Stephen Kraus, head of digital insights, Jumpshot
As we look back at the top tech stories of 2018, it’s hard not to be impressed by Amazon’s continued strength. Amazon will end the year as one of the world’s most valuable companies. On many days, it is the most valuable, depending on the daily gyrations of the stock market.
Jeff Bezos will likely end the year as the world’s richest man—another symbolic victory for e-commerce and the cloud. Previous holders of the “richest person” title got there with the business models of their day—think Sam Walton (physical retail in non-Affluent America), Warren Buffett (value investing in solid companies), and Bill Gates (the personal computer era)
Looking ahead, here are six things to expect from Amazon as it seeks to continue its momentum into 2019
1. Increase conversion rates in its weakest categories
Perhaps surprisingly, Amazon doesn’t dominate every category of online retail. So expect Amazon to methodically tackle areas of relative weakness.
For example, of the 22 marketplace categories we examined, Amazon’s market share is lowest in clothing and shoes. Amazon has been chipping away at the shoe category for years—buying Zappos (it seems like just yesterday, but in fact that was 2009), and in 2017 Amazon struck a high-profile deal for Nike to begin selling directly on Amazon.
But clothing remains a tough online sell, with so many consumers still wanting the in-person experience of browsing and touching-and-feeling and trying things on. In 2018, Amazon brought its Prime Wardrobe service out of beta, enticing customers to receive several items with try-before-you-buy and hassle-free return policies. It’s not curated and customized like similar subscription offerings from Stitch Fix or Trunk Club, but it is easier to scale. The least surprising development? The most popular brands on Prime Wardrobe are Lark & Ro, Daily Ritual, Amazon Essentials, and Goodthreads—all Amazon brands.
Also expect Amazon to keep chipping away at categories where digital native startups have made inroads, such as furniture (Wayfair) and pet supplies (Chewy); Amazon has a strength in broader home and home improvement categories that they will leverage in these battles.
2. Boost volume in high-converting categories
There are some categories—like home essentials, personal care and food—where Amazon doesn’t yet sell in huge volumes, but its conversion rate is very high. Our data show that if Amazon can get a visitor to a page featuring some of these traditional consumer packaged goods (CPG) products, more than one-fourth of those consumers will make a purchase. That’s an unheard-of conversion rate.
And that’s obviously part of Amazon’s strategy behind its acquisition of Whole Foods, as well as its Alexa-everywhere strategy, Dash buttons, etc. Amazon hasn’t nailed it yet, but it’ll plug away at these auto-refill-friendly and private-label-friendly categories with continued vigor.
3. Continue diversifying
Amazon and Microsoft have the most diversified revenue bases among today’s dominant tech brands. While Google and Facebook are still getting 80-90%+ of their revenue from advertising, Amazon gets about two-thirds of its revenue from transactions, and has seen significant growth in its non-retail offerings.
Amazon has become a high-volume search engine—a majority of product searches now start there—and as a result revenue from advertising and sponsored placements of products continues to grow. It has also seen growth in its business-to-business offerings such as Amazon Web Services (AWS) and in shipping/fulfillment services. Amazon has put its eggs in more baskets than people realize.
4. Getting physical at scale
Amazon continues to make headlines with experimental forays into physical retail stores, like Amazon Go stores and Amazon 4-Star. But they’ve been exactly that—experiments.
Amazon has the resources (and the creativity and the risk-tolerance) to try innovative things and see what works, but it likes to execute at scale. Buying Whole Foods—instant scale. Building its own network of stores—a long and expensive scaling process.
So expect continued experimentation with Amazon’s own concepts, but not a massive expansion into building physical storefronts. Instead, expect the e-retailer to continue innovations at scale with its Whole Foods channel, and perhaps another acquisition that further expands its physical footprint in upscale neighborhoods.
5. Keep hiding the robots
Although we read about Amazon’s warehouses and the technology that makes their supply chain so efficient, we rarely see inside them. Why? Because it would freak people out.
Google bought robotics maker Boston Dynamics in 2013, and turned around and sold it to Softbank in 2017. Why? The videos of the robots were freaking people out. Every new video generated, not awe at the great technology, but a wave of concern and bad buzz.
The robots were deep in the “uncanny valley” where human-like movements and non-human appearance combine to make people uneasy. We’ve all been trained by decades of sci-fi movies to be wary of a robot uprising, and it was all too easy to imagine these robots going rogue to make the next decade feel like a Terminator reboot.
Amazon has taken a more low-key approach. In 2012, Amazon quietly bought Kiva Systems for a cool $775 million, calling it a “leading innovator of material handling technology.” Within two years, the technology had cut Amazon’s costs, and by some estimates, cut its “click to ship” time by as much as 75%. Amazon rebranded Kiva as Amazon Robotics, and stopped selling the technology to other companies, inviting them instead to reap the benefits of robotics by using Amazon for fulfillment. Which all sounds great and efficient, as long as people don’t get freaked out by actually seeing the robots.
6. Rebuild trust
Perhaps it’s an overstatement to say that Amazon lost trust in 2018. The company still remains atop many studies of corporate reputation and customer satisfaction. And in a world where trust in institutions of all kinds has been on a 50-year slide, Amazon still stands out. Consumers by and large trust the reviews, trust “Amazon’s choice” and trust “Amazon Basics.” Consumers believe if they have to return something to Amazon, it won’t be a hassle (although it doesn’t happen much—our data show that Amazon has one of the lowest return rates in the business).
However, their handling of HQ2 was a rare PR misstep. So many cities jumped through so many hoops, before the surprising announcement of two choices, but in two non-surprising places. Good business choices? Probably. Good places to attract top-flight talent? Definitely. But one is left with the impression that Amazon chose to be near financial markets (NYC) and its lobbying activities (DC).
The choices come across as very Amazon-centric, and not consumer-centric or worker-centric or community-building-centric. Not that Amazon has an obligation beyond doing what’s best for its shareholders. But the hype and handling of the process didn’t have the positive impact for which Amazon was hoping.
The guiding principle
What ties these six ideas together? Perhaps the oldest idea at the heart of Amazon itself. Before Jeff Bezos settled on the name Amazon (symbolizing scale and scope), he considered a different one—Relentless. He still owns the URL Relentless.com.
This mindset still permeates Amazon today. Relentlessly improving in weak verticals. Relentlessly driving more traffic to high-converting categories. Relentless experimentation with new concepts. Relentlessly improving the supply chain. A relentless willingness to leave behind moderately successful approaches for ones with exponential potential. Relentlessness is the philosophy has driven Amazon’s success, and will continue to do so in 2019 and beyond.
Jumpshot delivers digital intelligence, drawing on data from an anonymized global panel that tracks five billion actions a day across 100 million devices to deliver insights into online consumer behavior.
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