After years in the making, they've become the model for ecommerce. And, like any great business, there were a variety of pieces that...
Amazon is the largest ecommerce retailer in the world, and no, it doesn't come down to pure luck and excellent timing. Their web sales are 5x those of Walmart, Target and BUY.com - combined.
After years in the making, they've become the model for ecommerce. And, like any great business, there were a variety of pieces that went into their success puzzle -- in particular, these six genius strategy decisions.
1. Slow-Growth Business Plan
When Amazon went online in 1995, it concentrated on growing the business's infrastructure to handle the demands of its large volume of sales - $20,000 per week within the first two months of doing business. The company did not actually turn a profit until 2001, when it made $5 million on sales revenues of more than $1 billion.
- The company has continued to grow; net sales increased from $48.08 billion in 2011 to $61.09 billion in 2012.
2. Business Structure
Amazon's business model structures it as an intermediary between business suppliers and customers. When it first opened as an online bookstore, it was not limited by the number of products it had on its shelves or in its warehouses, because it had access to the hundreds of retailers held by its suppliers. Amazon benefitted those suppliers by taking over the cost of marketing and selling of their products; it benefitted customers by providing them with a single clearinghouse for any book on the market. The business has since expanded beyond books to nearly every product imaginable, but the clearinghouse structure still holds strong.
3. Ahead of the Trends
Amazon has made a habit of seeking out the latest trends and capitalizing on them before anyone else. It finds out what people are looking for in a product, then produces its own version. Some examples:
- The growth of mp3 usage and internet file sharing -- a cause of much concern to music labels and copyright lawyers -- caused Amazon to launch Amazon MP3 in 2007, the first clearinghouse of legal digital content from every major record company.
- In response to the growth of online video streaming, Amazon Instant Video was launched in 2011 as a free feature of Amazon Prime membership.
4. Amazon Products
As well as staying ahead of the game with regards to technological and market trends, Amazon cleverly makes business for itself by selling products for its products. Although they began selling ebooks in 1998, sales did not take off until the release of the Kindle. Once the e-reader came onto the market, the demand for ebooks increased dramatically.
- As of 2010 Amazon owned 58% of the market share for ebooks and were selling 180 digital books for every 100 hardcovers (Bloomberg).
5. Shipping Solutions
Ecommerce necessitates shipping. When shopping online, customers can't walk into a retail establishment and walk out with their product in-hand -- it has to come to them. Low online prices can often be offset by high shipping rates, frustrating customers who are looking for a good deal.
- While many online retailers offer free shipping, most require shoppers to spend $50 to $100 before they qualify. Amazon sets that limit at a mere $25, and $0 for Amazon Prime members.
Related: Improve your shipping with GPS tracking software
6. One-Click Checkout
The average ecommerce website has a 66.22% shopping cart abandonment rate. One of the reasons that customers fail to make an online purchase is the number of steps it takes in order to complete the transaction -- the average checkout process takes 5.08 steps, and some can take up to 9 steps (Baymard Institute).
- In order to increase its purchasing rate, Amazon implemented one-step checkout for its Prime customers. One click, and they're done.
There are a number of lessons that online retailers can take from Amazon's ecommerce strategy. The most important: give the customer what they want, before they want it -- whether it's new products, free shipping, or one-click checkout.