This week The Economist magazine focused on the incredible growth of Amazon.com – not in profits so much as market share and breadth of activities it is dominating. At $400Bn market capitalization it is the fifth most valuable firm in the world (and the most trusted brand in the USA). Incredibly 92% of its valuation is based on profits due to fall after 2020 and Amazon investors are known for their patience and faith in Jeff Bezos, the iconoclastic founder and current CEO.
The 22 year old e-commerce Goliath is the one analysts love to hate – returning low profits to shareholders and behaving extremely aggressively to acquisition targets and competitors.
And Amazon has a lot of competitors. No longer a bookstore it wants to be “the everything store”. And not only sell everything from it’s own branded goods, labelled brands and services through its online platform. Amazon Web Services (AWS) also sells cloud computer services hosting many of the world’s leading websites including Netflix. Amazon sells warehouse space grocery items, e-book readers and even canned unicorn meat and some great books.
The Kindle has been a success in the e-book market, unlike the failed smart phone efforts. It seems Amazon is willing to get involved in pretty much any industry – spending $1.5 Bn on an air freight hub in Kentucky buying shipping lines, Alexa, a virtual assistant technology challenges Apple’s Siri and allows easy ordering of products direct from Amazon.
Amazon delivery is quite something too. With fulfilment centres across the states they offer same day delivery, free for Amazon Prime customers (who pay up to $99 a year for free shipping and other benefits) and Amazon is experimenting with drone delivery and targeting two hour delivery in some centres. In Seattle Amazon is experimenting with payment processing technologies in brick and mortar stores. Amazon won its first Oscar at the 2017 Academy Awards and is planning to spend $1.7Bn on film and television content (twice that of HBO).
Jeff Bezos, Amazon’s founder is a hard driving individual with a clear vision. He would be a hard act to follow and the Amazon shareholders trust his long game and killer instincts. He is investing his own funds in space exploration, and fiercely competitive in every activity he takes part in.
Firstly manufacturers selling physical products for consumers or businesses can sell direct on Amazon. They can hold inventory in Amazon’s warehouse and when an order is placed through the Amazon.com website or the company’s own site, Amazon will fulfil the order charging an average of 33% on the sale price as the commission and shipping. There is an efficient Pay Per Click advertising platform within Amazon to help make products more visible to shoppers, and there is no where else on the planet where people are there just to shop. Forget those Google click seeking information or researching products, Amazon’s (controversially) patented One-Click ordering means individuals browing have very high buyer intent. As a seller of my own brand I average around 30% conversion rate (percentage of views of a listing that turn into a sale) and as high as 65% on some products. On a standard e-commerce website that would be single figures and probably low single figures!
The number of customers on Amazon every day looking to buy products every day is staggering and it’s often free traffic. Over 86% of Amazon sales are from the search results showing on page one of a keyword search, so getting out of obscurity and getting good reviews can lead to very quick and very significant new revenue.
Selling on Amazon also tells sellers a lot about the US market. Split tests on pricing and the lifestyle images associated with your listing change traffic and conversion rates. Customer reviews give feedback on your products. Competitors notice you and react.. or don’t.
Retailers and businesses can approach sellers and get pre-set business to business rates or even just order a few products to see if they might stock them. A cheap experiment to test the world’s biggest marketplace and see how a New Zealand product flies.
There is a sweet spot for products that will sell well on Amazon – a combination of price, weight and volume, complexity of product and the level of competition. Many premium brands (organic foods, well designed New Zealand products) are doing very well on Amazon and in some cases at a higher price than the equivalent New Zealand retail price. Amazon.com covers the USA but there are also Amazon platforms selling in Canada, the UK, Europe (Germany is the second largest Amazon marketplace), Japan, China and India. Anyone interested in an assessment of their products’ suitability on Amazon can learn more here [insert link]
The second big opportunity on Amazon is private labelling – where generic goods are branded and sold online. This is the recent experience of the author, having sold multiple seven figures USD over the past three years and sold one 18-month old Amazon account for seven figures USD. In this case the main product was made from New Zealand wool, branded by a New Zealand designer, manufactured in Nepal and shipped and sold in the USA, UK and Europe on Amazon. A great side hustle or home business opportunity (in this case a maternity leave project that is still running today with over 400 products being sold online around the world through Amazon)
The third opportunity for New Zealanders looking to leverage Amazon is access to a secure cloud computing service for web hosting AWS is hard to beat in terms of value and reliability.
In conclusion we can be confident Amazon is here to stay and grow faster than we have seen up till this point. New Zealand products are seen as desirable and high quality by Amazon’s customers and with careful account management and launch strategies it is possible to tap into the flow of the mighty Amazon.