Amazon Tactics for Lasting in the Wilderness of E-Commerce

Beautiful pixel windows hide it well, but e-commerce is one of the toughest digital jobs. If in physical distribution the margins are already tiny, “on the Internet it is even more difficult, because the consumer can easily compare prices and switch to a competing store in a few clicks”, explains François Momboisse, president of the Federation of distance-commerce and sales (Feb.) For Amazon, the year ends with layoffs, stock market at half mast (-46% in a year) and a severe questioning of some of its bets (the voice assistant Alexa turns out to be a financial abyss).

The giant Amazon’s strategy, however, allows it to flourish in the fierce lands of online commerce – made even more difficult by the galloping inflation of 2022. Neglecting the thickness of its profits for many years, the group has indeed invested huge sums in the creation of its empire, opening warehouses from right to left and perfecting its logistical circuit as well as its digital infrastructure. A long-term bet that pays off. “Now it dominates the competition so clearly that when the economic situation is reversed, as is happening at the moment, it suffers much less than its competitors”, analyzes Julien Pillot, professor at Inseec, specialist in digital economy.

The goose that lays the golden eggs AWS

Amazon is also protected by the smart diversifications it has undertaken. First, in 2006, selling under the AWS banner various cloud services (storage, database, AI, etc.) tailored to the needs of the business. A masterstroke, because today this branch is a real “goose that lays the golden egg”: in 2021, it generated more than 62 billion dollars in revenue and more than 18 billion in profits.

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The group’s second notable shift is its foray into online advertising, long perceived as exclusive to social media and Google. Amazon has quietly built a small empire in the field, to the point where it is now the third biggest player in this field, behind Alphabet and Meta. And its advertising business is growing: in the third quarter of 2022, it generated $9.5 billion, or 25% more than the previous year.

Jeff Bezos’ company faces, however, major challenges at the end of 2022. For the group, Covid has been an enchanted parenthesis, where its growth has panicked (+ 30 or even + 40% for its Online Stores division in 2020 ). But the soufflé dropped a little as physical stores became frequentable again. Added to this is a gray cloud that hangs over trade as a whole: inflation. “In certain categories of strategic products – food, gasoline, etc. – it is particularly pronounced. This generates a lot of uncertainty among consumers”, observes François Momboisse, president of Fevad.

E-commerce, a bustling jungle

In front of Amazon, the competition prepares its weapons. Alibaba, the Chinese equivalent of Amazon, is therefore gaining market share in Europe. In the west, it is still barely noticeable (it went from 2% to 2.9% between 2019 and 2020). But in Eastern Europe, it has now joined the top 3 e-commerce sites, says Euromonitor International. Today, merchants can also create their own store much easier with PrestaShop and other Shopify that sell ready-to-use packages. The French unicorn Mirakl, which now has 300 customers worldwide, even allows distribution giants like Decathlon, Macy’s or Leroy Merlin to easily create their own marketplace to accommodate third-party sellers consistent with their offer. An effective way for businesses to expand their catalog and generate additional revenue as, just like Amazon, the marketplace operator receives commissions on transactions from third-party sellers.

Jeff Bezos’ company has two other big challenges to overcome. The first is legal. With texts such as the DSA, Europe has clearly increased its requirements in the field of combating counterfeit or non-compliant products. Even though Amazon already has tools in place that track these types of scams automatically, it will have to tackle this problem much more vigorously.

The other urgent project to be carried out is the climate one. With its large data centers and fast delivery circuits, the company emits a lot of greenhouse gases (the equivalent of 71 million metric tons of CO2 in 2021). He has pledged to become carbon neutral by 2040, but he is still not on track. If you don’t fulfill your commitments on your own, it will eventually hurt you as country regulations become more restrictive on the subject. After spending big in the euphoria of Covid growth, Amazon will also have to resume tight management of its business. It also halted several warehouse construction sites and closed some existing sites. Amazon has also started to cut its ranks. “The group will lay off 3% of its global workforce in the coming weeks. It is possible that further job cuts will be made in 2023 if the situation does not improve”, underlines Neil Mawston, executive director of the company Strategy.Analytics.

Jeff Bezos’ company will likely also have to review its Prime Video strategy. His idea of ​​including streaming movies and series in the Prime subscription (which offers one-day delivery) is very smart. This gives Internet users an excellent reason to subscribe to Prime and buy from Amazon first. Jeff Bezos summed it up nicely a few years ago: “Every time we win a Golden Globe, it helps us sell more shoes.” However, with the arrival of Disney and Co., competition in the sector is so strong that Amazon has let itself be carried away by an escalation of spending. With an estimated budget of US$ 1 billion, its flagship series Lord of the Rings could therefore be the most expensive in history.

Extravagant spending on Prime Video

For the spectator, it is very pleasant. But it’s not said that these generous outlays will make a real difference for Amazon: a more basic catalog might do the job just as well. Finally, the big challenge for the technology giant is to identify the technical innovations and new uses that will change the face of e-commerce in the coming years. With Alexa, Jeff Bezos’ company bet on the advent of voice assistants and imagined that consumers would make a good part of their purchases by talking to these AIs. But these little digital servers aren’t so easy to build (Samsung, which suffered a resounding failure with Bixby, knows something about this). Despite their progress, conversational AIs are still not developed enough today for Internet users to use them frequently.

Very popular in China, live-commerce, a kind of teleshopping 2.0 where Internet users buy products promoted by influencers during live broadcasts, could be the next wave. “We see today that 12- to 17-year-olds do their internet research on social networks like TikTok before turning to Google,” says Juliette Bohle, Director of Marketing at Prestashop. Either way, you’ll have to be ready to take the test.



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