zero upfront investment, while Amazon gains more scale for its products.

This model of leveraging its own business to create services for others is also being applied to e-commerce. Currently, 40% of Amazon's sales are sold by third-party merchants, most of whom utilize Fulfilled-by-Amazon (FBA). This means that their goods are stored in Amazon's fulfillment centers and covered by Prime. This increases the return to scale for Amazon's fulfillment centers, adds value to Prime, and strengthens Amazon's position in the market.

It is becoming increasingly clear that Amazon intends to replicate this model in the logistics industry. Just as they did with AWS and e-commerce distribution, Amazon is likely to offer its logistics network to third parties, further increasing the returns to scale and deepening Amazon's moat. This move would enable Amazon to compete with shipping giants like UPS and FedEx and potentially rein in shipping costs and improve reliability.

However, Amazon's control over demand and its power over suppliers also means that it has a tremendous advantage in the market. It collects relevant data from consumers and has a self-contained ad platform that is not regulated by governments or Apple. While this gives Amazon a significant advantage, it also limits the overall addressable market for the company.

In the case of e-commerce, Amazon will never be the only option, especially with the rise of the Anti-Amazon Alliance. Merchants constantly try to catch up with Amazon's standards, and now Amazon offers a solution for them to achieve an Amazon-like shipping experience by shipping via Amazon. This may have been a strategic move on Amazon's part, as it ensures that even if business was given away to Shopify in the past, it ultimately becomes a complement to Amazon's true differentiation in logistics.

The sheer expense necessary to build out a logistics network gives Amazon a nearly impregnable moat. As the volume of business processed by Amazon increases, it becomes more difficult for competitors like Shopify to scale their own shipping solutions. This poses a threat to Shopify's current major initiative.

However, there are still reasons why some merchants may choose not to use Amazon's shipping solution. One major reason is the collection of data. Shopify's offering will always be differentiated in this regard.

Overall, Amazon's focus on infrastructure at scale, as demonstrated by AWS, has been its strength. If Amazon successfully moves e-commerce beyond aggregation to a service business model, it would mark a significant milestone for the company and solidify its position in the market.

In conclusion, Amazon's evolution from a retailer to a services provider is evident in its offerings such as AWS and its expansion into e-commerce logistics. By leveraging its own business to create services for others, Amazon is able to increase returns to scale and deepen its moat. However, there are challenges and limitations, such as limited addressable market and competition from other players.

To navigate this changing landscape, here are three actionable advice for businesses:

1. Embrace the power of data: Collect and analyze relevant data to gain insights and improve decision-making. This will help businesses understand customer preferences and tailor their offerings accordingly.

2. Prioritize customer experience: Focus on providing exceptional customer experiences, particularly in terms of shipping and fulfillment. Meeting or exceeding customer expectations will help retain loyal customers and attract new ones.

3. Explore partnerships and collaborations: Consider partnering with established players like Amazon to leverage their infrastructure and expertise. This can help businesses scale their operations and gain a competitive edge in the market.

By following these advice, businesses can adapt to the changing landscape and thrive in the era of Amazon as a service provider.

Why your brain is so good at rewriting history

Our memory has a tendency to emphasize our contributions to a project because those are the most vividly represented in our memory. This phenomenon is known as schema-driven memory.

Memory's core function is to provide us with information we are likely to need in a particular situation. To predict what will happen in a complex event, our brain develops frameworks called schemas that help us predict the sequence of events and reasons behind our actions. These schemas can sometimes lead us to misremember the order of events or the specific details of a meeting.

Furthermore, information we hear about after an event can mix in with our visual memories of the event itself, further distorting our recollection of the past.

Understanding how our memory works can help us be more aware of our biases and potential inaccuracies in our recollection of events. It is important to critically evaluate our memories and seek external sources of information to gain a more accurate understanding of the past.