For years Amazon has been an unstoppable ecommerce juggernaut with innovation mojo and an investment thesis that gave them license to spin Bezos\u2019 legendary flywheel so fast that no one could keep up.<\/p>\n
But now? That mojo has turned to mush.<\/p>\n
Today, Brain explores the complex trap that sets Amazon up for a painful awakening. <\/p>\n
Join Brian as he walks us through:<\/p>\n
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Don\u2019t have time to listen to the full episode? Read on to get a summary from Brian as he dives into each of the \u201ctraps\u201d that Amazon has set for itself over the years. <\/p>\n
When it comes to ecommerce, Amazon was considered an unstoppable force for a long time with \u201cinnovation mojo,\u201d but that mojo seems to have dried up in recent years. That\u2019s largely because the Amazon.com customer experience has gone from top-notch to below average, with shoppers voicing frustration at search functionality that doesn\u2019t work properly, fake reviews, a ton of ads, knockoff or counterfeit products, and missed delivery dates. All of this has resulted in Amazon receiving its lowest American Customer Satisfaction Index<\/u><\/a> score yet in 2021. <\/p>\n The Amazon ecommerce experience is now a shadow of what it used to be, and there\u2019s one big reason why the online business hasn\u2019t been able to refocus and regain that bar-raising standard: They\u2019re in a trap of their own making. <\/strong><\/p>\n As Amazon grew over the years, it ended up setting up various \u201ctraps\u201d in the name of business growth that will ultimately shackle and harm the business. The writing\u2019s on the wall for Amazon to come face to face with the dreaded \u201cDay 2\u201d that Jeff Bezos warned about in a 2016 shareholder letter<\/u><\/a>: \u201cDay 2 is status. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death.\u201d <\/p>\n Let\u2019s take a closer look at how Amazon trapped itself as it grew into the monolith it is today.<\/p>\n Amazon\u2019s digital ad business increased by 19% in Q4 of 2022, making it a $38 billion annual business. But with such a high-margin ad business, how do you keep growing it to satisfy advertisers? By selling more ads, of course. <\/p>\n But for Amazon customers (the shoppers, not the advertisers), that makes for a poor browsing experience. And therein lies the trap \u2014 by continually expanding and \u201cimproving\u201d its advertising offerings, Amazon will clog up its product listings and alienate customers. <\/p>\n Amazon structures its product pages with ASINs (Amazon Standard Identification Numbers), which ensures that there\u2019s only one product page for each common product. As a result, Amazon gets sellers large and small to compete over the \u201cbuy box\u201d \u2014 Amazon gets a cut of the revenue, but sellers get to tap into a firehose of traffic, making it easier to start selling directly to consumers. <\/p>\n Today, 60% of units sold on Amazon.com are from third-party merchants in the marketplace, where Amazon doesn\u2019t carry the inventory but simply charges for storage and fulfillment services. That\u2019s because manufacturers (largely from China) were making products for leading brands and private-label programs, but can now sell directly to consumers for cheap. <\/p>\n The problem is, as these offshore manufacturers have gotten better at \u201cgaming\u201d Amazon\u2019s system \u2014 copy-paste descriptions, fake positive reviews, deceptive keywords, paying to show up on the first page, etc. \u2014 they end up bumping out everything else, including what you were probably trying to search for in the first place. The lack of oversight and monitoring for these manufacturers has led to a rapid decline in the customer experience. <\/p>\n Beyond offshore manufacturers, Amazon\u2019s private label brands \u2014 that it uses to sell its own products \u2014 are competing with retailers and brands as well. Not only does this clog up search, category pages, and the overall customer experience, but it\u2019s triggered action from antitrust regulators. <\/p>\n Just recently, it was reported that the US Federal Trade Commission is planning to bring an antitrust lawsuit<\/u><\/a> against Amazon. While the lawsuit will likely take years to play out (and may not even lead to anything), it will still impact public perception of Amazon and potentially erode market share. Some of the brands that sell on Amazon may even decide to sell direct or go through an alternative marketplace. <\/p>\n Amazon Web Services (AWS) saw a big boost in sales in 2022, up 29% to $80.1 billion with an operating income of $22.8 billion. That\u2019s in contrast to the ecommerce side of Amazon, which lost money both in North America and internationally. <\/p>\nThe Amazon \u201cTraps\u201d<\/h2>\n
Retail Media Advertising <\/h3>\n
Offshore Third-Party Marketplace-Sellers<\/h3>\n
Private Label Programs and Antitrust Pressure<\/h3>\n
AWS <\/h3>\n