How Amazon Become Ordinary

 

 

“I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition — but of our customers.” -Jeff Bezos, 1998 Amazon shareholder letter.

 

We all know how much FAANMG stocks have faltered this year, but there is a bigger story brewing: The companies themselves seem to have…lost their way. What once made them great has slipped into their historical legacy, with less innovation and far less delight to end users.

These behemoths have become victims of their own success, seemingly forgetting what made them great in the first place. None but Netflix and Facebook are run by their founders. Many are experimenting with new business lines and products that maximize short-term revenues but at the expense of user experience and loyalty. Grabbing short-term profits could cost them substantially over the long term.

At least 3 of the giants – Amazon, Facebook, and Google – are moving away from their basic founding principles. Microsoft and Apple seem to still be doing what made them giants; Netflix falls somewhere in the middle.

Let’s use Amazon as an example, but we could easily run the same exercise for all six of the behemoths.

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I’ve been an Amazon customer since my college roommate gave me a gift certificate in 1998. Between my home and office, I spend an obscene percentage of my discretionary budget at Amazon. For nearly 25 years, they have been the default choice for my consumption. It’s more than just Amazon Prime: I replaced my old AppleTVs with Amazon Firesticks; there are Alexas all over my house and office; I subscribe to Amazon Music.

Generally speaking, I have been a satisfied Amazon consumer – at least up until the pandemic. That was where cracks in the Amazon armor began to show. Here are the biggest areas of contention:

Advertising: I needed a simple lithium battery for a car key fob. I searched for the exact product number “CR2450 Lithium” and bought the first result, a Duracell. But it wasn’t a 2450, it was a paid placement (why should anyone have to doublecheck that?). These sort of search results seems to be happening with increasing frequency in recent months. I suspect Amazon algorithms will eventually figure this out, but meanwhile, it reveals that advertiser dollars and not consumers are the retail giant’s newest priority.

As Juozas Kaziukėnas of Marketplace Pulse has observed, Everything on Amazon is an Ad:

“Advertising has replaced product recommendations and personalization on Amazon and other retailers’ websites. They are no longer trying to guide product discovery, letting ads instead lead the journey.”

Recommendations and personalization were once useful; now, it’s a cluttered, invasive, and annoying experience.

Thirds party sales: Once upon a time, Amazon was the retailer at Amazon.com. Today, the proliferation of third-party sales has become a substantial portion of what is for sale on the site. This has led to a general degradation of quality: Products are worse, shipping times are longer, prices are higher and sometimes much higher, near price gouging. Customer satisfaction is mixed. But it is undeniable that Amazon is now filled with third parties often selling items of dubious (or even counterfeit). At least, that’s been my experience.

Expensive, crappy products that are potentially counterfeit? That’s what eBay is for.

Extended Warranty: Why does every single $20 product I put into an Amazon cart pitch me an extended warranty?

WhoTF needs an extended warranty on a $25 iPad cover?

Between college and grad school, I worked in a retail electronics store. The highest profit SKU in the entire store was the extended warranties. The reasons for this are simple: If you already have a repair and warranty division to manage ordinary warranties, it costs you next to nothing to repair the stuff off warranty (sometimes billing the manufacturer). This creates lots of profit opportunities.

Think of these warranties as insurance; every insurance claim is subject to review and pushback. How much time do you wanna spend arguing with an underpaid overseas phone rep over the repair of a disposable $50 piece of electronics?

Consumer Reports has been looking at extended warranties for decades by surveying consumers. Many people who purchase extended warranties simply never use them. There are arguments over what is or is not covered. Generally speaking, satisfaction levels are low, and when asked, few consumers say they are happy with their extended warranty purchase.

Extended warranties are sucker plays, a sign the retailer disrespects their customers. They may be bad for consumers, but they are good for the retailer’s bottom line.  Hard pass.

Prices & Inventory: For the longest time, Amazon was THE low-cost provider; today, this is no longer true.

How many times did this happen to you during the pandemic: You need a product and go to Amazon, but they either don’t have it in stock or had it at a silly gouging price.

They seem to have frittered away their biggest advantage: The friction of setting up a new account. The lack of inventory, higher prices, and general degradation of the user experience sent many consumers scrambling to find alternatives. The beneficiaries of this during the pandemic include Walmart, Target, Chewy, Instacart, Google Wallet, and others.

It was once a huge advantagefor the retailer to have your credit card + address information on file; now, consumers have= multiple accounts and wallets set up at their competitors

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The FAANMG companies are going to be revenue monsters for a long time to come. Will they still be the innovative geniuses and Wall Street darlings they once were? It’s tough to see this continuing indefinitely.

Amazon was never going to maintain a 50% market share of the growth in online retailing forever. The 2020 pandemic may have benefited Amazon, but it also substantially accelerated the growth of its competitors’ online businesses. The firm’s decision-making in terms of advertising, third-party sales, pricing, and general user experience is hastening a loss of that market share growth.

I still use Amazon a great deal, but less than I once did; rather than just assume Amazon was the best selection and lowest cost, the assumption today is that you must also look elsewhere. This is a major shift in consumer behavior.

I wonder how many people are having similar experiences…

 

 

 

Previously:
Which Companies Won or Lost Your Affection During Pandemic? (January 12, 2022)

2021’s Surprising Laggard: Amazon (January 5, 2022)

Unprecedented Access to Bezos +Amazon Execs (June 15, 2021)

Amazon.Bomb, May 31, 1999 (June 3, 2019)

HQ2: Understanding What Happened & Why (February 19, 2019)

 

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