Prime’s Unstoppable Engine & Other Strategic Growth Opportunities We’re Watching at Amazon
While analysts expected a modest first quarter in 2018 for Amazon, the company had many surprised when it announced profits more than double those of Q4 2017. Amazon continues to explore diverse avenues of business, and yet maintains its relentless focus on the customer – a focus that has been the core of its success, and the one that appears most threatening to other retailers. Its most recent record growth is attributed, again, to the near 50% year-over-year growth of Amazon Web Services; but what we’re paying close attention to is the revenue categorized as “Other”, which includes Advertising, a now multi-billion-dollar business. “Other” saw a year-over-year revenue increase of 132%. While small in comparison to other aspects of the business, the industry is increasing the focus on Amazon’s on and off-platform advertising capabilities, where retailers have the opportunity to be closer to the customer and the critical points of discovery and conversion.
The Power of Prime
Just days before the earnings’ release, Amazon’s shareholder letter from CEO, Jeff Bezos, circulated; one of the more notable metrics in it being Amazon’s confirmed 100 million Prime members. In his letter, Bezos notes,
“How do you stay ahead of the ever-rising customer expectations? There’s no single way to do it – it’s a combination of many things. But, high standards are certainly a big part of it.”
Amazon Prime has forever altered the standards of the customer experience, and those 100 million subscribers are one of, if not the most critical piece to Amazon’s success. That level of stickiness with consumers is widely unparalleled. But it’s not just the subscribers they have – it’s the data they have about these consumers that’s entirely unprecedented. Everything about Prime tells a deeper story of consumer behavior, from the shows people watch, to the groceries they consume, to the reviews they leave, to how they shop around on the Amazon platform, and engage with brands and advertisers.
Some may call the 100 million a ceiling, but what ultimately leaves room for growth, improvement and innovation is how they evolve their use of that data over time. For instance, in time Amazon may be able to ping a Best Buy customer in-store that’s logged into their Amazon app, to alert them of product promotions or other personalized offers. It’s a whole connected ecosystem, and Amazon is incredibly smart when it comes to knowing where the high conversion points exist across the customer journey. It’s an opportunity to leverage cross-device, particularly when they have these types of multi-dimensional partnerships like the one with Best Buy, or even Whole Foods.
What’s Interesting About ‘Integrated’ Partnerships
During the same time that Amazon released its shareholder letter and mega Prime numbers, Jeff Bezos announced what he calls a, “deeply integrated” partnership with Best Buy; in more detail, a multi-year exclusive collaboration to bring the next generation of Fire TV-edition Smart TVs to customers in the U.S. and Canada. The TVs will be sold in Best Buy stores, online at BestBuy.com, and Best Buy will also be the sole retailer of these editions of TVs on Amazon.com.
What’s interesting about the partnership? The plan put forth by Bezos and Best Buy CEO, Hubert Joly, seems to have a truer integration play than other partnerships we’ve seen. There are mutually beneficial aspects to both companies. For Best Buy, it’s a short-term win, in that it assists in the longevity of the company, in an otherwise challenging time for retailers like them. But in the long-term, it’s about reinstating the strength of the Best Buy brand. Partnering with Amazon gives them a renewed relevancy with customers, both in driving to Amazon and their own eComm and retail stores. This move is Best Buy understanding that it all needs to start with the audience. Today, that audience is largely on Amazon, and so this gives them incredible, scalable access to more customers. For Amazon, it gives them more retail foot traffic, where Best Buy is likely more incentivized to push Amazon’s product.
These types of partnerships are all about the right vertical integrations – we’ve seen how Amazon has been successful in grocery with the acquisition, and integration of Whole Foods. Where else might Amazon explore these types of partnerships? Ultimately, you have to look for the gaps, and the verticals that Amazon doesn’t have access to yet. It will be interesting to see more of these “integrated” partnerships coming up, and how they’ll play out in the long term for the brands.
Responses from Competitors
While the news has been dominantly focused on Amazon, there is significant movement coming the retail industry, and from some of Amazon’s biggest competition. For instance, we see Walmart rolling out a fresh eComm experience, with more attention to localization and personalized recommendations, plus an overall sleeker, more intuitive site experience and layout that may entice more brands looking at a Marketplace play, and more online customers. In a similar realm, you have Target and Walmart partnering with Google Express, as a way to compete directly against Amazon and pave the way for voice shopping innovation. Amazon may be the big story now, but don’t count out others’ dedication to innovating and improving the customer experience, particularly in the areas Amazon still falters in.