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Five (more) reasons for everyone to fear Amazon

Digitas

Fern Miller

Five (more) reasons for everyone to fear Amazon

Last week, Amazon announced earnings that took even the optimistic analysts by surprise. The almost unprecedented share price hike that followed perhaps serves to explain why Stonecrest, Georgia offered to rename itself ‘Amazon’ and to make Jeff Bezos Mayor-for-life, just for the honour of hosting Amazon’s second HQ. 

And yet many in the marketing space appear to be blithely continuing with plan A, rather than seeing the imminent threats to their business model that Amazon’s strategy represents.   

1. This is not a trend, it’s a plan

Jeff Bezos’ letter to shareholders in 1997 outlined almost every single part of the strategy that has since taken over the world. Those buying Amazon shares that year were widely scoffed at by experts for investing in an online bookseller with grand ambitions. (Although if they bought in at the first price Amazon started trading at and held their shares ‘til today they would be up around 12,400%, which I expect is some consolation.)

Anyway, in the first of the letters Bezos wrote to his shareholders he said:

"Today, online commerce saves customers money and precious time. Tomorrow, through personalization, online commerce will accelerate the very process of discovery."

The Prime membership scheme is 12 years old. Amazon has bought 180 companies over the last 10 years. They have ploughed the vast majority of their revenue into the business in a famously prudent long-term growth strategy, all geared toward acquiring customers hungry for better value and service.  The only thing that seems to have taken Amazon by surprise in the announcements last week is the rate at which Alexa device sales are growing. These guys have been creeping up on us for decades.

2. People usually care much less about retail brands and shopping experiences than how quickly they can get their hands on stuff.

If the design of the online experience were all-important, Amazon wouldn’t have shipped items work $5 billion through the Prime proposition worldwide last year with a site that looks, well, that looks like THAT. It sounds obvious but we often hope a seductive online experience will create preference for a retailer, when of course the reason most people shop is to get stuff.

Amazon’s site is not beautiful. The search facility labours under the weight of the range, it is dependent on the quality of content and tagging, by resellers in many cases, and the products are rarely displayed to their finest advantage.

In fact, many resellers are doubling the prices of the goods you can order online (for example, IKEA) because people will pay twice the price of a garlic press if they can get it within days rather than weeks. Because when you (or Amazon) know what you want, (55% of online shopping trips in the states begin with an Amazon search) and especially when that thing happens to be on the Prime service, it’s in your mitts promptly and reliably.

They don’t need to seduce you. If you sell online, and your delivery service is less prompt or less trusted, (which is not the same as less reliable, of course) than Amazon, you should fear them.

3. Amazon just stole Christmas in America 

The advantages of having built this trust pay off exponentially during the holiday season.  The human consequences of undelivered Christmas shopping in those tense last weeks before the 25th are about whether Santa comes this December. Delivering Christmas is a gigantic responsibility and Amazon can be trusted to make it happen. That’s why Amazon took half of all online Christmas sales in the States.

That’s why when polled, 76% of Americans said they would do all or most of their Christmas gift shopping on Amazon. So, how will the US retailers that Amazon just stole Christmas from take it back? And at home, for how long will those big beautiful expensive brand TV ads we are so fond of each year hold off a similar threat?

4. A 60% growth in advertising sales is just the beginning

Another driver of Amazon’s share price growth was this news about the growth in their Ad Services revenue. With so much data being collected at the point of search and purchase, advertisers are finding Amazon’s ad offering as irresistible as the most powerful and personal shelf wobbler in the world. This is not great news for media owners, or in fact those whose businesses are founded on brand awareness.

However, the data collected by Alexa in the home as well as by the Amazon content businesses starts to paint an even more compelling picture.

Tellingly, Alexa is where Jeff Bezos promised shareholders he would, "double down", emphasising that the most gratifying driver of Alexa’s growth was the promotion of Alexa by other companies, as brands like Sonos and Toyota embed the platform in their products, and brands start creating skills for Alexa’s devices. Once Amazon knows everything about our audiences, what’s the point of using media that doesn’t?

5. Amazon makes the rules

Amazon is not your compassionate, conscience-driven engine for general social good. It is an admirably dogged force for growth which has mercilessly ripped out the premiums charged by a range of categories from publishing, to groceries, to entertainment, much to the delight of their customers.

Many of the brands staggering in the wake of this juggernaut were beholden to some long-held beliefs about what people wanted that turned out weren’t sacred after all, not if they came at a price.

If you have some rules that cost customers money and you aren’t prepared to find out just how important they really are to people, you should fear Amazon. 

Fern Miller

Fern Miller

CHIEF STRATEGY OFFICER, INTERNATIONAL AT Digitas

Fern is Chief Strategy Officer, International at Digitas, leading the agency’s planning discipline across Europe, the Middle East, Africa and Asia. In her previous role as planning director at creative agency Karmarama, Miller worked for brands including the BBC, lastminute.com and Unilever. She has extensive experience working on campaigns across the banking, FMCG, charity and retail sectors and has also held senior positions at DLKW, JWT and Delaney Fletcher Bozell. Fern holds a degree in English from the University of Oxford. She knits enthusiastically, draws occasionally and collects theatrical costumes nonsensically.

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