Amazon may be the biggest retailer on the planet, but that doesn’t mean it’s destined to remain there forever. In fact, if the company’s plan to make most of its sales through third-party sellers goes forward, it may have one major roadblock to growth: Its own success.
That’s right – even though Amazon is currently at the top of its game and continues to dominate in online retail sales, it may not stay there forever, as its business model has some fundamental flaws that may be hard to overcome in the long run.
The Early Advantage
Amazon got a late start in the eCommerce game, but it quickly made up for the lost time by becoming the go-to online retailer for millions of people. However, their business model is flawed and doomed to fail.
- Amazon has sacrificed customer service to provide cheap prices.
- There are too many product choices on the site making it difficult for customers to find what they want
- Due to this extreme competition, suppliers are feeling threatened
- Because of their own success, they have become more vulnerable than ever before.
However, I think that their position is actually very secure for two reasons:
firstly, even if competitors can match them at price or selection–or both–they can’t match them with convenience: from my home, I can order pretty much anything I need and then just wait for delivery.
Secondly, even if all the competitors disappeared tomorrow, Amazon would still be able to continue running as an online retailer–after all, they’re not really in any industry other than retail!
In our culture of instant gratification, we want what we want, and we want it now. This is the model that Amazon has built its business on, and it’s why its business model is doomed to fail.
One way this can be seen is by looking at how much time people spend on Amazon Prime Instant Video versus Netflix: A study from ComScore found that users spent only 10% of their time streaming videos from Amazon Prime Instant Video.
With over 100 million members in the US alone, you would think a company like Amazon would be able to stay afloat with numbers like these! What makes matters worse for Amazon is that even though they have so many customers, they don’t make as much money as other companies because they sell products for cheaper than other stores.
So not only are people not spending as much time on their site but they’re also buying fewer products which means less profit for them.
The Six P’s
The first P is Product: Amazon sells a vast array of products, everything from books to electronics to clothing. But the company doesn’t actually manufacture any of these products. It’s simply a middleman, connecting manufacturers with customers.
The second P is Price: Amazon is known for offering low prices, and it’s able to do this because it doesn’t have the same overhead costs as brick-and-mortar retailers.
The third P is Promotion: Companies like Barnes & Noble rely on in-store promotions like free readings or tastings to draw in new customers. They also invest heavily in building their brand name so that people feel confident about buying goods from them. Amazon relies heavily on its internet platform and only spends money on promotion when necessary (which is often).
The fourth P is Positioning: In retail stores, companies can place their products at eye level and use signage to get customers to notice them. In an online store like Amazon, companies can pay extra for prominent placement, but they don’t have control over how they are positioned in relation to other items.
The fifth P is People: Brick-and-mortar businesses need employees to handle customer inquiries, run errands, manage inventory, etc. Online businesses need programmers and web designers to develop their websites and optimize the experience for customers.
The sixth P is Processes: Brick-and-mortar businesses need employees who know how to organize inventory and keep records of transactions happening in the store; online businesses must establish processes for processing transactions securely and keeping customer information private.
Platform – One Size Does Not Fit All
In a world where there are countless businesses vying for attention, it’s important to have a platform that can be tailored to each individual business. That’s why Amazon’s “one-size-fits-all” strategy is doomed to fail. It doesn’t work because its best practices and policies don’t always work well with every type of business.
To use an analogy, imagine trying to make a suit out of denim material – not only would the suit look bad and not fit well, but it would also fall apart quickly and never last as long as if you had used more appropriate materials like wool or polyester.
The same goes for Amazon’s one-size-fits-all model: in a diverse marketplace, using standard techniques is simply not going to cut it. For example, take Google Ads. Many small and medium-sized businesses struggle with Google Ads while larger companies see success due to their resources.
While Amazon does offer some ads products, they just aren’t designed for these types of businesses. As such, many SMBs get frustrated with all the limitations that come along with advertising on Amazon while they’re missing out on other opportunities elsewhere.
In contrast, smaller platforms such as Shopify provide users with a wide range of services including options to build ads and landing pages right into the app itself.
Partnership – When All Else Fails
In business, partnerships are key. You need a partner that you can trust to help you when things get tough. That’s why Amazon’s business model is doomed to fail. Without a partner, they will eventually crumble under the pressure.
They have no one to lean on or turn to for support. The lack of transparency also makes it difficult for them to forge new relationships with other companies. It doesn’t seem like this situation is going anywhere but down and I don’t think it will be long before we see an implosion from within because of these struggles.
Amazon needs a partnership in order to succeed and right now they don’t have one. Their lack of transparency makes it difficult for them to make any partnerships. So while they have made some progress with Barnes & Noble, their success may not last if they don’t find more partners soon.
A key element in building any successful company is having a partnership. But without one, Amazon’s business model is doomed to fail and as seen by their recent layoffs, this just might happen sooner than later.