Commentary

All Bow To Amazon?

Amazon is dominating retail. That’s hardly a secret. As a result, established brands are struggling to maintain market share, and brick-and-mortar stores are bending over backwards to try and lure shoppers back in. Others have thrown in the towel, with Toys R Us as the most recent casualty of Amazon’s aggressive tactics.  

But there is one area where Amazon’s hold over the market is even greater. The company’s cloud computing platform, Amazon Web Services (AWS), currently hosts over one million active users, 10% of whom are enterprise-level clients. The list of companies that use AWS is a who’s who of the Fortune 500, with giants such as Netflix, Unilever, and Comcast all relying on the platform to provide some, or all, of their computing power, data storage, and data infrastructure.

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Besides those large companies, the bulk of AWS’ one million users is made up of small to mid-size companies that would lack the resources otherwise to develop their own data architectures. Now, let’s say you’re an advertising company that has recently been hired by a retailer to create engaging, data-driven campaigns with the goal of increasing in-store attribution — and you also happen to use AWS as your cloud provider of choice. It’s kind of perverse: that retailer you were hired to help is now, in a roundabout way, paying to support the very company that’s eating away at its business. 

This is part of why it’s so difficult to compete effectively with Amazon. Unless you have the resources to break free from its domination of the marketplace for cloud computing and build your own cloud platform, you’re going to have to rely on a third party such as Amazon to provide the necessary support. 

AWS was responsible for over 300% of Amazon’s operating profit in the Q4 2017, despite AWS accounting for slightly over 10% of the company’s revenue in the same period. This means that Amazon’s tactics to undercut the rest of the retail and e-commerce industry, as well as its development and distribution of media content, are being subsidized by those who use its cloud services — by the very same people being displaced and driven out of business. 

The biggest question for brands is, why would you support one of your competitors? You’re giving money to a company that’s competing directly with you. This applies to retailers as well as content providers such as Hulu and Netflix, which are currently vying for streaming dominance against Amazon’s Prime Video. It also goes for the advertising agencies that are looking to provide better value for their retail clients and for the AI startups looking to build machine-learning models. At this point, Amazon has its fingers in so many pies that it’s almost easier to list the industries it’s not eroding than the ones it is. 

There is an understandable benefit to using a service such as AWS: It beats having to build your own system from scratch. But if companies are serious about competing with Amazon, they need to stop supporting its cash cow. If Amazon is eroding your business and eating your lunch, why would you continue to feed them? Brands need to take the initiative, invest in their own data infrastructure and become more self-reliant.

1 comment about "All Bow To Amazon?".
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  1. Ron Kurtz from American Affluence Research Center, April 18, 2018 at 2:37 p.m.

    Should Amazon even be considered a retailer? The author indirectly acknowledges that Amazon profits are almost entirely from AWS. The remaining profit seems to come from being an advertising medium for third party vendors. These vendors account for as much as 85% of sales in some estimates. What is left is Amazon's sales of products at prices which provide little or no profit. That is hardly being a retailer.

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