You must be living under a rock if you’ve never heard of Amazon. Amazon is a giant, multinational conglomerate company that paved the way for online retail shopping back in 1994. It is one of the first in the industry and is still relevant to this day.
In fact, in terms of revenue, Amazon is the biggest e-commerce company and is the second-largest private employer in the States.
So what were Amazon’s roots? How did it become the great giant it is today? Amazon is an American tech company founded by Jeff Bezos in Bellevue, Washington, back in July 1994. By 2015, Amazon became the most esteemed retailer in America.
In 2017, Amazon expanded into a physical store by purchasing Whole Foods Market Inc. Then by 2018, Amazon Prime, its delivery service, acquired more than 100 million subscribers across the globe.
So, in my opinion, what must have made Amazon a leading-edge company is its riding with the trends and willingness to take risks. From its modest beginnings in 1994, Amazon never stopped expanding.
It was an online marketplace, and then the company opened a physical shop, a delivery service, and now even the distribution of videos, music, and audiobooks.
We have established that Amazon is a corporate giant. However, the company does have competitors that are not that far behind them. Amazon has to keep being innovative if it does not want competitors to surpass its success.
At first, Amazon was a venue for buying and selling books. Eventually, Bezos expanded the company to cater to food, gadgets, video games, clothes, furniture, toys, and the like. Today, Amazon corporation has a long list of offered products and services. These services include:
1. Consumer items
Amazon’s online and physical store retail goods include books, CDs, electronics, toys, home supplies, food, etc.
Kindle is Amazon’s e-reader, with millions of books available to buy at its Kindle store.
3. Amazon prime
Prime is a delivery service for Amazon customers.
4. Amazon app-store
The Amazon app store is available for android users to do their online shopping.
5. Prime music
Amazon’s Prime Music is a music streaming platform that offers a library of free songs to its Amazon Prime subscribers.
6. Prime video
Amazon’s Prime Video is an online venue for purchasing movies and TV shows.
7. Amazon fresh
Amazon Fresh is a grocery delivery service that sells more than 300 brands under Whole Foods.
8. Amazon drive
Amazon Drive is a cloud service for streaming and syncing files and videos.
9. Amazon Smile
Amazon Smile is a platform for charity donations.
10. Amazon marketing services
Amazon marketing services is Amazon’s platform for business advertising.
Amazon is one of the world’s top corporations in terms of its market value. As of December 2019, Amazon reached a market capacity of more than 800 billion dollars and 87.44 billion in revenue. Its retail market remains Amazon’s main source of revenue, with both its online and brick-and-mortar stores seeing its biggest share.
Moreover, Amazon Advertising Services is one of its fastest-growing businesses. Its cloud service is not lagging too far behind.
According to Business Insider, Amazon’s cloud business alone, Amazon Drive, made over 10 billion dollars in net quarterly sales during this year’s first quarter. The amount was a whopping 33% higher than last year’s recorded revenue.
Amazon’s key strengths & weaknesses
Now before we tackle Amazon’s competitors in different fields, we must look at what makes Amazon so great and not so great. In doing so, we get a better picture of why it’s so successful, but at the same time, what areas Amazon may fall short with its competitors. Amazon’s edge is definitely in the following areas:
- It’s a strong brand
- Amazon expands and diversifies its business
- Amazon provides out of this world user experience (especially in terms of speed and capacity)
- It also provides a large selection and thousands of third party sellers
- Amazon’s low-cost structure and innovation
However, Amazon needs to improve in terms of:
- Limited physical stores
- Its business model is easy to imitate
- Brand image damage due to tax controversies
- Customer’s preference for direct-to-consumer selling
- Increasing giant competitors
Amazon’s internet commerce competitors
Now, finally, we will be tackling the meat of this article, Amazon’s competitors. We will start with its contender in the e-commerce industry.
Much like Amazon, eBay is an online platform for buying and selling a wide range of products. eBay then gets commissions from the seller product listings. It was created in California by Pierre Omidyar in 1995. In 1998, eBay went public and instantly became a huge success.
Last 2018, eBay was noted to have more than 180 million active consumers and 1.4 billion product listings.
Consequently, its net revenue skyrocketed to more than 10 billion dollars. Today, it is one of the top eCommerce retail companies with a market share of 7.2%. The company strives to continually become bigger and better. It even launched a mobile application that has seen almost 500 million downloads last year.
We cannot deny that Amazon has perks over eBay. Amazon is larger and more well-known. Amazon listing also allows customers to buy products directly from the website as sellers can have their items stored at the Amazon warehouse, making it readily available.
Moreover, Amazon deposits income directly to the seller’s bank account. In contrast, eBay uses PayPal.
Despite these points, eBay is still very much a strong competitor for the most part. We have to take note of the fact that eBay has made selling on their site easier by using a simple structure for fee calculations of sold products.
In comparison, Amazon’s fee calculations are more complicated, with plenty of different variables.
Moreover, since streamlining their fees, eBay has made selling more straightforward. In contrast, Amazon is more challenging to navigate and can undoubtedly be confusing.
