Think of Amazon as a retailer?
Think again. That’s the old Amazon. In the last few years Amazon has changed into a much more interesting, profitable and powerful company.
Amazon started off in a garage, selling books. It made some money, invested in itself, and became a big bookseller. Then it moved into DVDs and media. By the mid-2000’s, Amazon was one of the biggest retailers on earth.
But merely being one of the biggest retailers on the planet wasn’t Jeff Bezos’s plan.
Who’d be a retailer
You see, retail is hard work. Retailers have to keep track of changing consumer tastes. They have to buy lots of stock in advance. And all for a tiny profit margin.
Retail is getting less and less important to Amazon. Instead, it’s turning into a middleman for all of commerce.
What do I mean by middleman?
Well a middleman stands between buyers and sellers. A middleman makes money if the buyer wants to buy. But a middleman doesn’t lose anything if the buyer decides not to buy. It’s a lucrative place to be.
Amazon is using its size and scale to establish itself as the middleman for all of e-commerce.
It invites other companies to list on amazon.com and use its warehouses. It offers to ship the merchandise on their behalf. It handles the returns and customer service. Hack, it’ll even offer those services to companies who don’t list their stuff on Amazon.com.
It handles other companies IT infrastructure, via Amazon Web Services. And soon enough it’ll ship the goods around the world via a fleet of Amazon cargo planes.
… All for a small fee, of course.
And having extracted its pound of flesh from merchants, it charges customers £79 a year to be members of its Amazon Prime service. It gets paid by buyers and by sellers.
I’m an Amazon Prime subscriber, which gives free next-day shipping. I had no choice but to join because I spend so much money on Amazon.
I know how Amazon’s partner companies feel – the sellers on the other side of the market. They have have no choice but to use Amazon Web Services, Amazon warehouses, Amazon fulfilment and Amazon customer service because Amazon is by far the cheapest.
(Fun fact – this email was put together using the office productivity tool Asana, which is based on, you guessed it, Amazon Web Services.)
Amazon gets to be the cheapest because it’s got the biggest scale. And the more third-party companies use Amazon’s various services, and the more Prime subscribers it signs up, the cheaper it gets.
Paying the Amazon tax
If you want to understand where Amazon is going with this… just extrapolate this story into the future.
Imagine more third party merchants signing up. More customers on prime. Amazon handling more and more functions that companies currently handle themselves.
At that point, Amazon will basically be like a tax. Companies will have no choice but five Amazon a taste of every function of their business. Customers will have no choice but to shop because the choice, value and convenience is so good.
And if you think Amazon is everywhere now, I’d suggest we’re only just getting started.
I’ve been researching Amazon a lot over the last six months – and not just for the good of my health. I’ve been examine their business model in detail, and working out the best way to make money from “the Amazon age”.
It doesn’t involve ponying up £750 to buy a share in Amazon. It’s a bit more subtle than that. Basically I’ve found a couple of small companies which are plugged directly into Amazon’s business model, and set to make a killing over the next few years.
If you want to be one of the first 500 to read my report on how to invest in Amazon for pennies, click here and get your name down now.