Aside from this, eBay has improved its website efficiency for sellers by starting a Valet Service. Through this service, eBay employees can list and sell the independent seller’s items for them. eBay also allows more customized listings.
Sellers get to be playful and creative with the ability to construct colorful and witty ads within their listings.
Finally, it is easier to get paid through eBay. With Amazon, there are multiple steps, which include signing up for a professional account, inputting account information, and completing tax identity information.
For eBay, all you have to do is have an eBay account, and you can instantly start selling.
Etsy is an eCommerce market with a niche for craft and vintage products. Founders created Etsy in 2005 in New York City. Etsy grew since then with numerous offices in North America, Europe, and Asia, and with almost a thousand employees.
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Consequently, the company generated net revenue of 603.7 million dollars last 2018. Moreover, Etsy has a rapidly growing mobile application user count. Its application generated more than 50% of its gross merchandise volume.
Etsy generates its revenues from sale transaction commissions, seller services, as well as processor fees of third-party payment.
Etsy’s website has more than 60 million products, the majority of which are from independent sellers, and more than 42 million active buyers.
Thus, Amazon, as a powerhouse in the e-commerce industry, has been trying to squash Etsy the past few years. Some of these efforts include Amazon launching a handmade-products market in 2015 with items in 10 categories.
Moreover, Amazon also created the Amazon Handmade Gift Shop last 2017. In the same year, Amazon offered last-minute deliveries of handmade goods purchased as late as Christmas Eve. Despite Amazon’s efforts, Etsy was able to hold its own fort against this giant.
So how did Etsy do it? I have five points to present. First and foremost, Etsy is known for its niche. It has been catering to its market for more than ten years now.
Secondly, Etsy actively tries to provide a platform for a variety of users. Aside from its niche customers, buyers looking for something specific to Etsy, it also caters to small-scale merchants. As a result, active sellers continue to rise for Etsy.
Next, Etsy chooses to make the customer experience simpler. It only has small, specific departments to choose from, the majority of which are handmade goods and crafts. In contrast, Amazon has more than 20 categories.
Finally, sellers simply prefer Etsy. Why would it not be when it immediately releases payments to the seller, unlike Amazon, which waits until the seller has shipped the item.
The cost of running Etsy is also relatively lower compared to Amazon’s 40 dollars per month. Etsy has no membership fees, after all. Etsy only charges a small amount per item once the seller has reached their first 40 listings.
Moreover, Etsy allows sellers to promote their other sites and business platforms. Thus, Etsy seems to be here to stay and dominate the e-commerce artisan and craft industry.
3. Wayfair Inc. (W)
Wayfair Inc. is an e-Commerce company known for selling furniture and homewares since its launch in 2002. Its entry as an e-Commerce company with a niche for furniture was equal parts bold, interesting, and risky. The consumers loved it. In the past years, Wayfair stocks have continued to go up by 150%.
Amazon felt threatened by this, and much like with Etsy, it decided to try and crush the company.
Recently, Amazon has been giving attention to the home goods department. The company launched private-label furniture brands such as Rivet and Stone & Beams. However, Wayfair will not let itself get overtaken by this giant.
Business Insider made a comparison on purchasing furniture from Amazon and Wayfair, specifically futons. They found out that, although Amazon has a better website overall with extra perks for Prime members and a variety of cheaper products, Wayfair takes the cake for simpler and more organized customer experience.
Also, Wayfair Inc. makes online furniture buying revolutionary, uncomplicated, and convenient. People want to buy in physical stores because they want to see and feel the furniture. The engineering teams at Wayfair have created vast avenues to simulate this interactive shopping experience for customers.
Wayfair Inc. constructed a well-organized and detailed product category page, which includes filters like size, color, material, style, and price. Because the company was able to comprehensively digitalize the minute details of every product, Wayfair has seen tremendous success and customer satisfaction.
The company only has a measly 5% return rate, amazing really for a furniture company.
Wayfair’s creativity and genius do not stop there. The company even created “Idea Boards.” Similar to Pinterest, consumers can tag items they like on the Wayfair catalogs. They also get to view the aesthetic compatibility of the furniture they like in their Idea Boards.
Amazon’s international competitors
Amazon also has giant competitors across the globe. Predominantly, these competitors hail from China, India and Japan.
Alibaba Group Holding Limited is a multinational conglomerate Chinese giant technological company founded in April 1999. Alibaba was founded in Hangzhou, Zhejiang, by Jack Ma. As a company, it specializes in technology, retail, and e-Commerce. Moreover, it provides the following services:
- Electronic payment services
- Shopping search engines
- Cloud services
- Business-to-business, consumer-to-consumer and business-to-consumer sales services
Much like eBay, Alibaba acts as an interceder between consumers and vendors online, as well as facilitates the sale of products between the two said parties using a large-scale network of websites.
Last 2019, Alibaba reached a revenue of 56 billion US dollars and 7.4 billion US dollars in net income. Alibaba is debatably Amazon’s biggest e-commerce threat.
Amazon is to the US as Alibaba is to China. Alibaba is a titan in China and is its most well-known e-Commerce company. However, unlike Amazon, which works as a single unit, Alibaba can be subdivided into three core businesses, these are Alibaba, Taobao, and Tmall.
Alibaba, Taobao, and Tmall provide a platform for multiple types of buyers and sellers to transact goods, which makes Alibaba one of, if not the largest, middle man in the e-Commerce industry of China. It does so, too, with remarkably affordable prices.
As a consequence, Taobao’s sales alone make up more than 80% of all online purchases in China.
Today, we are seeing the effects of Alibaba’s one of a kind, outstanding business model. Its eCommerce units have a supremely higher operating margin, a far less capital intensive model with a lighter supporting infrastructure.
Furthermore, with such a system, Alibaba can give consumers a greater variety of choices than Amazon because it can hold and list more items. The company’s expansion into brand new niches is quick and easy, without the necessity to build up infrastructure.
As a consequence, this creates whopping returns and a higher ROIC.
Other international competitors include:
Amazon’s physical store competitors
Amazon’s most sizable threats right now are multinational brick-and-mortar corporations. Namely, Costco and Walmart.
Costco Wholesale Corporation, “Costco,” is an American multinational corporation that handles membership-only warehouses across the States. Costco was founded by James Sinegal and Jeffrey Brotaman in 1976 and has garnered huge success ever since.
Last 2015, Costco was the second only to Walmart as the largest retailer in the world. As for its eCommerce division, Costco has seen a more than 25% surge in sales during the last quarter. Its eCommerce loyalty reward programs are one of the keys to this sales growth.
Amazon provides all the goods and services you would want. Plus dozens, if not hundreds, of brands given a product. On the other hand, Costco’s warehouses have limited goods and cater to a few brands.
Still, Costco is one of the largest and most successful retail companies in the world, with almost 800 locations, 250,000 employees, a net income of 3.66 billion dollars, and a revenue of 152.7 billion dollars last 2019. This data makes Costco one of Amazon’s significant threats in the retail industry.
According to Forbes, Costco has even been beating Amazon and Walmart. So how does Costco do it? Well, in contrast to most retailers marking up 25 to 50%, Costco only marks up at 11-14% for outside brands and 11-15% for its in-house brand, Kirkland.
However, Costco makes up for this with its membership program. Last 2018, more than 50 million people purchased a Costco membership, some paying the typical 60 dollar fee while others paid 120 dollars for an executive membership.
As a result, membership fees generated more than 3 billion dollars in revenue. Also, because of the membership fees, people spend more to make the cost more “worth it.” Costco’s system is super efficient since they stock fewer items and in larger package quantities.
Moreover, fewer stocks and brands result in improved operational efficiency. Larger package quantities are also something customers love as they do not need to go back to the store every week.
Aside from all of these, Costco’s employees are one of the happiest, way happier than Amazon for sure.
Costco’s employees are paid an average of 20 dollars an hour in contrast to the average retail employee getting paid 10-12 dollars an hour. In addition to better pay, 90% of Costco employees receive health insurance. As a consequence, Costco has better, happier, and more loyal employees.
Aside from dedicated employees, Costco’s customers are also steadfast. 90% of their members renew every year. Since Costco puts its employees and customers first, it is a leading-edge company, a powerhouse in its field.
Walmart Inc. is an American multinational corporation that deals with retail, mainly the company owns chains of supermarkets and department stores. The company also owns Sam’s Club, which is a retail warehouse. Sam Walton founded Walmart in 1962.
Today, Walmart has more than 11,000 stores and commercial warehouses in more than 27 countries. Walmart is Amazon’s biggest competitor in terms of revenue. Walmart beat Amazon with a whopping 500 billion dollars in revenue last 2019, making it the biggest retailer in the States.
Walmart vs. Amazon is a clash of titans. So how are they faring against each other? Well, while Walmart commands the physical stores, Amazon is the giant in eCommerce.
It is safe to say that Amazon lags behind Walmart in terms of physical footprints as Amazon only has 481 Whole Foods Market stores. Moreover, Walmart now provides free, one-day shipping to 75% of the US. Consumers can also pick-up their products at one of the company’s many, easily accessible stores.
Walmart also acquired retail internet companies like Moosejaw, Jet, and Shoes.com to make itself a presence in the eCommerce industry. However, some of these choices were not so good, and Walmart has started retracting investments.
Also, one of Amazon’s edges over Walmart is its loyalty programs, which the former does not have.
However, Walmart is trying to compete with Amazon’s unlimited delivery service and mature media business. Walmart also has 270 billion revenue in groceries compared to Amazon’s 20 billion last year.
Other industry giants:
- Best Buy
- The Home Depot
We have seen that what makes Amazon so great is its continuous strive to innovate and to cater to different fields and services.
However, what makes its competitors close in the race is its ability to cater to specific niches and their ability to satisfy their consumers and employees.
We must strive to be different and courageous, to add a sure branding and flavor, and to acquire loyalty to stay abreast and relevant in the ever-changing times.
If you want to read more starting an ecommerce business, check out the following:
- Starting your eCommerce business
- Here’s how you can improve your eCommerce conversion rate
- Cost Leadership Strategy for your business
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